Drew's Mortgage News

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Creative Way to Tap Home Buyer Tax Credit

2009-11-14T15:16:00.003-05:00

The extension of the tax credit gives buyers, sellers and industry professionals a bit more time to stabilze the housing market.

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY
The First Time Home Buyer (FTHB) Tax Credit has been extended with new provisions for those that already own a home. So, I guess we need to start calling it the Home Buyer Tax Credit (HBTC). If you have any questions on qualifying for the tax credit, be sure to read one of my earlier posts.
Combined with bargain basement house prices, this could be the best opportunity to buy a home in many of our lifetimes.
The challenge is, there are many that would like to buy a home, but don’t have a down payment to do so.
I still get calls from prospects that want to know how to use the Home Buyer Tax Credit for the down payment on the purchase of a home. In Michigan, there’s no way to get the credit at the closing table to use for the down payment. So, buyers have to get the down payment in other ways and then AFTER closing, file for the tax credit with the IRS.
Now, let’s look at some ideas to get around the issue of the down payment so a greater number of people can take advantage of the tax credit for buying a home. By the way, I’m going to make you wait until the end of this post to go over a very CREATIVE (but 100% legal) way to buy a home using the HBTC.
First off, let’s dispel some rumors & myths about zero-down programs. There are really only two mortgage programs left that require no down payment:

VA Guaranteed Loans – these are from the Veteran’s Administration and you must have served in one of the nation’s branches of the military to be eligible. The VA mortgage program is a great way to finance a home if you’re a veteran.
Rural Housing Development Authority Loans (RDA) – these loans are for properties in rural areas only, but are another great way to finance a home.

The lowest down payment available to most home buyers is the department of Housing Urban Development’s FHA program. FHA requires only a 3.5% down payment, so we’re going to focus on meeting that requirement to buy a home.
Where can a potential home buyer find the down payment funds for an FHA mortgage?

GIFT – FHA allows the down payment, and all funds to buy a home, to be from any blood relative or someone that has a vested interest in the buyer’s well-being. “Vested interest” is a pretty vague statement, so check with a lender to confirm someone you may have in mind that’s not a blood relative. What’s interesting about gift funds is that there’s really nothing to stop a relative from borrowing the gift funds from a credit card or getting a loan. Again, check with a mortgage expert before acting on this, because lenders can have different interpretations of this.
BONUS – An employer can choose to give a valued employee a bonus and that bonus can then be used for the down payment. A bonus can also be given sooner than normal so that a buyer can purchase a home.
RETIREMENT PLAN LOAN – most 401(k), 403(b), IRA, etc retirement programs, allow a loan to be taken out for the purpose of buying a home. A loan is often a better way to go then taking a hardship withdraw that incurs a tax penalty.
GRANT – there are many organizations that will give a home buyer a grant to buy a home. Check with friends & family for the availability of these programs.
LOAN AGAINST AN ASSET – just as one can use a loan from a retirement asset for a down payment, so can you also use the proceeds from a loan against any asset you own. Just make sure the asset’s ownership & value is documented and that you don’t get the loan from a relative or interested party.
SALE OF ASSET – you can sell a motorcycle, boat, car or just about anything and use the funds for a down payment. Just make sure the asset’s ownership & value is documented, you’ll also need a bill of sale and a copy of the check from the buyer of the asset.
LIFE INSURANCE POLICY – many life insurance policies allow for borrowing against their built up cash value and these funds can be used for a down payment. There are also organizations out there that will buy your policy off you, but you’ll want to check with an attorney or financial planner before any such sale.
HOME EQUITY LINES OF CREDIT – if you currently own a home and are looking to buy your next one, you can tap into the equity in your current home for the down payment on the next one. Just be sure to check with a mortgage expert before acting on this to be sure you meet all qualification requirements for the new mortgage.

Ok, so that’s the traditional sources to come up with a down payment for a home purchase, using FHA financing. Just be sure the seller has owned the property for a minimum of 90 days, as this is an FHA requirement with zero flexibility.
Now let’s discuss a very creative way to use the Home Buyer Tax Credit to buy a home.
Ever heard of a land contract? It’s a contract between a buyer and a seller to buy the seller’s property – basically, the seller acts as their own bank and more or less gives the buyer a loan.
Well guess what, land contracts qualify for the HBTC! That allows for a very interesting way to buy a home with little money out of pocket. An example will be worth a thousand words:

Seller has a house that they’re having a hard time selling as they can’t compete with foreclosure sale prices. So, the seller offers up land contract terms to potential buyers.
An interested buyer makes a land contract offer on the property.
After agreeing on a price, interest rate & monthly payment, the seller takes whatever down payment the buyer has (could be very small), has the buyer pre-approved by a trusted mortgage expert (very important) and executes the land contract transaction.
A clause in the land contract gives the buyer only 90 days to come up with an additional $8,000 deposit. This money will come from the Home Buyer Tax Credit. If the buyer files for it right away, that’s all the time it should take to receive it.
Once the Home Buyer Tax Credit monies are received by the seller, the buyer can then apply for a mortgage to pay off the land contract.
With FHA financing, the seller can even give a credit for up to 6% of the sales price towards the buyer’s closing costs, prepaids & escrows.
Buyer effectively can purchase the property with almost zero out of pocket!

Was that idea worth waiting until the end of this post to read? Maybe.
There’ll be a lot of people and industry professionals that will write this land contract concept off as too tough to deal with. Well, we’re in a tough market and the more ideas the better.
Is this a perfect solution? No, but show me a better one. Some of the issues with this land contract concept:

The buyer doesn’t get the tax credit because of an outstanding tax lien.
The buyer gets the tax credit, but doesn’t deliver it to the seller.
The only interested buyer could have credit issues.
The seller has a mortgage on their property with a Due-on-Sale clause.
The seller could be upside down in their home and need a short sale.
The seller could stop making their mortgage payments and let the property go to foreclosure, leaving the buyer in the lurch.

I have solutions for all the above issues. Anyone interested though, will have to contact me to discuss.

There are issues that no one has any control over:

Buyer could lose their job after land contract closing and not be able to qualify for the mortgage.
Lender won’t approve the short sale needed to make the deal work.
Property values continue to drop and property won’t appraise for needed amount.
The world ends on 12-21-2012.

No real estate transaction is a sure thing anymore. We all just do the best we can.

Bank of America – Loans & Lies, but no Real Modifications

2009-11-07T17:33:00.001-05:00

In July the federal government pressured banks to modify 500,000 mortgages by November 1st. Bank of America is lying to do its part.

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

Take a close look at the document image below:

This is a copy of an actual letter sent to one of my clients who requested a loan modification.

Note that in several places it alludes to the fact that this IS NOT an approval for a loan modification. In fact it says, “If for some reason you are not eligible for the Home Affordable Modification Program once you’ve started the trial period, we will contact you and review other options.”

How many tens of thousands of struggling homeowners got letters like this and now think their home is safe from foreclosure?

My client did – until I pointed out the above sentence.

I’ve run their numbers and I know they qualify for a loan modification. With BOA’s track record of incompetency though, I’m very worried they won’t really be approved.

So, I’ve recommended they send everything that BOA asks for via certified mail or Fed-Ex and keep copies of all cancelled checks to BOA. It won’t guarantee they’ll be approved for a loan modification or that their home will be protected, but it may help them in a lawsuit against BOA if they get screwed.

I find the wording in the letter, “review other options” particularly frustrating. Why? Because it’s more deception. There are only two other options – short sale (where BOA has a terrible record) or foreclosure.

BOA is giving homeowners nothing but false hope with this letter.

I’m sure they’re including all the loans they’ve sent these letters out to in the loan modification numbers they’re reporting to the federal government.

I expect to hear from the “Great Obama” any moment now about how his program has saved so many homes from foreclosure. Just don’t look behind the curtain or you’ll catch him hiding all these letters.

By the way, BOA (and all the major banks) keep crying that despite their best efforts, they can’t keep up with the flood of loan modification requests.

Bull-puckey.

Here’s a quote from BOA’s third quarter report (click the hyperlink to read it yourself):

Bank of America funded $95.7 billion in first mortgages, helping nearly 450,000 people either purchase a home or refinance their existing mortgage. This funding included $23.3 billion in mortgages made to 154,000 low- and moderate-income borrowers. Approximately 39 percent of first mortgages were for purchases.

To help homeowners avoid foreclosure, Bank of America has provided rate relief or agreed to modifications with approximately 215,000 customers during the first nine months of 2009. In addition, approximately 98,000 Bank of America customers are already in a trial period modification under the government's Making Home Affordable program at September 30.

See any contradictions here?

How could they have the staff to “help” nearly 450,000 people purchase or refinance in the third quarter, but only modify 215,000 loans in 9 months?

Let’s see, that works out to 150,000 new loans per month, but only 27,777 loan mods per month.

BTW - anyone pointing to that 98,000 number already in a trial mod as good news, better reread this post from the top as well as realize that the number only represents 11% of BOA customers eligible for a loan mod.

Let’s remove another excuse banks use.

They like to claim they’re ramping up staff as quickly as they can, but still can’t keep up with the flood of loan mod requests.

Hmmm. The process of evaluating a loan mod request isn’t that much different than evaluating a request for a purchase or refinance mortgage. You gather the same documents, run the same calculations and it’s either a yes or no. Loan mods are actually a lot easier to evaluate as credit is not a factor.

Need more staff? Over one million people have been laid off from the mortgage industry. What’s more, they all know the business so they’d need very little training.

Can’t afford to hire them? Baloney. The federal government is paying $1,000/year per loan mod for up to 3 years – a total of $3,000.

The bottom line is the same senior banking executives that made the bad decisions that got our country into this housing crisis, have decided that they don’t want to do loan mods. They’d rather pursue foreclosures and use TARP bailout funds to cover any losses.

Where is the heart, courage & intelligence of the “Great Obama” on this matter?

Housing Stabilization at Hand?

2009-11-06T14:24:00.002-05:00

President Obama signs bill into law that extends the $8,000 first-time buyer tax credit - and expands it.
MORTGAGE EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY
Well, it’s official. The home buyer tax credit legislation made it through the political process in Washington D.C. in seemingly record time. After just passing the Senate Wednesday, the House passed the bill today and Obama signed it soon after.
The bill also extended unemployment benefits for 14 weeks for most states, but for another 20 weeks for hard hit states like Michigan. This extension will also keep many from losing their homes to foreclosure, so shouldn’t be overlooked.
Now let’s take a look at the “new & improved” homebuyer tax credit.
Who Gets What?
First-Time Homebuyers (FTHBs): First-time homebuyers (defined as not owning a home in the last 3 years) are eligible for up to 10% of the purchase price or a maximum of $8,000.
Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.
Current Owners: The new tax credit program now gives those who already own a residence incentive to move to a new home. If they’ve owned a primary residence for 5 consecutive years out of the last 8, their eligible for up to a $6,500 tax credit.
Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.
What are the New Deadlines?
In order to qualify for the credit, all sales contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.
What are the Income Caps?
The amount of income someone can earn and qualify for the full amount of the credit has been increased.
Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible
Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.
What is the Maximum Purchase Price?
Qualifying buyers may purchase a property with a maximum sale price of $800,000.

What is a Tax Credit?
A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.
How Much are First-Time Homebuyers (FTHB) Eligible to Receive?
An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.
Who is Eligible fort FTHB Tax Credit?
Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible.
This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.
How Much are Current Home Owners Eligible to Receive?
The tax credit program includes a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.
Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?
No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.
Can a Taxpayer Claim a Credit if the Property is Purchased from a Seller with Seller Financing and the Seller Retains Title to the Property?
Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Some examples of this would include a land contract or a contract for deed.
According to the IRS, factors that would demonstrate the ownership of the property would include:
1. Right of possession,
2. Right to obtain legal title upon full payment of the purchase price,
3. Right to construct improvements,
4. Obligation to pay property taxes,
5. Risk of loss,
6. Responsibility to insure the property, and
7. Duty to maintain the property.
Are There Other Restrictions to Taking the FTHB Credit?
Yes. According to the IRS, if any of the following describe a homebuyer’s situation, a credit would not be due:

They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from “step-relatives.”)
They do not use the home as your principal residence.
They sell their home before the end of the year.
They are a nonresident alien.
They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.

Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?
Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.
If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?
Yes, provided that the child meets the other requirements for the tax credit.
Also, be sure not to try and buy a property in the name of a child as the IRS is also pursuing prosecution of an estimated 500 tax filers reported to have done this.

FHA Streamline Refinancing – The Government Taketh Away in a Time of Need

2009-11-03T11:49:00.001-05:00

After November 16th, HUD is making it a lot harder for borrowers to lower their mortgage payments through refinancing.

MORTGAGE EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

Once upon a time, in a land far, far away, HUD had some common sense. They allowed borrowers with FHA loans to easily refinance to lower their interest rate and payment.

Then came the too big to fail banks & Wall Street, that huffed and puffed and blew the housing market away.

All the Prez’s advisors and all the Prez’s yes men, haven’t been able to put it back together again.

You gotta smile and make light of the situation as it’s better than beating your head against a wall.

The FHA Streamline program has been around since the 1980’s. It allowed FHA borrowers to refinance their home loans with no appraisal, no income and no asset verification – a borrower just had to have made their last 12 months of payments on time.

The program made sense, as HUD was already on the hook for the loans if they defaulted, so why not make it less likely for these borrowers to default on their mortgages by making it easy to lower their rates and payments? Makes a lot of sense. VA does something similar for veterans, FNMA & FHLMC should have embraced this concept with the Obama Housing-O-Rama.

After November 16th though, HUD will now require income verification, asset verification, stricter payment histories and a borrower must have owned the home for a minimum of 6 months.

The worst change is that borrowers will no longer be able to roll closing costs or escrows into the new loan without a new appraisal.

How many more foreclosures do you think this will cause? Let’s see, you’re upside down in your home, you’re struggling to make your mortgage payments and now you can’t lower your payment to relieve some of this stress without bringing a boatload of cash to closing that you don’t have.

And our government is supposed to be protecting us and looking out for our best interests?

So why the change in policy?

Well, HUD feels there are too many streamline refi transactions being done that are not in the best interests of borrowers. I agree with that it’s happening as I’ve seen it and stopped several occurrences of it. There are still some bad/desperate players in the mortgage industry churning loans to fill their pockets. I just got a call today from a past client that was solicited on the phone for a FHA Streamline refi, being promised a 4.25% interest rate with “only” $6,000 in closing costs. My quick analysis showed her that it didn’t make sense. Talked myself out of a possible loan, but it wasn’t in her best interests. I’m hoping she trusts me that much more and will now refer me that much more often and strongly.

Oh by the way, have you seen the bonuses recently paid to the same “experts” on Wall Street that put the housing market into this mess?

Instead of trying to remove the few bad apples in the industry, HUD seems intent on throwing out the whole barrel of apples.

That seems to be our government’s new solution to every problem these days – instead of enforcing the laws already on the books to get rid of mortgage crooks, the Madoff Ponzi schemers and the Wall Street scoundrels, they just pass new laws that penalize everyone in entire industries.

Seems it’s a whole lot easier to pass new laws than to put your friends on Wall Street and bank leaders in jail where they belong.

Extension & Expansion of Homebuyer Tax Credit

2009-11-01T14:26:00.001-05:00

Contrary to what many have reported, it’s not a done deal yet.

MORTGAGE EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

The most talked about real estate news of the past week seemed to be all about the First Time Homebuyer Tax Credit getting extended.

I’ve had numerous people contact me asking for the details and have had to tell all of them that nothing has passed yet.

Given the confusion and misinformation I thought I’d give an actual update on where the extension is.

The big news is that an unofficial voice vote passed the Senate last week, and Senate Majority Leader Harry Reid announced that he’s planning an official November 2nd vote on the extension in the Senate. Discussions with his counterparts in the House lead him to believe that the House will also pass the bill in the coming week.

This could put the bill on President Obama’s desk by the end of the week.

What could go wrong? Well, the vote was held up last week by demands for votes on several other amendments, one calling for an end to the Treasury’s TARP program by year end. An extension of unemployment benefits is also rumored to be causing issues. Popular bills like this one often have other amendments added to them that might not pass otherwise, so a lot of compromising goes on.

Some New Wrinkles

In its current form, the bill would extend the tax credit to the end of April 2010. There are several proposed differences from the current tax credit:

To qualify, a sales contract would have to be signed by April 30th and the transaction closed by June 30.
Income limits would be increased from $75k for single people & $150k for couples, to $125k and $225k respectively.
Buyers who have lived in their current home for the last 5 years would be eligible for up to a $6500 tax credit (or 10% of the purchase price).
The maximum allowed home purchase price would be capped at $800,000.
Military personnel, deployed overseas for a minimum of 90 days in 2008 or 2009, would have until April 30, 2011 to claim the tax credit.
To combat fraud, a HUD-1 Settlement Statement will have to be attached to the tax return to secure the credit.

Stabilizing the Housing Market

The Homebuyers Tax Credit is probably the best program passed by the government since the financial meltdown started. Other measures to stabilize the economy are increasingly under fire for racking up trillions in tax payer debt, while mostly benefiting the elite on Wall Street.

More than 1.25 million taxpayers have taken advantage of the tax credit to pursue the American dream of home ownership. This has used up approximately $8.5 billion of the $13.6 billion originally set aside for the program.

Reports show home sales have increased and inventory is down. Many buyers are finding it difficult to locate a home, being outbid and outhustled.

Concerns

Even this program has its problems and detractors though. Recently, the Treasury’s Inspector General for Tax Administration, J. Russell George, told Congress that at least 19,000 filing for the credit hadn’t bought a house when they filed. Another 74,000 appear to have owned a home in the last 3 years, making them ineligible for the program. 500 plus filers for the tax credit are under 18 years old!

The IRS is pursuing criminal cases against at least a 100 offenders and is reportedly trying to audit every return where the credit is claimed this year. They’ll also be auditing themselves as Mr. George is also on record stating that they are investigating at least 53 cases of IRS employees filing illegal or inappropriate claims for the tax credit.

Many detractors are claiming that the tax credit is subsidizing housing values and just pulling forward sales that would have happened anyways.

One potential problem that the media hasn’t focused on yet, is that the tax credit may be encouraging banks to sit on foreclosed homes. Many real estate experts have pointed out that the number of foreclosures has been outpacing the number of units entering the market for some time now. Instead of putting these homes on the market to be sold, banks could be sitting on them to drive down inventory and push up prices – using bailout funds to support this endeavor. Not a lot that can be done at the “street level” about this, but surely something for our representatives to look into

Don’t Procrastinate

Hopefully, the extension of the tax credit won’t turn more buyers into procrastinators who wait until the last minute to buy. Buyers should keep in mind that finding a home isn’t like shopping for Christmas items or even a car – where their are multiple copies of the desired item.

Homes are much more unique, rarely are even two homes remotely alike. Start your search now, as it could take awhile to find what you want. When you do find it, jump on it or someone else usually will.

Heads Banks Win, Tails Homeowners/Taxpayers Lose

2009-10-24T11:19:00.001-04:00

Too big to fail banks have it all – bailout funds, loss coverage, huge bonuses, no accountability, etc. No wonder they have no compassion for struggling homeowners!

MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN

Despite all the political rah, rah and posturing, banks seem to be running the government these days – and we’re letting them.

Before we get into all that though, I was flattered to be invited to lunch with Senator John Pappageorge (R-MI) on Monday in Troy. He’s concerned about issues in the housing & mortgage markets (who isn’t), but his frankness about his ignorance on the topics was a pleasant surprise. No political B.S., just a man admitting he can’t know everything. We discussed several challenges facing homeowners, he asked some great questions and took notes, and I ended up with an “assignment” to write some briefs for him to possibly present to a joint committee in January.

Annual Checkups

On Thursday I had my annual physical. My doctor and CPA I seem to see only once a year and so far, that’s a good thing! While my doctor was putting me through his procedures, I asked him and his nurse when they’d last had an annual mortgage checkup. I could tell they were both uncomfortable with the subject, even though I was the one half-naked. The question is, why were they uncomfortable?

Our patterns of expectations can be pretty silly and sometimes outright illogical. We are told and so have come to accept, that we should see doctors, dentists, CPA’s, financial planners, estate planners, and more on a regular basis. We’re also supposed to have our cars, home heating & cooling systems and numerous other things inspected regularly.

These are all intrusive, take up time and aren’t a lot of fun, but we do them anyways because we understand the danger of ignoring them . So why do people avoid annual mortgage checkups and look for the nearest exit when I bring them up?

When’s the last time YOU had a mortgage checkup? Contact me if you’d like to know more.

Big Banks, Big Trouble

After numerous banks failed during the Great Depression, the government stepped up its regulation of banks and banned banks from getting involved in insurance and risky ventures.

Ever since that time, banks have lobbied to dissolve those rules, all in the pursuit of greater profits. Slowly, over time, bank lobbyists convinced (bribed) politicians and government officials to relax these rules and allow banks greater freedom.

Looking over the wreckage of our economy, how do you think that worked out for taxpayers and homeowners?

There’s an old story told of how to cook a frog in a pot of boiling water. If you toss a frog into boiling water, it’ll just jump out to save itself. But, if you put the frog in the water and then bring it to boil, the frog will react too late to the rising water temperature – the heat sapping its strength so it can’t hop out.

That’s what the system of collusion between the banking industry and the government has done to the American taxpayer on a consistent basis.

If a politician had told you before you voted for them that they would be part of approving the biggest federal bailout of all time AND allow bank executives to pay themselves bonuses with that bailout money – would you have voted for them?

The government knows exactly how to play you though. It starts with campaign promises you want to hear, but they never seem to deliver on. It continues once you’ve put them in office with posturing and propaganda all designed to placate and appease you. But what really gets done, what do they really follow through on?

What’s a politician’s number one concern? How about a government official? If you think it’s protecting the American people or doing what’s right for our country, then you haven’t watched the selfishness on most reality TV programs. The majority of politicians and government officials are concerned with one thing and only one thing – keeping their jobs.

By the way, these just aren’t any jobs and it’s rarely about the money. It’s more about the perks and power. Back in the early 1990’s, GM, Ford & Chrysler all cracked down on vendors and suppliers taking their employees out to lunch, dinner and events. Why? Because the employees were making too many decisions based on what was in the employee’s best interest (through perks) and not in their employer’s best interests.

Now think about Washington D.C., the center of the nation that happens to be the world power. The free lunches, dinners, sporting events and more, pale in comparison to the intoxication of being at the “center of the world”. For some I’m sure it’s more addictive than crack cocaine – and most of us have seen the extremes of what a crack addict will do for their next high. Why do you think so many politicians are against term limits?

It takes money to stay in Washington D.C. or power. If you’re a politician you need money to win your next election. If you’re a government official, you need power over the politicians that appoint you or can force you to resign.

Big banks supply both. Wall Street firms too. I’m really not too sure of the differences anymore between banks, insurance companies, investment companies, hedge funds and the lot. They’ve successfully managed to be allowed to effectively blur the lines.

Call up a big bank today and ask what they offer. You can open accounts for checking, saving, money markets, mutual funds, etc. Want to invest in stocks? We’ll have that department call you. The same goes for insurance, annuities, estate & financial planning, commercial loans, credit cards and even risky investing in derivatives and such. One stop shopping!

Jack of all trades, master of none. Bank executives thought they had all the angles covered - but they were juggling so many balls and stuffing their pockets with so many bonuses, that they got blindsided by an economic meltdown. How are you entitled to a bonus when you didn’t see that coming?

Think about all this at election time. Nothing’s going to change if YOU don’t take the time to vote and make your vote count. Incumbents should be held accountable for this mess.

Vote with your wallet also. What bank do you keep your money at?

The Week Ahead

The Halloween parties already started this weekend. My wife Rose and I may be going to one tonight at the Oakland County Boat Club on Sylvan Lake, Michigan’s oldest boat club. She’s not feeling well as I write this, but I hope she can rally so we can go.

Tuesday is the monthly meeting of the Birmingham-Bloomfield Public Policy committee. Wednesday I head down to Detroit for a planning meeting for the Mariner’s Inn annual River Rhythm event on November 6th at the Roostertail. They’re still looking for silent auction donations and tickets are still available. Click here for more info.

Friday night I’ll be in Detroit again for Angel’s Night with Motor City Blight Busters. With 65,000 expected volunteers patrolling across the city, it's one of the safest nights in any city anywhere. A far cry from the 1980’s when the rest of the country tuned into Detroit to see how much of it was burning on Devil’s Night. John George deserves so much credit for making this happen, but they’re struggling financially due to all the cutbacks in corporate and government donations. You can help out by making a donation here.

Both organizations are also in desperate need of volunteers to help with marketing. Contact me if you’re interested.

On Saturday morning I’ll be in Troy for the “Michigan Money Summit” at the MSU Education Center. It’s open to the public, so maybe I’ll see you there.

Make everyday count and remember to refer me to family & friends looking to refinance or buy a home.

No Rhyme, No Reason, FNMA/FHLMC & FHA Play Politics

2009-10-19T06:16:00.003-04:00

Mortgage programs that make a lot of sense are rendered basically useless by unpublished and unofficial modifications.

MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN

A quick update on my recent “Spank Your Bank” post, which has been one of my most commented posts ever. In no way did I mean to imply that the average worker at large banks should be held accountable for the cowardly/greedy actions of those in top management.
Also, most smaller regional and community banks weren’t meant to be implied targets. They are actually alternatives to the “too big to fail” elitist banks.
Nonprofits in Dire Need of Help
Before I get into the post I wanted to introduce my audience to two wonderful Detroit based nonprofits that could use your help. Before you go hiding your wallet, Mariners Inn and Blight Busters are not asking for money (although they could always use more). They’re both looking for donations of supplies and volunteers.
Mariners Inn is looking for auction items for its 21st annual River Rhythm fundraising event at the Roostertail on November 6.
Blight Busters needs office equipment and supplies. They could also use volunteers to help redesign their website and build a social media presence.
Check them out, they’re both struggling to do great things in Detroit in the face of reduced government and corporate funding.
Of Politicians and Programs
By now, thousands of homeowners should be benefiting from refinances that allow them to lower their payments. Lower payments mean fewer foreclosures, which supposedly is the goal of the Obama administration and many state governments.
This is one of the reasons that FNMA/FHLMC now offers programs that allow a homeowner to refinance even if they owe more than their home is worth.
FNMA/FHLMC already holds the mortgage and the corresponding inherent risk of any default by the homeowner, so why not lower that risk by allowing the homeowner to refinance to a lower payment? Makes too much sense not to do!
HUD’s allowed that option on FHA loans for over 20 years with its Streamline Refinance program that didn’t require an appraisal or proof of income.
All that’s changing now.
HUD recently announced changes to its Streamline Refinance program effective November 18th, that will require homeowners to pay their closing costs or get an appraisal. Also, a lender must certify employment and income, which means lenders will verify it.
FNMA/FHLMC’s first upside down refinance program worked pretty well. It allowed a homeowner to refinance up to 105% of their property’s value with only a slight bump in the going interest rate.
They later rolled out a program allowing refinances on homes up to 125% upside down. This program has a dismal track record though, as FNMA/FHLMC requires such a high risk premium (higher interest rate) that for most homeowners, the program doesn’t make sense.
So, we’ve got potentially great programs that President Obama and many politicians point to as evidence they’re doing all the can to help struggling homeowners, when in reality the programs are set up for failure behind the scenes.
I doubt anyone on Obama’s team has ever taken the time to do the math and analyze how these programs work. If they did, they’d quickly see how useless they were.
The most glaring example of this undercover manipulation of the lending system is FHA and credit scores. Search all you want at HUD.gov, you won’t find anything in writing about the requirements of credit scores to be eligible for an FHA mortgage.
As I write this post though, most lenders now require a minimum credit score of 620 to qualify for an FHA mortgage. Several have recently bumped that requirement up to 640.
What gives?
HUD is passing on it’s dirty work to lenders to avoid political backlash that’s what. If HUD came out and publicly stated they were now requiring minimum credit scores, the political response would cost several HUD officials their jobs. But, these same officials are also being grilled by politicians and Wall Street about HUD’s increasing mortgage delinquencies. Fear is growing that the FHA program may need a federal bailout. That won’t sit well with anyone, but leaves HUD officials between a rock and a hard place. The only way to slow delinquencies and avert a bailout of the program is to do less riskier lending – but, that’s unpopular too.
Politicians want votes, they don’t want to understand problems like this and have to make a decision that could hurt their career.
So, politicians are indirectly forcing HUD officials into a solution that “unofficially” puts pressure on lenders for doing loans with credit scores under 620.
Since there’s no official announcement, no one has to take the blame for an unpopular course of action. No one’s held accountable either.
Avoiding accountability seems to be a popular survival strategy these days. Unfortunately, it just leads to mediocrity or worse.
My Week Ahead
Tomorrow, barring a last minute cancellation, I’m supposed to have lunch with Senator John Pappageorge to discuss the housing crisis in Michigan and my thoughts on possible solutions. I was quite surprised when his office called me about this.
Tuesday I’ll be having lunch with Jeff Ivory, a financial planner who’s made several recent appearances on CNBC’s Squawk Box. Later I’m also getting together with a Leon Labrecque, a CPA and planner.
Thursday I hope to pop into LBN’s Fall Mixer and then head over to the Troy Chamber of Commerce’s Golden Anniversary event.
Friday morning I hope to attend Gerry Weinberg’s President’s Club.

Is it Time to Spank Your Bank?

2009-10-11T16:43:00.002-04:00

Banks bailed out of bankruptcy by the federal government, refuse to help out homeowners – so why do homeowners keep their accounts at these same banks?

MORTGAGE EXPERT, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY, MICHIGAN
A recent federal report card through September on the results of the Making Home Affordable Program, shows real dismal progress.
Despite 85% of eligible 60-day plus delinquent mortgages being covered by the 63 servicers pledged to participate in the federal government’s loan modification program, only 16% of eligible homeowners have been offered help.
Now that is an improvement over July’s 9% and August’s 12% numbers, but at this rate it’ll be almost another year before banks are helping half of the eligible homeowners. Most will be foreclosed on by that time.
What’s really interesting is comparing how much banks received in federal TARP bailout funds and how they’re “rewarding” the taxpayers that fronted the funds with loan modifications.

BANK	TARP Funds	Percent Eligible Homeowners Assisted
Bank of America	$45 Billion	11%
Chase	$25 Billion	27%
Citibank	$45 Billion	33%
GMAC	$12.5 Billion	26%
PNC (bought National City)	$7.7 Billion	9%
Wells Fargo	$25 Billion	20%

Bank of America is thumbing its nose at taxpayers the worst with a low 11% rate of assistance – all the more troubling as it’s the nation’s largest bank and still hasn’t paid back its borrowed TARP funds yet.
The numbers above have greatly improved since July, but notice they only cover mortgages that are behind by 60 days or more?
Obama’s wonderful promise to homeowners was that you DIDN’T have to be behind on your mortgage to qualify for a loan modification! I’m sure the numbers would look a lot worse if mortgages behind 30 days were added to the figures, much worse if every homeowner with a mortgage payments more than 31% of their gross income was added to the stats. By the way, that 31% number is what’s supposed to qualify a homeowner for Obama’s Making Home Affordable program.
Now here’s the big question – know anyone with a mortgage at one of the above firms who’s trying to get a loan modification?
If you do, ask that person how it’s going. Chances are they’ll tell you horror stories about paperwork getting lost multiple times, phone calls unanswered, conflicting advice and more.
Do you think these banks really care about homeowners - that also happen to be taxpayers?
As evidenced by their terrible track record with loan modifications, some banks don’t care one bit. We’re all less than pawns as far as their concerned.
Now ask yourself, where do you have your checking and savings accounts?
Why are you giving your business to these banks that show so little concern for Americans needing a break, when we the taxpayers gave them a break with our bailout tax dollars? Where’s the trickle down fairness? The, “do unto others as you’d have them do unto you?”
If the banks wanted to play hardball with homeowners and tell them, “too bad about your financial difficulties, we’re foreclosing anyways”, then they shouldn’t have come begging for our tax dollars as TARP funds. We should have shown them as much mercy as they’re showing homeowners. We should have let tese banks fail. What goes around comes around guys!
Unfortunately, it’s too late for that as they got their bailout funds, paid themselves bonuses for the mess they created and laughed all the way to their own bank accounts. We were suckers.
We can still get back at these banks though.
This is the official start of the “Spank the Banks” campaign.
The only way we “itty-bitty” taxpayers can show these banks that they need to treat homeowners with more respect, is to take our business away from them. Spank your bank!
I’m amazed when I find out that a homeowner trying to get a loan modification still has their accounts at the bank giving them the run around! Can you say “glutton for punishment”? These homeowners should Spank their Bank!
How about showing some support for family & friends? If someone you care about is getting jerked around by their lender, spank that bank by making sure you close any accounts you have there.
Now, who wants to start making, “Spank the Banks” t-shirts and bumper stickers?

Are There Foreclosures in your Condo Complex?

2009-10-02T09:10:00.003-04:00

Read this before you get blindsided by increased Homeowner Association dues and/or special assessments.

MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN

When I wrote an earlier post telling condo buyers to be cautious before buying, I should have also considered advice for those who are already condo owners.

Many condo owners are watching the value of their homes drop dramatically, leaving them severly upside down.

Especially hard hit are condo owners who bought into new developments that are still unfinished or converted apartment buildings where many units sit unsold. In both these cases, the developer has usually dropped the sale prices of the unsold units in an attempt to get out of the project before their bank forecloses on the project. Many condo owners have to drive by for sale signs every day advertising these unsold units for less than they paid, often for less than they owe on their units.

There are even a number of condo developments around the country where the developer's bank has foreclosed on the project leaving those who purchased units already in limbo as to maintenance and completion of unfinished common areas.

A more common challenge facing condo owners is financially strapped Home Owner Associations (HOA).

Condo owners facing economic hardship often stop making their monthly HOA dues payments even before they stop making their mortgage payments. The banks sitting on foreclosed units, whether listed for sale or not, typically aren't making the required HOA payments.

These nonpayers cause all kinds of challenges for the HOA in charge of maintaining the complex and paying the corresponding bills. The HOA has a budget based on the expected monthly dues. While they usually plan for a small percentage of nonpayments, many are seeing their best laid plans blown apart by the unexpected number of owners not paying their monthly dues.

With less revenue than expected coming in, the first thing the HOA managers usually do is cut back on regular maintenance expenses and delay large capital projects (like replacing leaking roofs). If the revenues continue to drop they have only two choices: raise monthly dues on those owners still paying or request a special assessment. Either option places addition financial burdens on the remaining owners.

All of this also pushes values down even further. Higher HOA dues are a turn-off to potential buyers. So are unkept common areas or pools with no money to open or repair.

Another hidden problem is that most HOA board members have little, if any, financial backgrounds. Many are just nice people that volunteered for an unpaid position because they care and have the free time. Compliments to them as it's often a thankless job. Their lack of financial experience isn't a problem when things are humming along with only an occassional minor bump here and there. It can be disasterous though, if they fail to take appropriate and prompt action during these times. It used to be the rare exception that a HOA would declare bankruptcy. It's not so rare these days.

Traditionally, HOA handle nonpayment of dues in three stages:

First sending out warning letters
If still no payment, put a lien on the unit
Final action would be to foreclose on the owner for nonpayment

None of that really works in today's reality.

Warning letters mean nothing to owners without jobs or the banks holding foreclosed units.

Liens don't offer the protection many think they do. If the HOA puts a lien on a unit that eventually goes to foreclosure, that lien is usually wiped out if the mortgage balance was higher than the sales price. The HOA needs to start the process all over against the bank that now owns the unit. It does nothing to recoup the amounts wiped out in the foreclosure, but the bank has to pay any subsequent lien added during their ownership when they eventually sell the unit. Too often, inexperienced HOA boards don't restart this lien process against the banks owning units.

The last option, that of the HOA foreclosingon a unit, is not an option for any unit where the mortgage balance(s) exceed the value of the unit. To foreclose an HOA would have to buy out the mortgage holders. Pretty much a useless option these days.

So what can be done to avoid these issues?

My advice for condo owners is to get more involved with your HOA and ask a lot more questions. It's so much easier to ignore the potential problem and just keep making your payments, letting someone else handle it - until you get a notice that hits you in the wallet.

Most HOA have regular meetings, start going to them and ask questions. Ask to see the financials and the plan to address any shortfalls.

If your reading this and you're a HOA board member, know that there are legal & financial experts that can be brought in to give your HOA board advice on what to do. If you're a condo owner, make sure your board knows they have these options.

You are now adequately warned. If you chose not to get involved and you're surprised when your HOA raises dues, hits you with a special assessment or goes bankrupt, we can all say, "we told you so".

An Interesting Post from "Mandelman Matters" Blog

2009-09-30T07:03:00.001-04:00

I've never reposted someone else's blog before, but this one was compelling enough. Martin Andelman is a bit "in your face" and a bit more than a little negative. However, he makes great points and calls it like it really is.

"Enjoy", but fasten your seatbelt...

Loan Modifications: Obama’s Part of Problem, Not Solution

Posted: 29 Sep 2009 04:53 AM PDT

I didn’t want to ever have to write that headline. Like so many millions of Americans, I voted for Barack Obama and truth be told there was one big reason. No, not Sarah Palin. And not because he was the anti-Bush. I voted for Barack Obama for a reason that didn’t show up in the polls: the housing foreclosure crisis; he would do something to stop it.

I know now that I’m far from being alone in this. And I know why it didn’t show up in the polls, after all, during all that joy that was present during the month leading up to the Obama victory, and certainly immediately following it, who was going to talk to pollsters about something as depressing as being at risk of foreclosure? Even today, few people want to make public the fact that they may be losing their home, or even that they’ve already lost a home to foreclosure.

It’s in the press, no question about it, but more in a macro sense. It’s “out there,” as opposed to being “right here”. Even here in Southern California, one of the hardest his areas of the country in terms of people being at risk of foreclosure, I run my errands, go about my business, and don’t bump into it at all. In fact, as I wait for my car to come up in valet parking, all I see are BMWs, Mercedes, and Lexii… the foreclosure crisis seems very far away, even though I know, and certainly as well as anyone, that it’s not.

I know because of where my writing has taken me. I never intended to write over 150 articles and exposes about the foreclosure crisis. And I never thought I’d my writing would touch the lives of so many homeowners that they would call or write to me to tell me their stories and ask my advice. Why would they? I knew nothing about mortgages, and the only way I knew to avoid foreclosure was to pay my mortgage payment each month. Why would anyone call me? But they did and they have and they still do… every single day. And I have no idea how many at this point… hundreds certainly, maybe more. And I talk to them all, sometimes for hours at a time because I care a whole lot about what’s happened to them, and what’s happening throughout our country, and I don’t know if I can really matter, but I have to try.

I started writing about the meltdown in earnest about a year ago, although I did write a few articles beginning maybe a year before that. My first was about what was happening on Wall Street and why. I think the headline read: What’s Happening on Wall Street and Why… I’ve never been a very clever headline writer. I wrote it to help people understand what I knew was a very complex problem, but also one that everyone would soon need to understand.

Then, the government followed by the press started laying the blame for the crisis on “sub-prime borrowers,” and I felt compelled to get involved. It was never “the borrowers,” who were at fault for causing this crisis, let alone the sub-prime borrowers. People with relatively low credit scores and incomes who wanted houses did not destroy the U.S. and global financial markets, no matter what anyone might think. And it wasn’t stated income loans either.

Of course, I chose sarcasm to express my point. I made a tee shirt that said: “Sub-Prime Borrowers Unite. Be Nice to Me or I’ll Stop Making My Car Payments Too.” And I wrote an article to go along with that sarcastic sentiment: “Coming to Terms With the New Power Elite: Sub-Prime Borrowers.” The article was my attempt to point out the fallacies that had quickly become conventional wisdom… it was the sub-prime borrowers’ fault. It was nonsense then… and we now, of course, know… now that 54% of the foreclosures are prime loans, that it wasn’t the borrowers at all… it was and is the banks that have caused this pain.

‘Borrowers didn’t break the capital markets. Borrowers didn’t fraudulently package mortgage backed securities and stand by as they were improperly rated AAA. Borrowers didn’t slice those securities up in a million derivative ways, or leverage them to the hilt, before buying and selling them along with their worthless insurance policies known as credit default swaps. Nope, as all of things and more went on, there wasn’t a single borrower to be found anywhere.

Most annoyingly, it certainly wasn’t borrowers who, knowing that increasing future defaults were imminent, agreed to lower their bank’s reserves for future losses in order to pay themselves untold billions in bonuses. There’s another way of putting that… it wasn’t borrowers that robbed the banks, it was the bankers that robbed the banks. (Why they all still have jobs is beyond me. How big a bank do you have to rob in this country to go to jail anyway?)

Of what were the borrowers guilty? Every time I ask this question I get a fringe answer. You know, the story: A 19 year-old college student bought an $11 million home on the water in Newport Beach. Or how about: The family with income of only $3600 a month, but whose mortgage payment was $4800. It’s a lot like when people talk about welfare fraud, and they point to some woman with 19 children who hasn’t even looked for a job since 1983, conveniently ignoring the fact the more than 70% of welfare spending is spent on children.

At worst Borrowers were guilty of bad judgment. Of trusting bankers. Of wanting more in life than they had in the past. Mostly, however, borrowers, if they were guilty of anything at all, were guilty of not seeing The Great Depression, Part 2 coming around the corner, just like… of, say Henry Paulson, or Ben Bernanke. Bankers, on the other hand, many of them were guilty of criminal fraud. Of manipulating securities. Of trading on inside knowledge. Of lying left and right to everyone, if that’s still a crime in this country.

So, I wrote in order to help people who were suffering understand that what was happening in this country, as our economy slid further into the abyss, was not their fault. It was a controversial viewpoint in the beginning, and I’m thankful it is much less so today. One day, and not so far from now, it won’t be controversial in the least. As of September 26, 2009, the Justice Department is working on 570 cases related to the demise of Wall Street’s banks, so it won’t be long before we all see the arrests and criminal charges levied against the mortgage bank robbers who used to think, a’la Enron, that they were the smartest guys in the room. As far as I’m concerned… that day cannot come soon enough. Maybe then we can start the healing process, and maybe we’ll be better for it.

Regardless all of that, here we are in the fall of 2009, and the crisis has only deepened, and deepened significantly. And not only is that the case, but in addition, both our state and federal governments, by virtue of their incredible lack of understanding as to what’s really going on, have only made things worse… and significantly worse. What up with these guys? Do they just feel compelled to turn checkers into chess, or are they actually that out of touch that they can’t even see how incredibly stupid they so often appear?

I’m really not sure anymore, but if anyone in government is reading this, and I know that you are, then you might as well hear it from me… you’re embarrassing yourselves… terribly, and although it may not be showing up in today’s poles, it’s there… just under the surface, waiting for the curtain to close in the next election’s voting booth.

Brass Tacks…

Okay, so let’s dispense with the pleasantries and call it like it is. According to our government, here’s all there is to know about getting a loan modification:

1. Call your bank directly. You don’t need anyone to help you with a loan modification. It’s easy, thanks to the President’s Making Home Affordable program.

2. If you feel you need assistance, call a HUD counselor, or other nonprofit. That’s it, and that’s all.

3. Whatever you do, don’t pay anyone in advance, no matter what, because paying in advance always makes someone a scammer.

4. There are zillions of scammers out there ripping off what must be hundreds of thousands of homeowners each day. I’m surprised every time I leave my house these days and return home without getting scammed. Just lucky, I suppose. Oh and by the way, so far the FTC and the Attorney General have shut down… 22 companies. I feel a lot safer.

5. If a private sector company wants to help homeowners, it should be willing to work for months on end with a lender or servicer and then send their bill at the end. What a plan… become an unsecured creditor of someone who is having trouble paying their bills and already has bad credit.

And that’s not even the worst of it…

The irrational thinking has led to some of the most contradictory statements that I’ve ever heard come out of a legitimate government. Try these…

 These people paid this company $3,000 and they didn’t even get a loan modification.

 No company can guarantee you that your loan will be modified.

 If they fail to get your loan modified, they have to refund your money.

 You don’t need help getting a loan modification; it’s easy to do it by yourself.

 For help with a loan modification contact a HUD certified counselor.

 The law firm took the clients money and failed to deliver anything of value.

 According to the Obama administration, servicers aren’t doing what they agreed to do.

 Bank of America only modified 4% of the eligible loans.

 Lawyers are using their law licenses to con desperate homeowners out of $3,000.

 August foreclosures came in at 356,000, the sixth straight month over 300,000.

 Another wave of foreclosures expected.

 The recession is over, probably.

Look… I’m not playing around here. Stop treating the country like we can’t put two and two together.

The evidence of servicer nonperformance is now abundant, and coming directly from the U.S. Treasury, but nothing the government says has changed one iota. Hasn’t anyone linked the two things together… the servicers refusals to do modifications, with the firms failing to obtain loan modifications? Really? Someone do something about this… this one is too stupid for me to mention ever again.

They attack private sector companies that charge a fee for trying to help someone accomplish something that the government can’t get done either, even after giving away a few hundred million. WTF.

I read stuff like this every day. Just a few weeks ago, a friend who knows how much this stuff annoys me, sent me an article that had appeared in a mid-western newspaper. It was a front-page type of article, huge though, and it showed a nice young couple standing with a baby in their arms, in front of a foreclosed home, sign and all. To sum it all up in a phrase… the story said that the couple had written a supposed law firm a check for $1,000 last March, the company was the now infamous FedMod… and that’s why they lost their home.

Holy macaroni! I had no idea that could even happen to someone as a result of writing a check to a law firm, regardless of whether the law firm was legit or not. I wrote a check to a contractor once for $2500 and got ripped off, but I didn’t lose my home or my car or anything as a result. What the heck happened here?

I wonder what the government brain in trust thinks when they see people continuing to write checks to companies up front, even though everyone in America has been told by the President and everyone else on down, not to do that. Why do you suppose they keep doing it, are they stupid? Don’t people watch television?

No, they heard you. They’re doing it because they’ve tried what you suggested and it didn’t work worth a damn. Are you listening, by the way?

There’s another possibility, of course. They could all be in the pocket of the banks, but that’s hard to believe. I’m not talking about Obama, Geithner, and the gang at the Harvard Goldman Club… they are unquestionably in the banker’s pockets. I’m talking about everyone else in state and local government… the bankers can’t have bought them all over to their point of view, can they? All of them?

I can’t be the only one that sees what the banks are doing here, right? I know at least 100 attorneys that know what they’re doing because they’ve seen it first hand on hundreds of occasions.

Banks are telling homeowners that they don’t need a lawyer. Isn’t that giving legal advice? Isn’t that the unauthorized practice of law? Why, yes… I believe it is. But who in the country has the balls to sue or bring charges against a bank? Likely, no one. And besides… why all of a sudden does everyone care so much whether I hire a lawyer? I’ve run my own firm for twenty years… and no one ever cared if I hired a lawyer before. Now it’s seems that even the American Bar Association doesn’t think lawyers should be representing homeowners trying to obtain loan modifications. Why do you supposed that would be.

The Bottom-Line…

President Obama… we haven’t heard from you on the housing and foreclosure since last spring when you gave a speech to adoring and cheering crowds. You set their expectations way above what your program delivers, your administration has spent more time grandstanding over the 22 firms you’ve shut down… you’ve made a mess.

One homeowner who watched your speech in late February recently told NPR that when heard you describe the program he felt as if you were speaking directly to him. And then he went through hell trying to get one. It wasn’t his fault, Mr. President… it’s yours.

This whole thing… the foreclosure crisis is going to be laid at your feet in 2010. Either you owe quite a few people an apology, or you better get on the stick and fix it… fast.

We didn’t vote for you in order to hear excuses about servicers being overwhelmed. And we certainly didn’t vote for you in order not to hear from you… to have Treasury and the Fed stonewalling Freedom of Information requests. We voted for you because it meant change. And so far, when it comes to the foreclosure crisis, what you consider change is not the kind many people are believing in these days

http://mandelman.ml-implode.com/

Be Wary of Buying Condos in this Market

2009-09-27T15:33:00.002-04:00

Those great looking foreclosure deals on condos may turn out to be a trap for unsuspecting homebuyers.

MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN

There are a lot of apparently great foreclosure deals on condominiums on the market right now, but you definitely want to do your homework before buying one.
Attached condos (those sharing at least one wall) in most areas of the country have lost a higher percentage of value than single-family houses. Worse, that trend is expected to continue, probably even get worse.
Why are condos losing value faster than stand-alone homes?
When a condo owner starts getting behind on their mortgage, they usually also stop paying their Home Owner Association (HOA) dues. If enough owners fall behind on their HOA dues, the association has to cut back on their budget, which could affect the upkeep of the common areas. As the problem gets worse, maintenance can be affected and even major projects like roof repair put off. Depending on the association’s reserve funds, they may be forced to raise HOA dues for the rest of the condo owners.
All of these issues will push the value of all condos in the complex lower. Who wants to buy a condo in a crappy looking building? How great of a deal is a condo for $50,000 if the association fee is soon doubling from $150 a month to $300?
These problems will only get worse as the associations get further behind on their expenses because of owners not paying their monthly fees. In July a condo association in Florida was forced into bankruptcy due to unpaid HOA dues. Many more associations around the country are expected to soon follow. Bankruptcy won’t be an easy solution though, as associations have really no hard assets to sell and no way to go after delinquent HOA dues.
One more issue will have a huge affect on condo values – when more than 15% of owners fall behind on their HOA dues, FNMA, FHLMC & FHA will no longer allow mortgages on the units in the condo complex. When that happens the only way for a condo owner to sell will be to an all cash buyer – driving prices down even further.
If you plan on owning a condo until the market turns around and can afford to absorb higher and higher association fees, then go ahead and buy a condo. Otherwise, I highly recommend doing a lot of due diligence on the condo association’s budget and reserves before buying.

HUD Announces Major Change to Reverse Mortgages

2009-09-24T07:48:00.001-04:00

To keep the program from needing a bailout in the future, HUD is acting quickly to lower the maximum principal limits by 10%.

MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN

On September 23, 2009, the U.S. Department of Housing and Urban Development posted Mortgagee Letter 09-43, which announced a new set of principal limit factors for the Federal Housing Administration (FHA) Home Equity Conversion Mortgage (HECM) program. The changes will lower the principal limits for the HECM by 10%.

According to the ML, the new principal limit factors must be used for all HECMs where the FHA case number is assigned on or after October 1, 2009.

So, all loans that currently have a case number or where one can be obtained prior to October 1, may be processed as usual.

What caused this sudden change?

It seems the HECM program, seemingly like everything else in this country, is in danger of needing a bailout in the future. This was brought to the attention of Congress when an estimated subsidy of $798 million appeared in President Obama’s fiscal 2010 budget. This was the first time in the history of the program that any subsidy had ever been requested. Both the Senate and the House responded quickly, passing bills requiring HUD to adjust the program to avoid requiring any subsidy from the government. As of yet, the Senate and House have not reached a compromise on the differences in their bills, but HUD’s surprise announcement shows they expect it to happen soon.

What caused the subsidy request? Several factors are affecting the stability of the HECM program:

 The continued drop in home prices is causing higher losses when HUD takes a property back after the demise of a borrower and has to sell the property to recapture the loan proceeds.

 Defaults are rising due to unpaid property taxes and home insurance.

 Record numbers of seniors are flocking to HECM’s due to financial distress and lenders ramping up their marketing of the program. Congress suspended the cap on the number of HECM’s HUD was authorized to insure back in 2006.

 Fraud continues to increase causing higher losses.

Industry experts estimate that if the new loan limit had been applied to current HECM’s already in place, nearly 21% of seniors would not have had enough funds to cover their debts – meaning theywouldn’t have been gotten their loans.

HUD’s also been discussing changes in the HECM program to address the property tax and insurance issue. They may require lenders to document that seniors have the ability to pay these items. If they don’t, additional proceeds may be affected to avoid these types of defaults.

So, if you know of anyone thinking of getting a reverse mortgage, tell them to apply ASAP before the new limits kick in.

Michigan’s Moratorium Mandated Modification Meeting – An Example

2009-09-19T14:26:00.002-04:00

What happens at these meetings with a lender representative that Michigan’s new 90 day foreclosure moratorium laws require?

MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN
I just had my first experience with Michigan’s new 90 day foreclosure moratorium laws and the meeting with a lender representative the laws mandate. It was pretty interesting.
A homeowner was referred to me to assist her with her meeting. Seems she’s been trying to get her FHA loan modified for over 6 months and has been getting the standard run-around. During this time she hasn’t made any payments and the lender was threatening foreclosure.
I had her send me over her budget and mortgage papers before the September 17^th meeting, so I could be prepared to assist her. I also carefully reviewed HUD’s new guidelines for FHA loan modifications.
To be eligible for the this meeting, my client first had to meet with a housing counselor approved with the Michigan State Housing Development Authority (MSHDA) or the United States Department of Housing and Urban Development (HUD). As she’d already done this, I reviewed the paperwork they had given her, along with their budget suggestions. It was a joke. Their best advice was to work more hours or get a second job – easy advice to give, but not practical with unemployment as high as it is. The counseling session was required, but seemed to be a waste of my client’s time.
Interestingly, Michigan’s new 90 day foreclosure moratorium laws allow a homeowner to request that the housing counselor accompany them to their meeting with the lender’s representative. Based on the materials and suggestions they gave my client, I do not recommend this!
My client’s lender had selected a law firm in Southfield to be their representative. The firm states on their website that they have over 30 years of experience representing mortgage servicers and they’re a FNMA retained attorney for the state of Michigan.
I was expecting we’d meet with a seasoned attorney from the firm with an ego problem. Instead, we met with what appeared to be a junior attorney (who I’ll call “Sam”, but that’s not his real name) who was very nice and easy to deal with.
The session began with “Sam” printing out a modification analysis the lender had already done. The bad news was that according to the analysis, my client didn’t qualify for a loan modification. I’m not going to get into all the different variables and the math here, but the bottom-line was that her debt-to-income ratios were too high.
At least according to their analysis. There were several flaws in their analysis though. They didn’t have my client’s income or debts correct, in fact they were way off. We started to go over these errors with “Sam”, but he said he wasn’t authorized to change anything. He was nice enough though, to phone his contact at the lender and get her to agree to go on speaker phone. Let’s call her “Sarah”. “Sarah” was pretty nice, but talked a lot, so it was difficult at first to get her to listen. She seemed intent on just talking over us and telling us it was too bad they couldn’t do anything for my client. When I pressed her to explain how they came up with their numbers, she impressively rattled off a bunch of figures and calculations.
Right at this point an average homeowner would probably have given up and thrown in the towel – exactly what the lenders want. I can’t imagine a housing counselor being of any use at this point either.
I stood my ground though and kept asking questions. I also got “Sam” to print off HUD’s modification guidelines off the web (even though I had them with me) and asked “Sarah” to locate a copy also.
The first mistake they had made was in regard to my client’s income. Once I got “Sarah” to stop trying to talk over and intimidate us, I was able to show her where her mistake was. Seems they calculated and input my client’s take-home pay instead of the required gross pay. This was a mistake of almost 50%. “Sarah” tried to get around this by stating the guidelines allowed them to bump up the take-home pay by 125%. When I asked her to show me where this was allowed, she had “Sam” pull out guidelines she had earlier sent him. Indeed, what was written there supported her statement. Unfortunately for “Sarah”, the guidelines she referenced to support her position were not HUD’s latest guidelines. For someone that talked as much as she did, she didn’t have much to say when I pointed this out.
From there I dove into the mistakes they had made on my client’s debts and expenses. “Sarah” and I had an interesting discussion on the difference between a “debt” and an “expense”. Around this time, “Sarah” started asking us to hold while she went and checked with her manager on my questions.
In the end, my client was tentatively approved for a loan modification that would drop her payment by around 16% which equals just over $300/month. All she has to do to qualify is send in updated paystubs and prove her car is paid off. Of course she was hoping for even a lower payment (doesn’t everyone?), but what she got is the maximum allowed under HUD’s modification guidelines.
After we settled on everything, “Sam” surprised me by telling my client that she was smart to bring the right attorney to represent her, as every other homeowner he’d represented lenders against had brought an attorney that’d done nothing for their client, if they brought an attorney at all.
It was his turn to be surprised when I told him I wasn’t an attorney, but was a multi-certified mortgage lender. He then gave me perhaps the best compliment you can get from an attorney, telling me I should be one.
He also asked for my card and said he’d like to refer me to his own homeowner clients.
So, keep me in mind if a family member or close friend is scheduled for one of these mandated modification meetings with a representative of their lender. I do charge an upfront consulting fee for my time, but if this case is an example of what they can expect to go up against, can they afford not to have a mortgage expert on their side?

Reality NOT on TV – Banks Make Money on Foreclosures

2009-09-14T22:20:00.005-04:00

Your odds are better at winning in Las Vegas than against the banking industry and the administration they control.

MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN

DETROIT, MI – Wouldn’t it be fun to kidnap the CEO’s of Chase, Bank of America, Citibank and Wells Fargo, hold them somewhere with just the bare living essentials and force them to negotiate loan modifications and short sales with their own customer service departments to earn their freedom?

Imagine their frustration as they have to wait on hold forever, speak with poorly trained, clueless staff who can’t find the documents they’ve faxed or emailed for the umpteenth time and have to keep starting over.

It’d make a great movie! We could call it, “Groundhog Accountability Day for Bank Executives”.

“Sigh”. Unfortunately, that’s a fantasy and reality is what we have to deal with.

Why are the big banks so difficult to deal with? Why don’t they seem to understand that they lose more money when they foreclose on properties than when they negotiate a loan modification or short sale?

Perhaps it’s we who really don’t understand where the money is made.

Do you really think that banks are able to have 24/7 customer service for credit cards and other loans, but can’t seem to come anywhere near that for loan mods & short sales? Do you really think, given technology that can track a package mailed to Timbuktu online, that faxes and emails really get lost? How hard is it really to train someone to do a loan modification or short sale?

Consider this - Chase bought WAMU in September of 2008 for all of $1.9 billion dollars. For that they got a bank with almost $310 billion in assets, $188 billion of it bank deposits. Now Chase will tell you that the deal wasn’t that great as they had to absorb a hemorrhaging mortgage portfolio of $176 billion that they immediately wrote down by $31 billion. That’s true, but hides what really is going on.

If you ignore all the other debt and assets, Chase got $176 billion in home loans for $1.9 billion. That’s just over 1% of face value. Assuming an average loan balance of around $300,000, that’s almost 600,000 mortgages and corresponding homes. That means they paid an average of only $3,000 for each of those loans. Even if they foreclose on the ENTIRE portfolio, do you think they can make money by reselling houses they got for $3,000 each?

In January of 2008, Bank of America paid $4 billion for Countrywide. Countrywide serviced about 9 million loans valued at $1.5 trillion dollars. Do you really want me to run the numbers on this deal?

The failed IndyMac Bank was sold earlier this year to a group including George Soros and Michael Dell, under the name OneWest. Sheila Bair, the head of the FDIC, had made IndyMac her personal guinea pig project for testing out aggressive loan modifications to slow foreclosures. OneWest issued a press release at the sale, stating they would continue to pursue the FDIC’s loan modification and short sale strategy. How long do you think that lasted? Try calling IndyMac now for either and see how far you get. Better yet, call Dell computers and ask them how you can customize your loan modification online just like you can order a computer.

So what incentive do these banks really have to approve loan modifications and short sales?

Who created this financial bonanza for Wall Street? The financial geniuses in Washington D.C. They could have put in place restrictions and requirements tied to the purchase of these banks, but they didn’t. Is this something they could have mistakenly overlooked? Not likely. So, this means our wonderful administration in Washington is allowing the banks to make money off the tax payers that bailed them out.

Nice. Now what are you going to do about it? Probably nothing, as it’s easier to just tune into the latest reality show on TV.

Foreclosure & Bankruptcy: a new Beginning, not the End

2009-08-24T06:38:00.004-04:00

It’s not how many times you get knocked down, it’s how many times you get back up. Along the way don’t forget what’s really important – Family, Friends & Life.

MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN

TROY, MI – With pretty much everything I do revolving around real estate & lending, I get exposed to a lot of other people’s financial challenges related to the housing crisis. It’s a rare day that I don’t talk to someone in danger of losing their home.

Too many of these people equate losing their home to foreclosure or having to file bankruptcy with failure. For many, this feeling of being a failure can have a devastating affect on their mental well-being, health and relationships.

We all need to get a grip, swallow some pride and lose our egos. Failing at something is not the end of the world.

Remember when you were a kid learning to ride a bike? For most of us, learning meant a lot of falls and crashes, some of them nasty enough for stitches or casts. But most of us got back up, dusted ourselves off and kept at it until we succeeded.

I’ve got a T-shirt I picked up on a ski trip that says, “If you’re not falling, you’re not skiing hard enough!” There’s a lot of truth to that statement. In fact to make it more accurate about life in general we could alter it a bit to, “If you’re not failing, you’re not trying hard enough.”

I went to an entrepreneurial seminar several years ago, where the speaker was from California. He urged the audience to follow their dreams, take chances and not be afraid of failing. He pointed out that few entrepreneurs succeed with their first ventures and jokingly said, “if you haven’t filed bankruptcy, then you’re not trying hard enough.”

Now none of this should be taken out of context and used to justify irresponsible behavior. If you try your hardest to succeed and still fail, you have nothing to be ashamed of. Especially since our current economic situation has foreclosures, personal bankruptcies and unemployment at their highest since the Great Depression.

Keep in mind also, that many successful business people failed in their first endeavors, but later went on to great success. Here’s a list of some rather successful people who have filed bankruptcy:

Roland Hussey Macy
He failed at selling ribbons, provisions to miners and at a general store before going bankrupt in 1855. His next effort, Macy's became the world’s largest store.

J. C. Penny
First store went bankrupt when he refused to give whiskey as a kickback for orders from a large customer. Penny went belly up and got a job in a drapery shop that he later purchased and expanded into 1100 department stores nationwide.

Henry John Heinz
Started his first company in 1869 selling horseradish, pickles, sauerkraut and vinegar. In 1875 the company filed for bankruptcy due to an unexpected bumper harvest which the company could not keep up with and could not meet its payroll obligations. He immediately started a new company and introduced a new condiment, tomato ketchup to the market. This company was, and continues to be, very prosperous.

Milton Snavely Hershey
Started four candy companies that failed and filed bankruptcy before starting what is now Hershey's Foods Corporation. Mr. Hershey had only a 4th grade education, but was certain he could make a good product that the public would want to purchase. His fifth attempt was clearly successful.

Conrad Hilton
Lost all his hotels when he could not pay his bank during the Great Depression. Later, he bought them all back and built a few more. Things worked out pretty good in the end. Just ask Paris.

Frank Lloyd Wright
Famous architect lost his home, Taliesin in Wisconsin and was thrown on the street when business dried up in 1922. During the following decade, he designed some of his most famous projects.

Henry Ford

First two automobile manufacturing companies failed. The first company filed for bankruptcy and the second ended because of a disagreement with his business partner. In June 1903, at the age of 40, he created a third company, the Ford Motor Company with a cash investment of $28,000.00. By July of 1903 the bank balance had dwindled to $223.65, but then Ford sold its first car, and as they say the rest is history

Harry Truman
Opened a shop in Missouri after the First World War only to have it fail miserably. He was further humbled by having to move in with his mother-in-law. Truman later settled his debt for pennies on the dollar when the bank at which the underlying not was written actually went bankrupt itself. He is said to have learned a lot from the misadventure. And it all turned out OK in the in end. You may have heard, he eventually got a good job, in Washington, DC.

Walt Disney

His name is synonymous with Mickey Mouse and the “happiest place on earth,” Disneyland. However, Disney’s career wasn’t always a moneymaking venture. In 1921, he began a company called the Laugh-O-Gram Corporation in Kansas City, Missouri but was forced to file for bankruptcy two years later because his financial backers pulled out. It must have been fate because Disney then headed to Hollywood and became one of the highest paid animators in history.

Sam Walton
His first store was a Ben Franklin discount shop that he made among the most profitable and successful in the chain. Walton's problem was a short lease. When it expired, the building’s owner canceled his lease and took over the store himself. Walton was broke had to start over from scratch. You may have heard, however, that things turned out pretty good in the end. After these early financial difficulties were behind him, he later created the largest company in the world and became a billionaire.

Larry King
Filed for bankruptcy in 1978. He later went on to have a pretty decent career as a talk show host and best selling author.

If you think these people are too far in the past or too big for a relative comparison to the everyday person , look at these people:

David Anderson - http://www.famousdaves.com/about-daves/daves-biography/
Started first company in 1971 at age of 18 which failed. Promptly starts another, wholesaling plants to Chicago area florists and within two years has Sears account and all major florists in the area. Goes bankrupt 5 years later in 1979. Becomes sales manger for Fortune 500 company. Original investor in Rainforest Café in 1994. He also opens first Famous Dave’s BBQ that year and the rest is history.

Eva Sun - http://images.businessweek.com/mz/08/70/pp_fu1.jpg
In 1997 she was forced to take the reins of her 10+ year-old company after poor management by her husband, while she was raising their kids. In 2004, she was forced into bankruptcy despite her best efforts. The company though survived and today is more profitable than ever.

Jeffrey Yarbrough – http://money.cnn.com/2008/09/15/smallbusiness/back_from_the_brink.fsb/index.htm
Told his story to Fortune Small Business of filing bankruptcy after his three Dallas-based restaurants failed. Started PR firm Big Ink that now has $400k in sales and 4 employees with zero debt.

All these people failed initially and had to file bankruptcy, but they didn’t give up and eventually succeeded. Was it easy? I’m sure it wasn’t as they probably had to deal with their own feelings of failure and embarrassment. They got back up though and focused on their long-term goals of success and eventually achieved them.

There are also thousands more stories of every day people who lost their homes to foreclosure or were forced to file bankruptcy due to medical bills, lawsuits or job loss that persevered by getting back up after being knocked down. They put their lives back together by reaching out to family and friends for support

GNMA President to Step Down - A Sign of coming Trouble?

2009-08-17T10:08:00.003-04:00

MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN

Troy, MI - Bloomberg reported late last week that Joseph Murin was stepping down after only 13 months on the job.

GNMA (Government National Mortgage Association) mainly securitizes FHA and VA mortgages and has seen its business almost double in the last 2 years.

Why would an executive walk away from a business seeing such explosive growth?

FHA loans have only become popular because so many other mortgage options have dried up. The low credit score & down payment requirements for FHA loans have many mortgage experts predicting significant future defaults.

David Moffet resigned as FHLMC CEO this past March and Herb Allison recently left FNMA.

Makes on wonder why all these executives are leaving these mortgage related organizations.

It does not bode well for the future of these organizations. More trouble is coming, which means more governmment bailouts.

HUD finally allows Loan Modifications on FHA Mortgages

2009-08-16T14:47:00.005-04:00

Better late than never - four months after Obama announces FNMA/FHLMC loan modification plan, HUD makes FHA loans eligible.

MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN

TROY, MI – On July 30, HUD published Mortgagee Letter 2009-23, that detailed their long awaited loan modification program for homeowners with FHA mortgages. What took so long? President Obama announced the “Making Home Affordable Program” (MHA) for FNMA & FHLMC mortgages back on March 4th of this year.

We should all be glad HUD’s modification program is finally available, but HUD is supposed to be a homeowner advocate and watchdog. Some watchdog! HUD’s response time on this means if they were guarding your house, the crooks would have already been back several times and stolen everything but the kitchen sink before they sounded an alarm.

This latest piece of legislation does show the Obama administration fully believes the best way to solve the housing crisis and stem the tide of foreclosures is to make home payments affordable. This was sorely lacking with FHA’s other modification options. Most homeowners with FHA mortgages were forced into forbearance programs that usually increased their monthly payments.

HUD’s forbearance program was actually designed for different economic times when a job loss or other economic hardship was typically temporary. Worse-case in those days, a homeowner could usually sell their home to pay off the mortgage they were having difficulty paying. The current Great Recession and percentage of upside homes no longer makes forbearance a very realistic and viable option.

The new guideline kicks in August 15, 2009 for homeowners with FHA mortgages.

Who’s Eligible
The FHA mortgage to be modified must be at least 12 months old and the homeowner must have made at least 4 full monthly payments.

The FHA mortgage must be less than 12 months behind on payments, but surprisingly, it s required that the mortgage be at least 30 days behind. This is a major difference from the MHA program where no delinquency is required.

The homeowner must still live in the property with the FHA mortgage being modified, so rental properties with FHA mortgages are not eligible.

The homeowner cannot have deliberately defaulted on their FHA mortgage payments. I’d like to know how HUD and the mortgage servicers intend to determine this. My guess is that they won’t - except in obvious cases where a homeowner has a lot of liquid reserve funds in non-retirement accounts.

The homeowner must first try to qualify for other loss mitigation home retention options – FHA Special Forbearance, Loan Modification and Partial Claim. This is a silly requirement that could lead to confusion, unnecessary delays and ultimately foreclosures instead of the intended modifications. FNMA & FHLMC modifications have no such requirement.

The Modification Process
A homeowner will have to submit detailed financial information to whoever is servicing their FHA mortgage and sign a hardship affidavit attesting to their financial difficulties. This information may be provided either in writing or verbally over the phone.

Similar to the FNMA/FHLMC modification process, the goal of the FHA modification is to lower the Principal, Interest, Taxes & Insurance (PITI) payment to 31% of the homeowner’s gross monthly income. HUD calls this a Front End Ratio.

Unlike the FNMA/FHLMC modification program though, the FHA version also has a Back End Ratio requirement where total debt payments including PITI, cannot exceed 55% of gross monthly income. Any second mortgages must also be included in the Back End Ratio.

The last calculation is the toughest to understand – up to 30% of the current mortgage balance, less payments in arrears (up to 12 months) and allowable foreclosure costs, may be deferred along with the corresponding payment amount. The amount deferred is also limited to that which will bring the PITI payment down to 31% of the homeowner’s gross monthly income.

Confused yet? I’d like to know why HUD made this so complicated. It’s bound to cause major confusion in the customer service ranks. HUD did provide an example to illustrate the process:

Homeowner had a reduction of income and is delinquent 3 full mortgage payments. The unpaid principal balance on the mortgage on the date of default is $150,000 and the monthly payment is $1,220 (consisting of P&I of $920 and escrows, including MIP, of $300). The financial analysis reveals that the homeowner’s gross monthly income is $3,500 and the total monthly other recurring debt payments are $800.

In order to fulfill the 31% Front End Ratio requirement, the homeowner’s total monthly mortgage payment would have to be reduced to $1,085 ($3,500 x 31%). Therefore, P&I would have to be reduced to $785 ($1,085 total monthly mortgage payment less $300 escrow and MIP). Assuming that the loan modification will have an interest rate of 6% and a P&I of $785, the new mortgage amount would have to be $130,931, resulting in a principal reduction of $19,069 ($150,000 unpaid principal balance less $130,931). In this example, the homeowner’s Back End ratio is 53.9% ($1,885/$3,500), which satisfies the 55% Back End Ratio limitation.

In this example, the maximum principal deferment is $41,340 (30% of $150,000, less the $3,660 delinquency, or $45,000 - $3,660). However, based on their gross income, the homeowner is eligible only for a principal deferment of $19,069 plus $3,660 arrearages (which would include any foreclosure costs incurred to that point, in accord with Mortgagee Letter 2008-21) for the total deferment of $22,729.

Once a modified payment is calculated, a homeowner must undergo a trial modification period and make three consecutive trial monthly mortgage payments on time. Failure to do so will result in foreclosure.

The good news is that no payments will be due and no interest charged on the amount deferred until the rest of the mortgage is paid off. HUD is NOT forgiving part of the mortgage balance. Effectively, HUD is lowering the current payment by extending the term of the mortgage.

Other Issues
A lender may not charge a homeowner any fees for doing an FHA loan modification and all late fees must be waived.

No appraisal is required, but a lender may perform an inspection of the property to confirm it’s in livable condition.

The interest rate may be lowered to 2% above the monthly average yield on U.S. Treasury Securities, adjusted to a constant maturity of 10 years.

A modified mortgage must result in a lower payment for the homeowner.

By the way, lenders will be paid up to $1250 for each FHA mortgage they modify. Hopefully, lenders use that money to hire a few extra bodies to handle the increased workload and don’t just use the funds to pad their profits.

Click here to read more HUD issued guidelines on modifications.

Overall, it’s about time HUD caught up with FNMA & FHLMC in regards to more aggressive loan modification guidelines. It didn’t make sense to force FHA lenders to only offer an antiquated forbearance option to homeowners experiencing economic hardships.

It’s interesting that there’s still no official loan modification program to lower payments on VA mortgages.

I’d like to know how many homeowners with FHA mortgages lost their homes to foreclosure while waiting for these new modification guidelines from HUD. Many of them could probably have avoided foreclosure with this new modification plan. Congress should call the organization to task for this delay.

If anyone you know has any questions on modifying their FHA mortgage please forward them this article. Although we don’t handle loan modifications, if they need further assistance have them contact me, but please warn them there may be a consulting fee for my time.

Homebuyers – You’re Pre-Approved by Payment, not Purchase Price!

2009-07-26T12:55:00.006-04:00

Lenders do a terrible job of educating homebuyers that they’re actually approved for a monthly payment, not a purchase price. Why don’t pre-approval letters make this clear?

MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN

July 26, 2009 -- Troy, MI – A homebuyer follows instructions and jumps through the hoops (which are many today) necessary to get a pre-approval letter before looking at homes for sale. They find one they like, at a price their pre-approval letter says they’re good for, make an offer, negotiate back and forth with the seller and finally agree on a price. They’re elated.

Then the rug gets pulled out from under them and they’re told they don’t qualify for this house and all their efforts were in vain.

What’s even scarier is that often the homebuyer doesn’t find out they don’t qualify for the property they got their hopes up for, until weeks into the formal approval process, sometimes only days before the target closing date.

Why does this happen?

The lender they were dealing with didn’t do a very good job of explaining how the mortgage industry actually approves homebuyers. Even if they did, it was just one of the numerous topics discussed and the homebuyer forgot about it. Then, the lender didn’t double-check the pre-approval requirements for the specific property.

Because of issues like this, it’s extremely important that homebuyers understand the following:

MORTGAGE APPROVALS ARE MOSTLY BASED ON MONTHLY HOUSING PAYMENTS NOT PURCHASE PRICES!

Let’s study the pre-approval process to understand why.

A homebuyer only makes so much money per month, which means they can only afford to spend a portion of that income on a monthly housing payment. The rest of their income goes towards various income taxes, car payments, credit card payments, student loans, etc. On top of that, unless the homebuyer wants to freeze in the dark during winter, they have to pay utilities to keep the heat & lights on (if you’re outside the snowbelt, think air-conditioning).

If you think about this, it makes sense.

Now, let’s look at an example homebuyer:

Annual Income: $75,000
Monthly Debt Payments: $1,000

How much of a housing payment would this person qualify for?

First, let’s break the annual income down to a monthly basis: $75,000 / 12 = $6,250/month income.

FNMA/FHLMC typically allows 40% of one’s gross monthly income to go towards monthly debt, including a housing payment. The 40% number is called a Debt Ratio. The other 60% of monthly income is allocated for income taxes, utilities, food, clothing, car insurance & gas and other necessities of life.

So, to calculate the maximum amount of monthly debt allowed we calculate 40% of the monthly income:

$6,250 x 40% = $2,500.

But, our example homebuyer already has $1,000 per month in existing debt. That money then, cannot be allocated towards a housing payment. So, we calculate what’s left:

$2500 minus current debt payments of $1,000 = $1,500 for a maximum housing payment

This is what our example homebuyer could afford. Now, they don’t have to spend that much of course. There are also other variables that could allow for a somewhat higher housing payment. For example, if the homebuyer put 20% down, the 40% debt ratio might be allowed to increase to 45% as the higher down payment compensates for the higher debt ratio.

Now that we know our example homebuyer’s maximum housing payment we’re done right? Wrong – houses are sold by price, not monthly payments. So now we have to convert the maximum housing payment to a purchase price.

Here we run into a problem. It’s actually the reason many pre-approval letters are misleading and homebuyers get unpleasant surprises.

The term “housing payment” is not the same thing as a mortgage payment. The mortgage industry considers a housing payment to include the following:

Mortgage payment
Monthly amount for property taxes
Monthly amount for home insurance
Monthly association fees

Property taxes are usually the biggest unknown when pre-approving a homebuyer for a home they haven’t identified yet. Depending on the state your in, property taxes can vary significantly for similarly priced homes. Let’s look at an example:

Assume:
Loan amount: $200,000
Interest Rate: 5.250% (APR 5.891) no PMI
Home insurance: $900 annually

If we compare these two monthly housing payments to our maximum payment allowed of $1,500, you can see that our example homebuyer would not qualify for property #2 - even though it had the exact same sales price as property #1.

We’ll leave the reason as to why property taxes may vary on similarly priced properties to a future article. For now, just ask your local real estate expert.

How can a homebuyer address this problem? Simple, demand something in writing from the lender you get pre-approved by, that specifically states the maximum payment you’re qualified for. While they’re at it, they should also disclose the interest rate they pre-approved you at. Interest rates change daily and if it takes you a month or two to find a property, higher rates could affect your pre-approval purchase price just like property taxes.

Real estate agents also need to understand this issue to better assist their homebuyers. Agents should contact their homebuyer’s lender with the property taxes and any association fees to confirm the homebuyer does indeed qualify for the specific property, before writing an offer.

Understanding the process, putting specifics in writing and relying on true professionals can remove many of the unpleasant surprises in the pre-approval and home buying process.

Witch Hunt or Consumer Protection? - 178 Loan Mod Companies Pursued by Government.

2009-07-19T15:49:00.007-04:00

Loan Modification companies seem to be the latest mortgage industry group in the crosshairs of government officials.

MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN
-- DETROIT, MI – Over the last several weeks I’ve noticed a substantial increase in the number of loan modification companies being investigated by various government agencies.

All I can say is that it’s about time.

Now don’t misinterpret that statement - I believe that loan modifications may be part of a viable solution in getting our country out of the current housing crisis, although it’s too soon to determine their actual long-term effectiveness.

I also have nothing against loan modification companies in general nor the people that work at them. I’ve met or connected with many individuals that are intent on really helping people and do their best to do so.

Lastly, many homeowners do need some type of assistance as lenders don’t have their best interests in mind when they do loan modifications and many lenders draw the process out seemingly forever.

On the other hand, I’ve personally heard many stories from homeowners victimized by loan modification companies, have heard the same stories from mortgage associates and have read many more on the internet.

From Subprime to Loan Mods
I predicted over a year ago that loan modification companies would become the new subprime “churn & burn” debacle. This was triggered by my observations that many local subprime loan originators were flocking to do loan modifications. I even heard several stories of these originators approaching the same clients they’d put in subprime loans, with offers to now do loan modifications for them.

There really is no barrier of entry to do loan modifications. All you need is a phone and the ability to find clients. Finding clients is easy with so many homeowners struggling with their mortgage payment.

This should all sound familiar as much of it applied to the mortgage industry in general until recently, when state governments started requiring individual licensing of loan originators and the federal government created a national registration system.

When Michigan enacted its Loan Officer Registration Act, April 1, 2009, the state expected 10,000 to register based on past data. To date only 3141 have met the requirements of 24 hours of class time, passed a multiple choice test and background screening. How many of the unregistered do you think are now using their limited mortgage knowledge to do loan modifications?

Desperate People do Desperate Things
One would think that a homeowner, burned by a bad mortgage, would be a bit more cautious when considering a loan modification.

The number of loan mod companies popping up however, prove otherwise. It’s basic supply and demand – the numbers of these companies wouldn’t be expanding if there weren’t desperate homeowners to support them.

So, how do homeowners get burned by these companies? In no particular order:

Paying upfront fees for a modification never completed.
Being told they’ll get a principal balance reduction, when in reality it rarely happens.
Getting approved for a modification that raises their payment or insignificantly lowers it.
Following advice to not contact their lenders during the loan mod process, only to get foreclosed on.
Not being made fully aware of the possible credit damage, legal issues and tax consequences.

It’s all boils down to these companies over-promising and under-delivering.

What Took the Government So Long to Act?
If I saw this problem coming over a year ago, you’d think the smart people in our government would’ve saw it coming also.

In a recent informal poll of mortgage originators by “Think Big Work Small”, 81% responded that over 50% of those doing loan modifications are “rats”.

Unfortunately, just like with the mortgage meltdown and the banking crisis, the government only seems to act after the damage has already been done. Here’s a list of the agencies currently chasing loan mod companies:

Federal Trade Commission
United States Attorney’s Office for the Central District of California
Arizona Attorney General’s Office
California Department of Justice
California Department of Real Estate
State Bar of California
Colorado Attorney General’s Office
Idaho Attorney General’s Office
Illinois Attorney General’s Office
Iowa Department of Justice
Kansas Attorney General’s Office
Maine Attorney General’s Office
Maine Department of Professional and Financial Regulation, Bureau of Consumer Protection
Maryland Department of Labor, Licensing, and Regulation, Office of the Commissioner of Financial Regulation
Massachusetts Attorney General’s Office
Michigan Attorney General’s Office
Missouri Attorney General’s Office
New Jersey Attorney General’s Office
New Jersey Department of Banking and Insurance
New Mexico Attorney General’s Office, Consumer Protection Division
North Carolina Department of Justice
Ohio Attorney General’s Office
Oregon Department of Justice
Texas Attorney General’s Office
Washington Attorney General’s Office

Charges are being filed because of deceptive and/or false advertising (Section 5 of the FTC Act), charging upfront for services before rendered, unlicensed activities, mail fraud, attorney misconduct and several others.

Solutions
The Obama administration really needs to step up and address this issue quickly. The crooks and sharks need to be forced out of the industry to protect homeowners. Honest professionals also need protection - from overzealous government agencies. It’d be a real shame if those that were actually doing good things for homeowners were put out of business, fined or jailed.

An easy to implement option would be to allow loan modifications to only be done by licensed mortgage companies and attorneys. The mechanisms are already in place across the country to control this.

A better solution would be for the administration to create a national solution instead of letting all 50 states come up with their individual plans.
For a list of the loan modification companies currently be investigated, click here and then click on “preview”.

Are Loan Modification Programs Working?

2009-07-13T22:53:00.010-04:00

Many financial experts say they aren’t, quoting old data to support their statements. The latest data may force them to change their tune though.

DETROIT, MI – The Obama administration continues to push loan modifications as the best way to address the nation’s growing housing crisis. Many so called financial “experts’ though, disagree with this focus.

It’s interesting to note that the administration recently announced that due to disappointing numbers for its Home Affordable Refinance Plan (HARP), the program was being expanded to allow refinances to 125% of a homeowner’s property value, up from 105%. To be eligible for this program though, homeowners must be current on their mortgage and qualify with required FICO credit scores, income and assets.

The disappointing numbers for HARP are a sign that many homeowners don’t qualify for it because they’re either too far upside in their homes or they’re behind on their mortgage payments. This makes loan modifications their only option - hence the administration’s focus on loan mods.

So, what about all the naysayers against loan modifications?

Well, they all quote studies that seem to “support” their claims that modifications aren’t working due to the high number of homeowners that default on their loan modifications.

One of these studies was done by the Federal Reserve Bank of Boston, published July 6, 2009. The study had some valid points:

1. Lenders are reluctant to modify mortgages. Only 3% of seriously delinquent loans have had modifications.
2. Percentage-wise, lenders are modifying FNMA/FHLMC and mortgages held on their books the same.
3. 30% of delinquent loans become current with no intervention by the lender.
4. Most modifications result in an increased loan balance as back payments are rolled into the loan amount.
5. More and more modifications are being done and resulting in lower homeowner payments.
6. 26% of modified loans in the 4th quarter of 2008 resulted in lower payments.
7. Payment decreases before the 3rd quarter of 2008 ranged from 10-14%.
8. Payment decreases in the 4th quarter 2008 averaged 22%.
9. 30-45% of modified mortgages redefaulted within 6 months of a modification.

These are all interesting statistics. The financial “experts’ all seem to focus on the fact that 30-45% of modified mortgages redefault, while ignoring one important fact – only 26% of the loans modified resulted in a lower payment!

Why would a lender expect a homeowner that’s already defaulted on their current payment, to be able to afford that same payment or a higher one? Anyone citing this report’s redefault rate without taking that point into consideration should stop calling themselves an “expert”.

A more recent report (through 1st quarter of 2009) from the Comptroller of the Currency Administrator of National Banks, shows something a bit different:

1. A significant increase in the number of modifications made by servicers. Up 55% from last quarter. Payment plans decreased in favor of loan modifications.

2. Servicers implemented a higher percentage of mods that reduced monthly payments than in previous quarters.

3. Modifications with lower payments continued to show fewer delinquencies each month following modification than those that left payments unchanged or increased payments.

4. Modifications during the first quarter of 2009 resulted in lower monthly principal and interest payments on 54.1 percent of all modified loans

5. The percentage of modifications that reduced payments by 20 percent or more increased to 29.3 percent of all modifications made in the first quarter of 2009, up 19.2 percent from the previous quarter.

6. Modifications that increased monthly payments declined to 18.5 percent of all modifications during the quarter, down from 25 percent in the fourth quarter and 33.5 percent in the third quarter.

One very important statement from the report: “The number of modifications recorded in this report does not reflect actions taken under the Administration's "Making Home Affordable" program, which was announced in March and began to be implemented after this reporting period.”

As Obama’s plan is the most aggressive loan modification attempt to date, focusing on reducing homeowner payments to 31% of monthly income, the numbers should start turning even more positive.

Even without those numbers, statistics from the 1st quarter of 2009 show improvements in loan modification performance after previous quarters showed a trend to the negative:

What can we conclude from all this?

While it’s important to note that we’re far from out of the woods on the housing crisis and we don’t have enough recent data to really draw any long-term conclusions on the benefits of loan modifications – we do seem to be heading in the right direction.

For all the free-market advocates out there railing against bailing out upside homeowners – your arguments went out the window when the government bailed out the banks. If we can bailout upside down banks, how can we not bailout upside down homeowners?

For those who believe we have to lower mortgage balances to effectively modify mortgages, I disagree that we have to do so. It would be nice as I’m upside down in my own home, but I think it’s more important to lower house payments.

People buy cars all the time where as soon as you drive it off the dealer’s lot, you’re upside down in it. I don’t hear anyone asking for a bailout on their car loan. Why do they continue to pay on their upside down car? Because they need transportation and they can afford the payment.

Why are people losing their homes? Because they can’t afford the payments. Statistically, most people are emotionally tied to their homes. Most won’t do the logical thing and walk-away from their upside down home anymore than they would walk-away from their upside down car. Give them an affordable payment and even if they’re upside down, they won’t walk. Bring the payment down to their local rental rates and they won’t be able to live anywhere cheaper. Yes, their will be a small percentage that move in with relatives or move to a lower income area, but most will stay.

It seems the so called “experts” live in their own little worlds and seem to have their own agendas. Few actually report unbiased facts, instead preferring to only focus on what supports their positions while ignoring all other facts. Heaven forbid they actually take the time to digest & think through the statistics.

The media is just looking for sensational headlines to sell more advertising. Very little actual research seems to happen these days. What’s more, they all seem to regurgitate the same stories, propagating incorrect stories, fooling the public into believing them because of the repetition.

So be forewarned not to buy into what you read in the headlines or what so called experts tell you. Click on the links I’ve provided and read the material for yourselves to come to your own conclusions.

# # #
Drew Sygit writes and speaks about the mortgage & real estate industries. He holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor. He’s presented, spoken and/or written for HUD, Financial Planning Association, Financial Planners Association of Michigan, Michigan Association of CPA’s, Institute of Continuing Legal Education, Oakland Real Estate Investors Association, North Oakland County Board of Realtors and numerous industry publications. He also publishes his own blog: http://drewsmortgagenews.blogspot.com/. He can be reached at dsygit@TheLendingEdge.com.

125% Refi's Announced! The Government Finally Gets it

2009-07-01T14:22:00.007-04:00

The government appears to be finally understanding how many Americans are upside down in their homes.

As I've been predicting for months, the FHFA just announced today that they will be allowing FNMA & FHLMC to refi underwater homeowners up to 125% of their property's value.

Previously the cap was at a joke amount of 105% LTV, resulting in President Obama's hyped Home Affordable & Stability Plan being way behind on the estimated number of homeowners it was meant to help.

Whether or not the government should be doing this is up for debate.

The argument against is all for letting the free market work its magic. Get the pain over now and let the economy recover.

Those for government intervention argue that the nation's housing market is "too big to fail". If the government bailed out the "fat cats" on Wall Street, then it should bail out ""Joe Six-Pack" also.

Since we've already started down this slippery slope, it would have been better if they would've done away with the appraisal requirement on refinances all together. A new appraisal hasn't been required on an FHA Streamline refi since 1984. Now with FNMA/FHLMC owned by the government, what's the difference? If it works for FHA, it'll work for FNMA/FHLMC.

Either way, this county's mortgage debt is backed by the government and if payments can be lowered, less homeowners will foreclose. People have to live somewhere.

As a side note, think about what doing away with appraisals on refiances would do to HVCC appraisal issues!

Now, keep in mind that this will take awhile to be implemented as a lot of software needs to be rewritten.

Also, the when the government approved the 105% LTV, FNMA & FHLMC both added pricing hits, which offset some of the gains of lower rates. I would hope they don't do the same this time.

Lastly, let's hope FNMA & FHLMC allow more lenders and brokers to do these loans. Right now, FHLMC forces homeowners to only go to their current lender. These lenders are pretty backed up, some taking 60-90 days or more to close these loans causing many homeowners to miss low rate opportunities.

Talking About a Housing Revolution – Predictions on Housing

2009-06-28T16:24:00.003-04:00

The Beatles song comes to mind when I consider what the bottom of the housing market and recovery will look like.

June 28, 2009 -- DETROIT, MI – Recent housing reports brought apparently good news on housing as it was reported that Housing Starts in May jumped 17.2% and Building Permits jumped 4% in April. Also, the National Association of Realtors (NAR) reported that Existing Home Sales, the Pending Home Sales Index and New Home Sales were all up in recent months.

According to Lawrence Yun, chief economist for NAR, "We are at or near bottom in terms of sales."

So, it’s a great time to put that home of yours on the market that you desperately want to sell?

Not even close.

One month of good news doesn’t mean the housing crisis is over. On top of that, it’s spring – a time when home sales invariably go up after winter. Look at the following graph, the same thing happens just about every year:

As for the housing starts and building permit numbers – it’s amazing how theses numbers were skewed to look good. The numbers reported by NAR and the media compared May of 2009 numbers to April of 2009. If one references the source of these numbers, the U.S. Census Bureau website, the May numbers for 2009 when compared to 2008 are actually down – by 45.2% for Housing Starts and 47.0% for Building Permits. How does that qualify as good news?

Yesterday it was also reported by NAR that May home sales were up 2.4% over April. Yet again, when compared to May of 2008, sales were actually off 3.6%. Not really good news as it doesn’t show we’ve reached a bottom yet.

THE REAL STORY
Looking at the big picture, it’s obvious that the housing market is not out of the woods yet.

The FNMA/FHLMC foreclosure moratorium from Thanksgiving through March (waiting for Obama’s housing plan) created an artificial shortage of foreclosed properties on the market. Not surprisingly, April foreclosure filings set a record.

Last week, California announced its own 90 day moratorium on foreclosures which will further hide the true extent of the housing problems in that state. Michigan recently passed legislation that will have a similar, albeit more limited, effect. Several other states have passed or are considering doing the same.

All the Adjustable Rate Mortgages (ARM) that borrowers took out at the peak of the housing market so they could afford to buy or cashout of their homes, are starting to reset in record numbers and will continue to do so for the next two years. The ugliest situation is for those with “Option ARMS” also known as “Pick a Payment” plans, but technically called “Negative Amortizing” ARMs. Anything with the word “negative” in it is usually not good. In the case of these products, they were originally designed for sophisticated borrowers that understood how they worked and the inherent dangers. Only two lenders, WAMU and World Savings, initially offered them. At the height of the housing boom, many more banks jumped on the bandwagon to offer them and pushed mortgage brokers to sell them to their clients by offering insane commissions. Of course, many unscrupulous brokers, few understanding the product themselves, pushed these loans onto borrowers that didn’t take the time to understand anything but the artificially low payment. Now, many of these borrowers will see their payments increase by 50% or even double. Many won’t be able to afford the payment shock and will eventually be added to the foreclose statistics.

There’s also the issue of a “Shadow Inventory” of homes. How many of you see vacant homes in your neighborhoods that aren’t for sale? Many of these are foreclosures where the lender is just sitting on the home instead of trying to sell it at a loss. There’s also the inventory of homes where owners aren’t making payments, but haven’t been foreclosed on yet, despite being well past the point where they should’ve been. Several sources have estimated this shadow inventory at 600,000 homes. Now do you understand why banks were forced to take TARP funds?

Real estate investors are also contributing to the problem. I know of many that are struggling with rentals where the rents don’t cover their payments. Many of them will eventually throw in the towel as their reserves run dry or the value of the rental falls to where it just doesn’t make sense to keep throwing good money after bad.

Finally, we have the unemployment situation. May’s unemployment figure hit 9.4%, the highest since 1983. June’s number is expected to hit 9.6%. Since the recession begin in December 2007, we’ve lost 6 million jobs. These numbers are bad, but actually are worse if you include all the workers that have had to settle for part-time jobs or are making less than half of what they used to. Housing won’t stabilize until unemployment does. Even then, there’ll be a lagging effect as households paydown debt, replenish reserves and proceed cautiously.

PUTTING IT ALL IN PERSPECTIVE

The highly touted, and over referenced, Case-Shiller Index predicted that housing prices would fall 10-20% this year. As of May, the median price of a home is off 16.8% from last year.

Faced with these numbers and all this information, what would you do if you were in charge of our government?

Would you let housing free-fall and probably put the country into a Great Depression II?

Or would you use every financial tool at your disposal to soften the landing, wherever that may be?

Obviously, the current administration has chosen the soft-landing option and is pulling out all the stops to make it happen:

The real reason for the Thanksgiving to March foreclosure moratorium was to come up with a plan to force banks to modify mortgages and slow the flow of foreclosures hitting the market and driving down prices. Obama’s administration had to do something dramatic after the disaster of Bush’s “Hope for Homeowners” plan that resulted in only 50 or so homeowners being helped. TARP funds were probably used as “bribes” to get banks to go along with the new plan.

Ben Bernanke is doing his best to keep mortgage rates low. Not only does this encourage home buying, it also encourages people to refinance to lower their payments and not let them go to foreclosure. After a brief spike to 6%, when Wall Street bluffed the Fed, rates are back to the mid 5’s, still historically low.

FNMA/FHLMC, now under government control, currently allow homeowners to refinance up to 105% of their home’s value so they can lower their monthly payment. Again, this was done to keep people in their homes through lower monthly payments. I expect to see the 105% increased to at least 115%, or done away with altogether, as housing prices have fallen faster than expected and the number of homeowners qualifying for a 105% refinance are much lower than the original target.

The $8,000 tax credit to buy a home has generated quite a bit of home buying activity as intended. I predicted a couple of months ago that the tax credit program would probably be extended past its December 2009 deadline. There’s now talk in Congress about not only extending the program, but increasing the tax credit to $15,000 and opening it up to anyone that buys a home. It’ll be interesting to see what they do with the income restrictions as the current plan has propped up the lower end of the housing market, but left the rest of the market struggling.

PREDICTIONS

So far, the housing market is down over 30% from its 2006 highs.

The government is doing its best to prop up our housing market, but it’s expected to fall further. How far is anyone’s guess, as one can’t predict it any better than one can predict where the stock market is going.

I don’t think we’ll see housing bottom until late 2010 at the earliest. That being said, I think the pace of the decrease will slow after this winter.

I also think that we won’t see a rebound for quite some time and it won’t be the rebound that many are hoping for. We won’t see double digit appreciation of housing for decades, if ever again. Nationally, we’ll see very slow anemic appreciation as homebuyers will be extremely cautious after this crisis.

There will be a rebound bounce in areas where prices dropped ridiculously low. Detroit immediately comes to mind. The median price of a home in Detroit (the actual city) stands at $6,000 as of today. As long as one buys in a decent area of the city, that price could easily double, triple, even quadruple once unemployment improves. A house at $24,000 is still quite a bargain, especially when it would cost at least $80,000 to build a new one. The southern Florida condo market is another place that might have a double digit rebound as prices there are quite low due to over building. Understand that any double digit rebound in areas like these will be a quick, one-time thing as values bounce back from their oversold positions. Then they’ll follow the national trend of anemic appreciation.

It could take a generation (25 years) for nationwide home values to return to the peaks of this decade.

THE HOUSING REVOLUTION

We’re also going to see residual effects from this crisis, much the same as we saw after the Great Depression. People that lived through the scarcity of those years tended to be savers and hoarders, not throwing anything away. Going forward, I think we’ll see a large increase in the number of people that never buy another home. After going through the trauma of getting foreclosed on or watching their parents, family, neighbors and/or friends go through it, they’ll choose to be lifetime renters. That’s good news for real estate investors as many of these people will still want to raise their families in houses, not apartments.

I also think we’re seeing the end of the “McMansions” and sprawling suburbia. Inland California was overbuilt, in the middle of nowhere (that’s why it was cheap to develop) and is now turning out near vacant ghost towns due to all the foreclosures. Values have already dropped over 50% in many of these areas and show no signs of slowing yet. Why? It’s too far to commute to work. Eventually population growth will fill these towns back up, but that could take a decade or more.

Millennial’s, those born after 1980, are flocking to urban landscapes and smaller homes. They don’t want to be house poor or commute more than minutes to work, preferably via mass transit. As gas and energy prices rise when the world economy recovers, more of us will be forced to address these same issues. This will eventually be good news for decaying urban areas and those that invest there ahead of the curve.

People will also stop looking at their homes as a source of wealth. Homes will be seen less as “castles” and more as just places to live. Europe and Asia are already like this. People there don’t socialize in their homes as much as we do (most are too small), they meet at cafes, restaurants, parks, etc.

SHOULD YOU BUY NOW?

No one can predict the bottom of the housing market. So, if you’re in the market for a home, you should buy something that fits your budget, that you think is a good deal, when you think you’re ready for the monthly liability. Notice I didn’t say a great deal or a steal of a deal. Too many people still fall into the trap of following the herd lining up for the sensationalism the media peddles to get our attention. They want to hit the jackpot with the deal of a lifetime on a home. Well, keep in mind that very few hit the jackpot in Las Vegas and even fewer win the lottery. It’s usually better to play it safe and follow you head than gamble your future away by listening to others.

Buy a home you can afford now that fits your lifestyle. Don’t stretch to afford something and put yourself in a tenuous financial situation. You also don’t need to be keeping up with the Jones’ and getting in over your head by doing so.

Homes should be bought that fit one’s monthly budget. I can’t believe all the homebuyers I talk to that have never sat down and put together a monthly budget to figure out what they can afford for a monthly housing payment. They expect ME to tell THEM what they can afford! I’d be very appreciative if this was because they trusted me, but it’s actually due to laziness. Don’t they realize that they’re looking at buying a foreclosure where the previous owner probably made this same mistake?

Consider how long you plan to live in a home before deciding whether to buy it. Don’t count on buying something and being able to break even if you sell it 2 years from now. You’ll probably need 5 years or so to be able to do that.

Overall, homes are now more affordable than they’ve been in over a decade. Foreclosures have created unique opportunities for many to get solid deals on homes. Throw in the current $8,000 tax credit (with talk of it going to $15k soon) and this could be the time for many to buy a home. Not for everyone, but for many.

If all of this is a bit much to take in and analyze, find professionals that can assist you. Run from those that are pushy. They should ask a lot of questions and rarely tell you what to do, but rather help you find your own answers.

Michigan tries to Slow Foreclosures with New Laws

2009-06-18T07:11:00.003-04:00

Three new laws make foreclosures tougher on lenders to force them to do more loan modifications.

June 18, 2009 -- DETROIT, MI – On May 20th, Governor Granholm signed new laws into effect that will put more pressure on lenders to work out loan modifications as opposed to just foreclosing.

The new laws, PA 29, PA30 & PA 31, go into effect July 5th and force lenders to perform several addition steps before foreclosing. Interesting that the effective date falls right after Independence Day.

The new laws only apply to foreclosures started after July 5th and only on real estate that is the primary residence of a mortgage borrower. The laws also expire in two years. The state legislators appear to be pretty optimistic the housing crisis will be over by then. More likely, there won’t be anyone with a mortgage that hasn’t been foreclosed on or had their mortgage modified by then.

Lenders will be required to give written notice to a defaulting borrower, providing the name and phone number for a real person the borrower can speak with. What’s more, this person has to have the authority to negotiate and approve a loan modification. Anyone that’s had to deal with the customer service department at a lender can tell you how frustrating it is to get someone on the phone that can make a decision. So, this is great news.

Lenders will also be required to send a defaulting borrower a list of state approved housing counselors and gives borrower the right to require a lender’s authority person to meet with the borrower and the counselor to work out a loan modification. Once a borrower asks for this meeting, the foreclosure is put on hold for 90 days.

The laws basically mimic Obama’s “Making Home Affordable” program by requiring a borrower’s housing related debt be no more than 38% of their gross monthly income. Also outlined is how to get to the 38% figure – lowering the interest rate to as low as 3% for at least 5 years, and/or extending the loan term to up to 40 years, and/or deferring up to 20% of the principal balance until the end of the loan term, sale or future refinance.

If the borrower qualifies under this outline, but the lender refuses to approve the loan modification, then the lender must go through a judicial foreclosure. This means they have to take the borrower to court, a lengthy and costly endeavor. In other states where judicial foreclosure is required, it can easily take 18 months for this to happen. This is a huge penalty to lenders and should force most of them to approve a loan modification.

The new laws were written so that federally chartered lenders cannot claim “federal pre-emption” and ignore state laws. A great move by the state legislators.

The laws also have exceptions that defer to FNMA and FHLMC loan modification plans.

There are doubts about the number of available counselors to meet with borrowers and representatives from their lenders. This may work in a borrower’s favor though as lenders may prefer to wait until a counselor is available versus pursing the judicial foreclosure process.

Of special interest is how the new laws will affect FHA and VA mortgages. FHA & VA loans were not addressed in the Obama loan modification plan. So, will the new Michigan laws force FHA & VA lenders to modify loans down to 38% of a homeowner's gross monthly income?

Fed Losing Battle to keep Mortgage Rates Low?

2009-06-07T16:02:00.001-04:00

Mortgage rates spike almost 1% in just over two weeks, what’s going on?

June 6, 2009 -- DETROIT, MI – One of the government’s stated goals this year is to stabilize the housing market. The thinking is that a long as home values continue to fall, homeowners will lack confidence in the economy and in response, won’t spend money.

To stop home values from falling, the number of foreclosures must be curtailed. One of the ways the government has been trying to curtail foreclosures is by keeping mortgage rates low. Low rates allows homeowners to refinance and lower their payments, so they don’t let their homes go to foreclosure and makes buying homes more affordable, so it increases homes sales to absorb the homes that have been foreclosed on.

Recent events might have put a damper on those plans. The chart below shows the price of Mortgage Backed Securities (MBS) over the last three months. Keep in mind that the price is the opposite, or inverse, of interest rates. The higher the price of the MBS, the lower the corresponding interest rate. To keep it simple, “green” is a good day for mortgage rates on the chart and “red” is a bad day. (MBS are sold by FNMA and FHLMC to fund their purchases of mortgages from banks and brokers)

Starting May 21st the chart shows four bad days in a row, culminating in one of the worst days for mortgage rates ever on May 26th. Intermixed with attempts to rally, mortgage rates have continued to worsen since then. Rates haven’t been this high since late November 2008.

What caused the sudden spike in mortgage rates?

To answer that, we have to go back a bit to look at why they were so low to begin with.

At the end of 2008, there was a lot of doom and gloom on Wall Street about the economy due to the bankruptcy of Lehman Brothers, the forced sale of Merrill Lynch, and the federal bailouts of AIG, Goldman Sachs, Morgan Stanley and a slew of banks deemed too big to fail.

In response, money flowed away from high-risk to low-risk investments. U.S. Treasuries and MBS are considered fairly low-risk, so prices on them were bid up, lowering interest rates.

On top of that, the Federal Reserve announced in early December that it was buying up to $500 billion in MBS over the next several months to lower mortgage rates even further. In mid March this figure was increased to $1.25 trillion.

The result of these two factors was the lowest mortgage rates in over 50 years.

Nothing Lasts Forever

Recent positive news on the economy now has Wall Street investors thinking that the worst recession in memory, may be ending. Over the last two weeks, economic reports are showing signs that unemployment, housing and consumer confidence may be stabilizing. The key word there is, “may”. The stock markets though, have responded to this news by increasing, pulling money away from the MBS market and causing rates to rise.

So, has the government’s stimulus working to lift us out of the recession? Will a turn around in the economy lead to lower unemployment, higher wages and housing prices, making rising mortgage rates a minor issue?

The chart below compares several recessions to our current one. The chart shows that historically, recessions tend to last around 30 months, a tad longer than the 20 months we’ve experienced in the current one.

The term, “Bear Market Rally, is used on Wall Street to describe a false rally in the stock markets, that’s followed by further downturn. The chart below shows that during the Great Depression, there were six bear market rally’s that were followed by the market dropping to new lows.

Is the current stock market rally something similar and we have several months to go until we see a true end to the recession?

What about the Fed’s $1.25 trillion allocated to buy MBS to keep mortgage rates low? So far, they’ve only used about $370 billion of that total, so there’s a lot left that could be used to attempt to drive mortgage rates back down. The problem is, that may not work much longer.

The game only works to lower mortgage rates when Wall Street investors play along. There’s growing concern on Wall Street that the amount of borrowing by the federal government to fund all the economic plans, including the Federal Reserve, is simply becoming a game of “borrowing from Peter to pay Paul” and vice versa.

Figure 2 shows that when the federal government borrowers too much to fund its stimulus packages, the effect of the stimulus funds loses steam. So, throwing more money at the economy doesn’t help.

Our concern is that the same rules may apply to the Federal Reserve’s game on mortgage rates. The markets may have arrived at the point where even if the Federal Reserve increases its purchases of MBS, mortgage rates may not respond and go lower.

Summary

I wish I had a crystal ball and could accurately predict what mortgage rates are going to do. We’re in this economic mess because people way smarter than I, thought they had a good grasp on the financial markets.

It is my opinion (only) that we’ll soon find out if this is all a bear market rally or not. If it is, we’ll see the stock market drop and rates will improve. I don’t think we’ll see the same recent lows though, unless there’s major bad news on the horizon.

On the other hand, if this is the end of the current recession, than better days are ahead for the economy and all of us. Higher interest rates won’t be that big of an issue when sanity returns to the housing market and unemployment drops.

Someone says, "Crud my Name is Mud!" for HUD's Dud

2009-06-03T06:29:00.002-04:00

HUD issues then retracts a letter, "Using First-Time Home Buyer Tax Credits" and then releases it again.

May 29, 2009 -- DETROIT, MI - Oops! Someone has some explaining to do to their boss at HUD. In case you missed all the hoopla, on May 11th HUD issued Mortgagee Letter 2009-15 on its website and then pulled it later that same day. The letter, with an important change, was released again on May 29th.

It sounds like someone didn't follow protocol and jumped the gun in releasing the letter the first time. Hope they still have a job.

If you've been out of touch with the housing news of late, President Obama's housing recovery plan includes an $8,000 tax credit for anyone buying a home that hasn't owned one in the last three years. Home purchases between January1, 2009 and December 1, 2009 qualify.

Unlike President Bush's homebuyer incentive, which was really a $7500 loan that had to be paid back over 15 years, the $8,000 tax credit is a real credit. Qualifying homebuyers just have to file their federal tax return to claim it. They can even amend their 2008 return after buying a home to get the credit this year.

HUD was basically forced to release their letter and play catch up, in response to several state governments creating programs using second mortgage and/or short-term loans to advance the tax credit money to qualifying homebuyers. The homebuyers than used this money as their down payment to buy homes with FHA financing.

At this time there are 10 states with these "tax credit advance programs" and several more working on and considering them.

HUD now allows the following entities to offer tax credit advance programs:

Federal, state and local government agencies
Non-Profit Instrumentalities of government
FHA-approved non-profits
FHA approved lenders

These entities can either advance the tax credit through a second mortgage or by purchasing the tax credit from the homebuyer.

If using a program with a second mortgage:

No cash back to a borrower.

The loan amount can't exceed the total needed for down payment, closing costs and prepaids.

Secondary financing may OR may not require monthly payments.

If payments are required, they must be included in debt ratios for the FHA mortgage.

If payments are deferred, the deferment must be at least 36 months in order to exclude the payment from qualifying ratios.

If the tax credit advance loan has a short term for repayment and the borrower fails to repay by the designated deadline, principal and interest payments begin automatically or the loan converts to a "soft" second (no payments).

No balloon payments before 10 years.

If using a tax credit purchase program:

Proceeds of the sale of the tax credit may not exceed the anticipated tax credit due.

Borrower must sign a certification that the tax credit is not subject to offset of other debt.

Copy of form IRS 5405 must be retained by the FHA lender.

Costs associated with the tax credit purchase cannot exceed 2.5% of the anticipated credit. (Example: $8k tax credit means maximum $200 cost)

The proceeds of the sale of the tax credit to FHA approved lenders, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity), may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs.

This last condition is mainly what HUD changed when they retracted the first letter they released.

Many real estate agents and mortgage lenders are misinterpreting HUD's announcement to mean that Down Payment Assistance (DPA) programs are back. (DPA programs allowed a seller to basically give the buyer their down payment funds). They're hoping the $8k tax credit can be used to fund the DPA. Not going to happen. Let me be clear - HUD will not allow the $8k tax credit to be used for the 3.5% down payment required on FHA loans.

HUD was pretty adamant about stopping the use of DPA programs and finally succeeded in April of 2008. Their internal statistics showed default rates on loans with DPA were three times higher than the rest of their portfolio.

The revision HUD made to their mortgagee letter was specifically done to avoid the return of DPA programs. The language, "any third party or entity that is reimbursed, directly or indirectly" is the key to that goal. Any entity that advances the tax credit can only be paid back by the borrower, no one else. On top of that, they can only charge 2.5% of the tax credit, which means a maximum of $200.

I don't think many lenders are going to go through the hassle of setting up a special program to take advantage of this allowance by HUD, given that the tax credit program ends December 1st.

So, that leaves buyers in the other 40 states without a tax credit advance program hoping that one develops in their state soon - or else the opportunity will be gone.

Of course, they can also hope that President Obama extends the program past its December 1st deadline. That might actually happen as the housing crisis is far from over.

A Very Bad Day to be Betting on Low Mortgage Rates

2009-05-27T22:15:00.005-04:00

Another bubble may have burst, this time with low mortgage rates.

DETROIT, MI – It’s an unsettling feeling watching a market in free-fall. You watch it drop, drop and drop some more, wondering and hoping that it’ll level off. When it doesn’t, panic and paranoia creep in and your stomach starts to tighten.

I’m sure a lot of bond traders on Wall Street were going through this as one of the WORST days for Mortgaged Backed Securities played out. Take a look at the chart below:

(NOTE: this chart reflects MBS prices which are the inverse of interest rates.)

As if to set the market up like a pool hustler, the day started with a bit of improvement after a bad day yesterday. Then the market kept dropping and dropping and dropping, etc.

What’s this mean for interest rates?

Well, you’re looking at rates being ½% worse than they were at the start of last week, maybe even higher.

What caused the sell off?

It was an accumulation of factors plus mob hysteria thrown in for good measure. The government’s auctioning off a slew of Treasuries this week, consumer confidence shot up last month and was reported yesterday, housing sales are up and the market was just nervous that all this will lead to inflation.

The question is, is this a reset of the markets or will the next round of bad news drive rates back down? We also have the Fed to watch and see how team Bernanke will react to this. The Fed pledged 1.25 trillion dollars to buy MBS and keep mortgage rates around 5%. They’ve only used up about half of this amount. Will they go “all in” and blow the rest on a gamble to call Wall Street’s bluff?

Stay tuned.

The Misconduct of the Home Valuation Code of Conduct (HVCC) - Detroit

2009-05-17T10:48:00.006-04:00

HVCC, as currently written, will be kicking a housing market that’s already on its knees.

DETROIT, MI – Despite the efforts of the real estate and lending industries, the Home Valuation Code of Conduct went into effect May 1, 2009, bringing a dramatic change to the home financing process.

HVCC is the result of a 2007 lawsuit brought against an appraisal division of First American Corp. by the New York Attorney General, Andrew Cuomo, for allegedly inflating appraisal values on an estimated 260,000 WAMU mortgages.

So now, in typical government fashion, we go from one extreme to the other – unmonitored appraisal inflation replaced with bureaucratic appraisal deflation.

The intent of HVCC is to prevent loan originators from having undue influence over appraisers on the valuation of homes and prevent inflated appraisals.

Appraisals for mortgages on 1-4 family homes to be sold to FNMA or FHLMC, will no longer allowed to be directly ordered by loan originators. They must be ordered through Appraisal Management Companies (AMC) that act as middlemen between appraisers and loan originators. (Currently HUD’s FHA loans are not subject to HVCC. Loan originators can still order their own appraisals from trusted appraisers for FHA loans.)

Sounds great in theory, but the reality is far from perfect.

I had lunch with several of my mortgage competitors this past week. The main topic ended up being the HVCC and what it’ll mean to the process of financing a home. The consensus was that there are going to be a lot of unhappy people – homeowners, homebuyers, sellers, real estate agents, loan originators and more.

Was there a problem with inflated appraisals?

Yes, but HVCC in its current version, creates more problems than it solves. Underwriting departments at most lenders were already using advanced computer programs to address the problem of inflated appraisals. Appraisers found to be providing questionable values and work, were banned by that lender.

Why is the industry so up in arms over HVCC? Well, let’s look at how the system is supposed to work:

Loan originator orders appraisal from AMC (usually via internet)

Payment must be made when the order is placed to avoid appraisers being forced to bring in a specific value in order to get paid.

AMC randomly assigns the appraisal order to one of the appraisers on its list of approved appraisers

Appraiser is typically required to complete & deliver the appraisal within an acceptable amount of time.

Sound easy doesn’t it! So what’s the problem?

There are no requirements concerning the proximity of an appraiser to a property or their knowledge of an area. On a recent transaction, an appraiser came from 145 miles away to appraise a home. Not surprisingly, the value came in significantly under what local real estate agents estimated it to be.
The cost of appraisals has gone up. Our appraisers typically charged $300-$350, now the AMC’s charge $450 or more. Instead of an appraiser getting their full $300, AMC’s only pay them $175-$250 of the $450 charged. So, appraisers will have to do more appraisals to earn the same amount they have in the past. This will lead to shoddy work.

The AMC doesn’t care if data for the appraisal is difficult to find and would normally take longer to provide an accurate value. They want them ALL back in 48 hours, failure to do so could exclude the appraiser from their list. Again, this will lead to shoddy work. Many high end homes sold in the past recorded the sales price as $1 in the MLS. Also, many builders sold houses outside the MLS. Normally, an appraiser would go to county records to research these sales and prices if needed. The 48 hour turn time requirement will now lead to appraisers just ignoring these sales, which could negatively impact appraisal accuracy and value.
There is very little anyone can do to challenge a low valuation at this time. Oh sure, there are forms you can fill out to do so, but the real chances of an override occurring are slim. The only option then is changing lenders and paying for another appraisal, while still hoping for a better value. This will all have to be paid by borrowers and mean longer application timelines.

Each lender has their own approved AMC. There is nothing in HVCC requiring lenders to honor each other’s appraisals, so switching lenders could mean paying for another appraisal.

I haven’t seen anything in writing about how AMC’s will monitor and rate appraisers for the quality of their work. Will it be any surprise that appraisers will just use the first three comparables that pop up on their computer searches? What incentive do they have to put more time into making sure an appraisal reflects the best and most accurate value possible?
HVCC has no ethics, screening or performance requirements for AMC’s or their owners. Several AMC’s have been started by retreads from the subprime debacle.
These are not the type of challenges you want to hear when real estate values are dropping, especially for those trying to refinance.

Should we blame the appraisers when their valuations start affecting transactions? I don’t think we should. None of the appraisers I know have anything good to say about HVCC. Many of them have spent years building their businesses by establishing relationships through providing great service. Now those relationships are all being taken away from them. They’re also not happy about the time constraints the AMC’s are placing on them. HVCC and the AMC’s treat appraisers like they’re a commodity and 100% the same. It’ll create a race to the bottom and reward appraisers who work the cheapest & fastest at the expense of accuracy & quality.

I’m going on record here advising real estate agents to pull their own comparables and hand them to the appraiser when you meet them at a property. Maybe even go one step further and do a mini Broker Price Opinion! Otherwise you’re leaving the fate of your transaction in the hands of an appraiser who really may not care if your deal closes or not. Real estate agents, by the way, are the only industry professionals involved in the transaction that are allowed to speak with appraisers under HVCC.

If you’re a homeowner looking to refinance, you may want to get back in contact with the real estate agent that sold you your home and have them do what I suggested for a purchase transaction in the paragraph above.

By the way, anyone thinking that going to a bank or a certain lender will avoid the problem, is seriously mistaken. Everyone in the industry will be facing the same problems. Homeowners trying to refinance won’t be able to threaten to go to their banks to avoid the problem. Real estate agents won’t be able to blame loan originators if a sales price is not met. It’s a new reality we’ll all have to learn to deal with.

A BETTER SOLUTION?
Obviously, there was a problem with inflated appraisals. HVCC is a step in the right direction to address the problem, but several logical modifications can be made to improve it.
Create a nationwide, central database where all appraisers have to register, so “bad eggs” can be identified by all. The federal government required it for loan originators due to fraud issues, so why not appraisers? The same mechanism can also be used.

Require any and all owners of AMC’s to pass a background check. Currently, an appraiser, lender or real estate agent could have their license revoked, but still open an AMC.

Create a national system to randomly review the work of appraisers and address complaints. HVCC as it is, leaves this to the AMC’s themselves. Self-regulation really worked in the banking industry, didn’t it?

Require all lenders to use independent AMC’s. Banks are currently allowed to use their own appraisal staffs and own AMC’s, which makes absolutely no sense - unless you’re a politician getting bribed/lobbied by the banking industry. The original version of HVCC required 100% independency, but I think the fact that most of the top U.S. banks already owned an AMC might have had a little to do with this rule miraculously changing. Now, does anyone seriously believe that an invisible wall between a bank’s appraisers and all other employees will really be honored?

Standardize the AMC’s appraiser approval process and require that they all accept each other’s appraisals.

Create penalties for AMC’s that pressure appraisers to work on unrealistic deadlines to stay on their approved lists. The 48 hours that most AMC’s require is foolhardy. A week is more realistic. Pressuring appraisers to rush their work is really no different than pressuring them to inflate values.

There should be geographic proximity requirements for assigning appraisals. Is it reasonable to expect an appraiser desperate for work to turn down an order in an area they don’t know?

Create a standardized system of review, so shoddy appraisal reports can be properly addressed. Since any review system takes time, which could cause a transaction to fall apart, the review system should provide a borrower the option of ordering and paying for a 2nd appraisal, but then require a full refund of the 1st appraisal if it’s found to be suspect.

The improvements suggested above won’t create a perfect solution as that’s impossible in the real world. They could dramatically improve a seriously flawed HVCC though.

Please keep in mind that we’re all in this together, both borrowers and industry professionals. We have a government that’s giving out hundreds of billions in bailout relief to those at the top that caused the housing crisis – while seeming to make everything harder for the average person on the street. We all have to stick together to find our way through this new challenge.

If you’d like to protest against HVCC in its current form, please check out this electronic petition:

http://www.petitiononline.com/hvcc/petition.html.

For additional facts about HVCC watch this short video:

https://www.thinkbigworksmall.com/mypage/tbws/7789/661622

Saving the American Dream?

2009-05-03T13:38:00.005-04:00

A step-by-step, logical outline for a homeowner on the options to save their home.

DETROIT, MI – Homeowners everywhere are struggling to save their piece of the American Dream, their castle, their home.

Every week of news seems to promise a ray of hope, that’s quickly followed by more bad news for the economy, which means more bad news for them. More layoffs, pay cuts, benefit cuts, business bankruptcies, bailouts, rising expenses, the list goes on and on.

When they go looking for options to help them keep their homes, they run into a confusing array of claims, programs, advice, rumors and gossip.

There’s no shortage of bold headlines regarding the subject, but the media really offers very little in the way of a step-by-step analysis that makes sense of what’s real, what’s fraud and what’s realistic.

Caution is the key for homeowners when considering their options.

Take loan modification services, for example. A Google search for “Loan Modification” returns 320,000 matches for just the last month. How can anyone possibly make sense of that much information?

Making matters worse, a similar Google search for “Loan Modification Fraud” returns 33,000 matches. The problem has gotten so big that the FBI formed a special unit to investigate foreclosure rescue scams in December of 2008, supervised by Travis Yarbrough. He was quoted in a Bloomberg article on the topic when asked who is running the scams, “A number of them previously worked in subprime mortgage companies. Some of these perpetrators have gotten very creative at separating homeowners from their money.”

So what’s a homeowner supposed to do?

Be very careful of who you take advice from. Don’t blindly trust the media, family, friends, neighbors or even “experts” as they often don’t have 100% of the facts. Nor do they have to live with the repercussions of their advice – only you will.

So, do your own research and question everything. Understand that there’s no “magic” that will solve all your problems, despite how desperate you may be for a solution. Yes, there are always several actual outrageous success stories, but the chances of it happening for you are similar to your chances of winning the lottery. Most actual solutions involve a LOT OF WORK.

Lastly, remember that hope is not a plan, nor a strategy. You MUST take action or someone will do so for you and their solution will be what’s best for them, not you.

Now let’s try to bring some clarity to the chaos.

STEP #1: Build a Budget!

If you’re struggling with your finances, the only logical way to fix the problem is to complete a very comprehensive monthly budget. Issues to keep in mind:

- For your income remember there are 52 weeks in a year, not 4 weeks in a month.
- Don’t forget items you may pay only quarterly, semi-annually or once a year.
- Be careful about being unrealistically aggressive when budgeting.

STEP #2: Can You AFFORD to Stay in your Home?

This is one of the hardest questions to honestly answer as it involves a lot of emotion. You may want to seek the assistance of someone you trust outside of your household to review your budget and be blunt with you on its viability.

If you wait too long to take proactive action, you’re options will be fewer, if any.

USING SAVINGS TO LIVE OFF OR SUPPLEMENT INCOME – if you plan to ride out the storm by living off savings or a buyout, then you need to know how long you can do so. The challenge here is being realistic and knowing when to throw the towel in and look at the other options.

STEP #3: You Want to Stay, but Can’t Afford the Current Payment

If you’ve reduced your spending on everything you can, but your expenses are still greater than your income, then you need to consider other options to reduce expenses.

REDUCING YOUR MORTGAGE PAYMENT – Obama’s “Making Home Affordable Program”

The Obama administration initiated a plan on March 4, 2009 to help an estimated 7 to 9 million homeowners keep their homes by lowering their mortgage payments through one of two ways:

Home Affordable Refinance
Even if you owe slightly more than your home is worth, you may be able to refinance to a lower rate if:

- Your mortgage payments are current (no more than 30 days late in the last 12 months)
- The property is your primary residence
- Your loan is owned or guaranteed by FNMA or FHLMC
- You owe no more than 105% of your home’s value
- Your stable & continuing income will support the new monthly payment
- You apply before June 10, 2010

Challenges on this program:
- No cash out or debt consolidation is allowed
- 2nd mortgages may not be paid off.
- 2nd mortgages must subordinate for this program, but they don’t always agree to do so!

Home Affordable Modification
If you owe more than 105% of your home’s value or you’re behind on your mortgage payments, this option may help you if:

- Your primary residence is a 1-4 family property
- Your mortgage was originated prior to January 1, 2009
- Your mortgage payment + taxes + insurance exceeds 31% of your gross monthly income
- The Servicer of your mortgage voluntarily participates in the program
- A modification plan must be in place prior to December 31, 2012

Participating (voluntary) lenders are instructed by the plan to modify mortgages to 31% of a homeowner’s income, using the following steps in order:
- Lower the interest rate in 1/8% increments to a floor of 2%
- Extend term of a loan in 12 month increments to a maximum of 40 years from mod date
- Forebear a part of the loan, with no interest, which will have a balloon payment.
- Voluntarily only – agree to reduce the principal of the loan.

LOWERING UNSECURED DEBT PAYMENTS
Many credit companies will negotiate payments and interest rates to help consumers avoid defaulting on their accounts. Some things to keep in mind:

- The credit account will usually be closed so it can no longer be accessed.
- It may also result in late payments being reported to credit bureaus. This is done to make it difficult for a consumer to open up new credit accounts until the negotiated account has been paid. Often, an agreement in writing can be made that upon full payment, the reported late payments will be removed.
- Get all agreements in writing!
- HUD Certified Consumer Debt Counselors are available 888-995-HOPE, website http://www.hud.gov/offices/hsg/sfh/hcc/fc/)

STEP #4: No Options to Afford to Stay or Don’t Want to Stay

If you’ve explored all your options, but still can’t afford your home OR you wish to more on for other reasons, then you can explore a short sale, deed-in-lieu of foreclosure or wait for the inevitable foreclosure.

RENTING OUT YOUR HOME
It’s most likely that whatever rental income you can get won’t cover your payment. If it does great, just be careful to go over this with a rental professional as there are all sorts of hidden costs associated with being a landlord.

If the projected market rent doesn’t cover your payment, it may cover enough for you to be able to comfortably make up the difference. Again though, check with a professional so you’re aware of the hidden costs involved.

NOTE: Be VERY careful when considering this strategy! Once you rent out your home you lose many tax benefits and legal protections.

SHORT SALE
A short sale is where you get your mortgage lender to accept less than you owe them in order to sell your home. Keep in mind:

- The average short sale takes 2-3 months to complete AFTER a buyer is found
- Your lender may not stop their foreclosure actions even if you find a buyer
- 2nd lien lenders will make short sale negotiations much more difficult
- TAX ISSUES – most lenders will send a 1099-C and leave it to you to address tax issues. At the end of 2007, the Mortgage Debt Forgiveness Act was enacted. If you receive a 1099-C, it may not be taxable under this act. Read IRS Publication 4681 for details. NOTE: cash out from your home used for anything but home improvement will usually be taxable!
- DEFICIENCY JUDGMENTS: most 1st lenders will agree not to pursue. Many 2nd lenders will want to preserve their rights to pursue a judgment at some later time.
- NEW MORTGAGE: FNMA currently requires a 2 year waiting period after a short sale.

DEED-IN-LIEU
This is where a lender agrees to take your home back via a Quit Claim Deed, instead of pursuing foreclosure. Due to excessive foreclosure inventory, many lenders are not currently agreeing to this strategy.

- If you have a 2nd lien, this strategy is usually NOT an option unless both liens held by same lender.
- Tax & Deficiency issues from above apply
- NEW MORTGAGE: FHA allows the shortest waiting period of 3 years.

FORECLOSURE
In Michigan, the foreclosure process can take up to 9 months or more to complete. During this time, you can live in your home without making payments.

- Michigan gives lenders two options for foreclosure: judicial and by advertisement (most common)
- A homeowner has no legal obligation to move out of their home immediately after Sheriff’s Sale
- Most residential homeowners in Michigan are allowed a 6 month Redemption Period
- You have no Tenant rights in Michigan after expiration of Redemption Period
- DEFICIENCY JUDGMENTS: If 1st lender bids amount they are owed, it’s unlikely they will pursue a deficiency judgment. If they bid less than they are owed (becoming more common) they can pursue a deficiency judgment for the difference between what they are owed and what they bid (must be at least fair market value). 2nd lenders can pursue deficiency judgments unless they agree to forego for a reduced settlement.
- NEW MORTGAGE: FHA currently requires a 3 year waiting period after a foreclosure, an exception is possible if extenuating circumstances.

BANKRUPTCY
The possibility of deficiency judgments may force many homeowners to also consider filing bankruptcy after a short sale, deed-in-lieu or foreclosure.

A homeowner may also consider bankruptcy if they feel strongly about staying in their home and choose to let all their unsecured debt go and focus all income on saving their home.

Closing Thoughts

Many people reading this document may be desperate enough to believe almost anything that appears to offer some sort of assistance out of their dilemma. Do not make this mistake.

There are many websites advertising how they can help you ‘walk-away” from your home, many of them represent you can do so with no financial repercussions. As mentioned above, this is not the case.

Be proactive and seek out the assistance of experienced and reputable professionals. Question everything! If someone cannot or will not explain your options to your satisfaction – run, don’t just walk away from them. This is a sign they either don’t know themselves, don’t think you’re worth the time or don’t want you to know. None of which you should accept.

WARNING: This post is not intended to offer any legal advice so, it’s highly recommended that competent legal & professional advice be obtained.

Reality of Realty – Detroit Metro Sales are Up, but. . .

2009-04-26T17:08:00.009-04:00

A look at the 3rd quarter numbers reveal some interesting statistics that show the housing crisis is not over.

DETROIT, MI – According to a recent National Association of Realtors (NAR) report, national homes sales were up in February, but down slightly in March when compared to last year.

In the Detroit Metro area, sales through the end of March were up in every area:

This of course, is good news as our area has been hard hit with the highest unemployment in the country and for awhile, Michigan led the nation in foreclosures.

So start the party as our housing crisis is ending?

Put the champagne and party hats away.

A deeper look at the numbers, show that it’s the sales of distressed properties that are responsible for the improvement:

Now let’s look at what’s happening with the sales of homes owned by private individuals (true retail sales):

(*Note: Realcomp recently introduced fields for several distressed types of transactions, so these numbers may be somewhat suspect)

As you can see, retail sales are drastically down everywhere.

It’s obvious that first-time buyers and real estate investors are scooping up distressed properties and ignoring retail properties.

Why? Because distressed properties are cheaper and potentially better values than retail properties.

This is not good news for homeowners that have to sell. It also affects move-up buyers that would like to sell their existing home to buy a bigger home and take advantage of low home prices.

Home sales are heading in the right direction, but don’t let anyone tell you we’re in a full recovery yet. That won’t happen until retail sales at least stabilize.

For now, first-time homebuyers need to understand that there’s lots of competition out there for distressed properties. Not only from other first-time buyers, but also from real estate investors - many from out of state. These investors usually buy with cash and banks are more likely to accept a slightly lower cash offer than a higher offer that requires a mortgage. Too many mortgage applications are being declined these days due to tightened lending standards.

All this may require first-time homebuyers to settle for a good deal, rather than a great deal.

Short Sale, Deed-in-Lieu, Foreclosure – How do Each Affect When You can get Your Next Mortgage?

2009-04-20T16:35:00.002-04:00

Too many homeowners act on bad advice, false assumptions or allow themselves to be conned when choosing one of these options.

DETROIT, MI – Over the last couple of weeks, in speaking with numerous homeowners, real estate agents and investors, I’ve noticed that there’s a lot of confusion and misunderstanding about the impact of Short Sales, Deed-in-Lieu’s and Foreclosures on one’s ability to get a new mortgage.

Over and over again, I’ve heard self-proclaimed experts make many incorrect statements. So many, that I felt compelled to do my best to separate reality from myth, fact from fiction.

Getting a New Mortgage
It’s actually pretty easy to provide concrete proof of when it’s possible to qualify for a new mortgage after a Short Sale, Deed-in-Lieu or Foreclosure. The mortgage meltdown has reduced the main players in the mortgage industry to FNMA, FHLMC, FHA, VA and RD. Gone are the numerous subprime and Alt-A players that seemed to have a mortgage program for anyone.

FNMA – Federal National Mortgage Association
Guidelines changed regarding these issues on June 25, 2008 with Announcement 08-16.

Short Sale: FNMA refers to these as “Preforeclosure Sales” and requires a 2 year waiting period after the sale, with acceptable re-established credit.

Deed-in-Lieu: minimum waiting period of 4 years, with a minimum of 10% down required for 7 years. There is a 2 year exception for extenuating circumstances.

Foreclosure: standard of 5 years waiting period, with minimum of 10% down & 680 credit score for 7 years. Primary residences only, no second homes or investment property loans for 7 years. There is a 3 year exception for extenuating circumstances.

Bankruptcy: Chapter 7 requires a 4 year waiting period, but there is a 2 year exception for extenuating circumstances.
Chapter 13 is 2 years from discharge date or 4 years if the Chapter 13 is dismissed (not completed).

FHLMC – Federal Home Loan Mortgage Corporation
Guidelines changed regarding these issues with the release of Bulletin October 17, 2008. For some reason FHLMC isn’t as user-friendly with their updates in comparison to FNMA. Instead of listing the specific changes in their Bulletins like FNMA, they force you to refer to their guidelines to find the changes. The ones related to our topic are found in Chapter 37-7. FHLMC could definitely use some PR coaching to be more user-friendly.

Short Sale: FHLMC refers to these as “Short Payoffs” and requires a 4 year waiting period after the sale, with acceptable re-established credit. There is an exception for extenuating circumstances of 2 years.

Deed-in-Lieu: minimum waiting period of 4 years, with a minimum of 10% down required for 7 years.

Foreclosure: standard of 5 years waiting period, with minimum of 10% down for 7 years. Primary residences only, no second homes or investment property loans for 7 years. There is an exception for extenuating circumstances of 3 years.

Bankruptcy: Chapter 7 requires a 4 year waiting period.
Chapter 13 is 2 years from discharge date or 4 years if the Chapter 13 is dismissed (not completed).

FHA – Federal Housing Administration
FHA is a part of HUD and as of this point does not differ in how they address Short Sales, Deed-in-Lieu’s or Foreclosures. They’re all treated the same. Their great source for their guidelines can be found at http://www.fha-lending.com/CD/HUD%204155r-5.pdf.

All: standard of 3 years waiting period required. There is an exception for extenuating circumstances.

Bankruptcy: Chapter 7 requires a 2 year waiting period, minimum 12 months with extenuating circumstances.
Chapter 13 requires 12 months of timely payments and must have court’s authorization.

VA – Veterans Administration
The credit requirements are the same as FHA. More information can be found at: http://www.homeloans.va.gov/veteran.htm

RD – Rural Development
A part of the U.S. Department of Agriculture. The credit requirements are mostly the same as FHA & VA. More information can be found at http://www.rurdev.usda.gov/CA/pdf%20files%20and%20documents/GRH%20UNDERWRITING%20GUIDEL.pdf

Bankruptcy: minimum 3 year waiting period required, no difference between Chapter 7 or 13. Extenuating circumstances may be considered for exceptions.

I highly recommend checking out some of the links I’ve included. Direct anyone giving you contradictory information to them, so they may reference the correct facts.

Reality of Realty - Spring Fever in Home Sales

2009-04-04T10:45:00.007-04:00

First-time buyers looking for deals discover they have to outbid investors for houses.

Reading the national headlines about record drops in home prices and record foreclosures, might lead homebuyers to assume they can get a steal of a deal on buying a home these days.

Adding to this perception are the stories, both in the news and from family & friends, about buyers getting homes for a fraction of what they sold for a few years ago.

Well, four first-time buyers I talked to this week found out that perception is often not reality.

After getting all excited about a house they already perceived as being theirs, reality blind-sided them as they were all outbid and didn’t get their dream deals. One person in fact, lost out on two homes, one of them to a cash buyer with a lower offer.

I’m sure these homebuyers were a bit shocked when their real estate agents told them their offer, not only didn’t get accepted, but that someone else got the house.

An increasing number of real estate agents & real estate investors tell me they’re seeing foreclosures priced aggressively to sell from the first day they’re listed This is dramatically different than last year when they seemed to be generally priced at the high end when initially listed and it took months for price reductions to bring them in line with buyer expectations.

So, what should serious home buyers do?

Don’t assume what you hear in the news is 100% accurate. Most of us have seen the word “assume” broken into three words that describe what happens when we assume too much.

Talk with real estate experts and find out what’s happening now with real estate in the area you’re looking in. Most of what’s in the news is not area specific and is often broad generalizations.

Keep in mind, even the advice of well-intentioned family & friends is often based on hearsay or second-hand stories.

Homebuyers should consider the magnitude of what they’re investing when they buy a home. If you inherited $100,000 and were trying to decide where to invest it, would you follow the advice of family & friends or would it be better to seek out financial experts and follow their advice? The number of broke lottery winners would probably surprise you. Most of them lost their money by following the advice of family and friends.

Buying a home is a significant investment and should be handled accordingly. Seek the advice of real estate and mortgage experts – unless you want to fall victim to the old saying, “a fool and his money are soon parted”.

Survival of the Fittest Mortgage Originators

2009-03-31T18:26:00.000-04:00

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.

Just When the Public Thought it was Safe to Buy Houses Again…

2009-03-28T13:04:00.003-04:00

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.

“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.

We Can Afford How Much on Minimum Wage?

2009-03-22T13:04:00.003-04:00

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.

Playing Limbo with Mortgage Rates

2009-03-19T10:26:00.006-04:00

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/.

FHLMC Allows Refinancing with No Income or Asset Requirements

2009-03-14T13:55:00.007-04:00

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.

Refi’s, Loan Mods, Foreclosures, Oh My!

2009-03-05T09:06:00.004-05:00

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.

Are You Working with a Soon-to-be Illegal Loan Originator?

2009-03-02T14:30:00.002-05:00

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?

A Brand New Program to Reclaim Foreclosures!

2009-03-01T21:28:00.002-05:00

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.

Saving the Housing Market, One Household at a Time

2009-02-28T17:17:00.002-05:00

Oakland County kicks off its Homebuyer Program with a standing room only seminar.

February 28, 2009 -- Pontiac, MI: Some of former President Bush’s stimulus funds are finally making it to main street. Oakland County announced it’s spending five million dollars from HUD’s Neighborhood Stabilization Program to subsidize the purchase of foreclosed homes in the county.

The county’s goal is to turn potential foreclosed, vacant eyesores into affordable housing, thereby strengthening neighborhoods.

For the purchase of vacant, foreclosed homes ONLY, the county will fund up to 49% of the purchase price, repair costs and closing costs with a zero percent, deferred payment loan. The home buyer MUST get a mortgage for the other 51%. The county’s loan is not due & payable until the home is sold or transferred.

The program is targeting first-time homebuyers, so if you already own a home, don’t bother applying. Homes must also be purchased in one of 43 targeted municipalities in Oakland County.

There are also income limitations to be eligible. Examples - $58,700 for a single person, $83,900 for a household of 4. As required by HUD, three million of the five million total, will be reserved for low income households. Examples - $24,450 for a single person, $34,950 for a household of 4.

An Oakland County Home Improvement technician must be included in the transaction to estimate and approve repairs. All work must be done by county approved contractors. The county will also control and pay for the appraisal, to confirm the “as-is” and after repaired values.

This is a great opportunity for first-time homebuyers. The county has designed the program to assist those that need the most help and also to make sure those approved stay in their homes and become anchors for neighborhoods.

It’s only expected that about 100 homebuyers will be able to take advantage of the program before funds run out, but the county is hoping President Obama’s initiatives lead to further funding. Approvals will be granted on a first-come basis, but you must turn in a complete package or you’ll go back to the end of the line.

There are many other requirements and details for the program tat aren’t covered here, so please go to www.oakgov.com/chi. Applications are also available there.

Whitehouse Needs to get this Housing Crisis in Order

2009-02-26T22:24:00.000-05:00

Conflicting messages from different parts of the government are not what we need during these challenging times.

BLOOMFIELD, MI – Anyone trying to follow all the latest updates from the government on what our leaders are doing to solve the housing crisis, is probably scratching their head wondering who’s in charge.

It’s looking more and more like no one at the top is in control and coordinating a cohesive plan.

Example #1:
On February 4th of this year, FNMA announced that they were bringing back appraisal waivers to assist more homeowners in taking advantage of historically low interest rates.

On February 17th the President Obama announced in his Homeowner Affordability and Stability Plan that FNMA would allow homeowners upside down up to 105%, to refinance.

Contradiction: How far was FNMA planning to ignore appraised values? We’ll never know now that the limit is 105%.

Example #2:
HUD is pressuring lenders for more conservative underwriting, resulting in lenders raising minimum credit score requirements for FHA loans to 620.

Obama’s plan turns $7,500 tax credit loan into $8,000 true tax credit to increase home sales.

Contradiction: Obama wants to increase home sales, but HUD’s shrinking the pool of eligible borrowers?

Example #3:
FNMA & FHLMC are raising there credit score and loan-to-value pricing adjustments. A borrower with a 739 credit score will now have to put down 25% to qualify for the best interest rate. Those with scores under 680 will have to put 40% down or pay a hogher interest rate.

On November 25th of 2008, the Federal Reserve announced a program to reduce the cost and increase the availability of credit for the purchase of houses. Over several quarters, the Federal Reserve will buy up to $100 billion of direct obligations of FNMA, FHLMC & GNMA, and purchase up to $500 billion in mortgage-backed securities (MBS) that the entities sell on Wall Street.

Contradiction: FNMA/FHLMC are effectively raising mortgage rates while the Federal Reserve is accruing debt obligations to lower rates?

None of this makes any sense unless someone at the top is a chess grandmaster and many moves ahead of the rest of us!

The Obama Housing-O-Rama, get Your Tickets Now!

2009-02-22T15:26:00.002-05:00

What’s in the latest stimulus plan for homeowners and the housing industry?

President Obama signed the largest economic stimulus package of tax cuts and government spending programs since WWII on Tuesday, February 17, 2009.

There are so many parts to the plan that reading it is like trying to see all the exhibits at an auto show or ride all the rides at a carnival. You just don’t know where to begin.

For the housing industry there’s really two parts to the plan: the homebuyer tax credit and the stabilization plan.

An $8,000 Home Buyer Tax Credit
One way to lower housing inventory and put a floor under housing prices is to increase demand. The administration is attempting to do that with this homebuyer tax credit plan. The hi-lites:
- Homes purchased between January 1 & December 1, 2009 are eligible
- For first-time homebuyers only (no home owned in the past 3 years)
- The credit does not have to be repaid
- The credit is limited to 10% of a home’s purchase price, up to a maximum of $8,000
- The amount of credit phases out for incomes of singles over $75,000 & couples over $150,000. - The credit is zero for incomes of singles over $95,000 & couples over $170,000.
- Use IRS Form 5405 to take advantage of the credit
- Eligible homebuyers have the option of claiming the tax credit in 2009 OR 2008. This may be important if their income in either year will reduce the amount of the credit. If a 2008 return has already been submitted, an amended return can be filed. One can also refer to IRS Publication 919 to check how they MAY adjust their W-4 withholding to realize the tax credit on each pay period, instead of waiting to file their 2009 returns next year.

The other part of the plan is listed below, exactly as released by the Whitehouse. My comments are dispersed where appropriate in blue.

Homeowner Affordability and Stability Plan Executive Summary

THE WHITE HOUSE
Washington
February 18, 2009

The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country.

Millions of responsible families who make their monthly payments and fulfill their obligations have seen their property values fall, and are now unable to refinance at lower mortgage rates.
Millions of workers have lost their jobs or had their hours cut back, are now struggling to stay current on their mortgage payments – with nearly 6 million households facing possible foreclosure.

Neighborhoods are struggling, as each foreclosed home reduces nearby property values by as much as 9 percent.

The Homeowner Affordability and Stability Plan is part of the President’s broad, comprehensive strategy to get the economy back on track. The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs. The key components of the Homeowner Affordability and Stability Plan are:

Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable
A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac

1. Affordability: Provide Access to Low-Cost Refinancing for Responsible Homeowners Suffering From Falling Home Prices
· Enabling Up to 4 to 5 Million Responsible Homeowners to Refinance: Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time refinancing. Yet millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates. As a result, the Obama Administration is announcing a new program that will help as many as 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions.
· Reducing Monthly Payments: For many families, a low-cost refinancing could reduce mortgage payments by thousands of dollars per year:

Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today’s low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.

The plan will allow homeowners to refinance as long as their mortgage amount doesn’t exceed the current value of their home by more than 105%. IT DOESN”T GO FAR ENOUGH! As I’ve been writing since October of last year, they need to just do away with appraisals altogether on no cashout refinances. HELP homeowners lower their payments and they’ll be more likely to stay as they have to live somewhere. If they can rent a comparable home cheaper than they’re paying to own, it makes more sense for them to walk-away and many more will. The homeowners with stated income and/or asset loans that FNMA/FHLMC have “orphaned” by terminating those programs also deserve a chance to refinance if they’re making their payments on time.

2. Stability: Create A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

· Helping Hard-Pressed Homeowners Stay in their Homes: This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. Millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly those who received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative helps those who commit to make reasonable monthly mortgage payments to stay in their homes – providing families with security and neighborhoods with stability.
As I’ve said before, people have to PAY to live somewhere. Make owning as affordable as renting and most will stay despite being upside down – they actually have the potential for their ownership investment to payoff someday, not so with renting.
· No Aid for Speculators: This initiative will go solely to helping homeowners who commit to make payments to stay in their home – it will not aid speculators or house flippers.
Not sure if I agree with this stance. On one hand investors are more likely to default if their properties aren’t cashflowing. On the other hand, displacing the tenants who paid on time and letting the properties get vandalized after foreclosure isn’t good for neighborhoods or housing values. For the right investors, Increase the length of their loans so they can cashflow, but not get out of paying what they owe.
· Protecting Neighborhoods: This plan will also help to stabilize home prices for all homeowners in a neighborhood. When a home goes into foreclosure, the entire neighborhood is hurt. The average homeowner could see his or her home value stabilized against declines in price by as much as $6,000 relative to what it would otherwise be absent the Homeowner Stability Initiative.
· Providing Support for Responsible Homeowners: Because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include households at risk of imminent default despite being current on their mortgage payments.
This is a 180 degree ABOUTFACE for the government and makes so much sense. Under the previous FHFA modification program, which required homeowners to be 90 days delinquent to be eligible for assistance, it was difficult for lenders to create an affordable modification plan once all the missed payments were added back in. For this reason, many modified loans end up defaulting again.

· Providing Loan Modifications to Bring Monthly Payments to Sustainable Levels: The Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels. Using money allocated under the Financial Stability Plan and the full strength of Fannie Mae and Freddie Mac, this program has several key components:

§ A Shared Effort to Reduce Monthly Payments: For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.

§ “Pay for Success” Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive “pay for success” fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.

§ Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
§ Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.

§ Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration -- together with the FDIC -- has developed an innovative partial guarantee initiative. The insurance fund – to be created by the Treasury Department at a size of up to $10 billion – will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.

Will this part of the plan help every homeowner stay in their home? No, and it shouldn’t. Unfortunately, those without jobs or consistent income can’t make a high enough payment to stay and can’t be allowed to live for free.

Will the cash incentives be enough to persuade lenders to be more aggressive about loan modifications and hire more employees to do so? We’ll have to wait and see.

I’m not sure what the administration is hoping the homeowner incentive to do. Being able to stay in one’s home seems to be a pretty big incentive.

· Institute Clear and Consistent Guidelines for Loan Modifications: Treasury will develop uniform guidance for loan modifications across the mortgage industry, working closely with the bank agencies and building on the FDIC’s pioneering work. The Guidelines will be used for the Administration’s new foreclosure prevention plan. Moreover, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidance. Fannie Mae and Freddie Mac will use these guidelines for loans that they own or guarantee, and the Administration will work with regulators and other federal and state agencies to implement these guidelines across the entire mortgage market. The agencies will seek to apply these guidelines when permissible and appropriate to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans’ Affairs and the Department of Agriculture.
This is way past due, I just hope they bring in experts from the lenders they expect to implement these guidelines. Several previous initiatives were created solely by politicians and as such were not embraced by the lending community. NOTE: lenders receiving the $1,000 incentives mentioned earlier will have to follow these guidelines, NOT banks receiving bailout funds. I’d like to know why the administration won’t mandate bailout funds being tied to these guidelines. Maybe it has something to do with the rumors about the banking system being nationalized?

· Other Comprehensive Measures to Reduce Foreclosure and Strengthen Communities
§ Require Strong Oversight, Reporting and Quarterly Meetings with Treasury, the FDIC, the Federal Reserve and HUD to Monitor Performance
§ Allow Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options
Wow, look how they subtly slipped this in! Lenders have been pulling out all the stops to keep this from happening. This will create a big mess unless strict guidelines are issued.
§ Provide $1.5 Billion in Relocation and Other Forms of Assistance to Renters Displaced by Foreclosure and $2 Billion in Neighborhood Stabilization Funds
§ Improve the Flexibility of Hope for Homeowners and Other FHA Programs to Modify and Refinance At-Risk Borrowers
The H4H program was created in a vacuum without lender input and bombed miserably with only 25 homeowners helped. Former President Bush had predicted 400,000. Let’s hope this administration does a better job.

3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac:
· Ensuring Strength and Security of the Mortgage Market: Today, using funds already authorized in 2008 by Congress for this purpose, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability.
§ Provide Forward-Looking Confidence: The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.
§ Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.
Ouch, this shows just how hard the housing industry has been hit by foreclosures and the anticipated pain still to come.
· Promoting Stability and Liquidity: In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.
They’re actually buying to keep a lid on rates instead of forcing them down to the 4.5% initially publicized.
· Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs’ retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.
· Support State Housing Finance Agencies: The Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving homebuyers.
· No EESA or Financial Stability Plan Money: The $200 billion in funding commitments are being made under the Housing and Economic Recovery Act and do not use any money from the Financial Stability Plan or Emergency Economic Stabilization Act/TARP.

.

The plan is pretty comprehensive, but there are so many unclear issues that still need to be addressed to execute the plan.

This plan really should have been introduced last year before the housing industry collapsed as it has.

FNMA Wears Flip-Flops! Recants Two Earlier Guideline Changes

2009-02-14T16:11:00.002-05:00

Lending is loosening at the top as FNMA tries to put a floor under the housing market

BLOOMFIELD, MI – Happy Valentines Day to Hallmark. Retail sales should have a tiny spike as many Americans will be buying cards, candy and dinners today.

Last week, FNMA announced two changes to their guidelines – they announced appraisal waivers are back and the raising of their limit on the number of mortgages from 4 back to 10.

What’s interesting is that FNMA is just recanting earlier changes they made meant to reduce risk on the mortgages it buys.

Both of these changes are designed to put a bottom under the housing market, but in two different ways.

Appraisal Waivers
The announcement about bringing back appraisal waivers, is meant to allow homeowners a better chance of refinancing to lower their interest rate & payment. Lower payments it is hoped, will lead to fewer foreclosures. Fewer foreclosures will mean a smaller supply of houses on the market, which should eventually stabilize housing values.

As part of the Automated Underwriting System (AUS) process, an Automated Valuation Model (AVM), similar to Zillow, will be accesses to determine a value. No cashout will be allowed, but borrowers will be allowed to roll in closing costs and prepaid escrow amounts.

The only question is how much variance will FNMA allow, between the AVM value and the stated value input in the system? It makes no sense to worry about the AVM value at all. FNMA already holds the mortgage and if the homeowner’s payment is being lowered, it just increases the likelihood of on-time mortgage payments.

I think we’ll see some more changes on this in the near future.

Limitation on Number of Mortgages held by a Borrower
Previously, FNMA had lowered the number of mortgages it would allow a borrower to have from 10 to 4.

With this announcement raising the limit back to 10, FNMA has acknowledged that real estate investors will be needed to absorb some of the supply of houses on the market.

All the families being foreclosed on can’t get another mortgage for at least three years due to credit damage. Real estate investors are now being encouraged to buy more houses to rent to these families. Many of these investors will eventually sell many of these houses to the families renting them.

The requirements are tougher than they used to be, but this is great news for those with a desire to move some of their money out of the anemic stock market and diversify into real estate. Also, anything that lowers the supply of houses will stop the fall in housing values.

The best news about all this is that lending is starting to loosen. Not due to bailout funds, but due to common sense. Let’s hope that trend continues.

The Greatest Buying Opportunity of our Lifetimes?

2009-01-31T12:59:00.000-05:00

A record drop in home prices combined with record low mortgage rates, may result in 2009 being the best time to buy a home since the Great Depression.

BLOOMFIELD, MI – With record drops in home prices (from their peaks) combined with record low interest rates, 2009 may go down in history as the best time to buy real estate in our lifetimes.

Of course, many real estate agents ALWAYS say it’s a great time to buy real estate as their income depends on selling homes. But, The Housing Affordability Index (HAI) chart here supports their claims this time. It shows that nationally, this is the best time to buy a home since 1971, when this data started being tracked. The index takes into account housing prices, mortgage rates and wage income to determine affordability for first time buyers with no home to sell.

The experts who publish the Case-Shiller Index are predicting that housing prices will continue to fall in 2009. So many home buyers may be tempted to wait until housing prices bottom out before buying.

Two challenges with that line of thinking:

1.) Wages are expected to also fall due to rising unemployment. As more and more workers are laid off, people will compete for the fewer remaining jobs, allowing employers to lower wages. Mortgage rates will also increase at some point in response to all the bailout money the government is spending. Both of these factors work against the benefits of falling housing prices. So, there’s no way to predict where the index will go in the future.
2.) Timing the bottom of the housing market is almost impossible. Did you know when the housing market peaked? None of the experts did. So, it’s safe to assume no one’s going to be able to predict the bottom of the market until AFTER it’s rebounded.

So, what should a potential home buyer do?

The best advice I can give a buyer is to make sure YOU know your budget and don’t spend every penny of savings to get into a home. Then forget about timing the market and go buy a home. Just be careful.

I’m always amazed that buyers come to me and are perfectly willing to let ME to tell them what THEY can AFFORD! Folks, you should know your budget way BETTER than me! All I, or any mortgage person, can do is tell you the MAXIMUM amount of trouble we can get you into. The industry methods of determining your maximum amount, don’t even take into account how many children you have! It’s common sense the more children you have the tighter your budget. Homebuyers should determine a maximum monthly housing payment (including property taxes & insurance) their budget can comfortably support, BEFORE talking to a mortgage person. If you feel you need help determining a solid budget, there are plenty of nonprofit organizations waiting to help you.

With the uncertain job markets, the lending industry is requiring more homebuyers to have emergency reserves to qualify for a mortgage. Again, some common sense is needed here. Buying a home and living paycheck-to-paycheck is a recipe for disaster! Unexpected things go wrong with homes all the time and cost money to fix. If you buy a foreclosed home, you buy it as-is. The greatest home inspector in the world can’t catch everything, nor should they be expected to. Likewise, the best home warranty won’t cover everything. So make sure you have some savings to fall back on if something breaks or if there’s a job layoff.

Nothing’s sadder in real estate than to see a foreclosed property get foreclosed on again.

Today’s real estate market offers great opportunities. Homebuyers need to hire the best qualified real estate agent and mortgage professional they can find, to help them minimize their chances of becoming another foreclosure statistic and instead, properly take advantage of the chance of a lifetime.

Is your Mortgage “Expert” Keeping up with Industry Changes?

2009-01-24T19:53:00.000-05:00

Changes in mortgage guidelines are occurring at a record pace. Many in the industry are not keeping up, causing painful lessons for consumers.

BLOOMFIELD, MI – Most consumers have come to believe all that matters in getting a mortgage is shopping for the lowest rate & closing costs. Every lender is the same, their expertise & experience mean nothing.

Sadly, this past week three homebuyers found out differently, the hard way.

They all had the same story – after being pre-approved by their lender, they had found a house, signed a purchase contract, applied for a mortgage with their lender, and halfway through the transaction, had their mortgage application rejected.

Each lender also had the same story - they claimed a recent change in mortgage guidelines was the reason for their rejection.

I got involved as they were each referred to me, to somehow save their transactions.

The sad fact was that in each case, the guideline change the lender blamed had actually occurred months ago, not recently, and I could do nothing for their transactions. I did email them proof that the guideline changes had occurred months before and recommended they confront their lenders for a return of their application fees.

Why do these things happen? Don’t all lenders follow the same guidelines? Isn’t getting a mortgage the same everywhere?

From early 2002 until April, 2007 getting a mortgage was very easy as mortgage guidelines were extremely loose. Many lenders joked that if a consumer had a pulse, they could get them a mortgage. People of all backgrounds, with no experience, jumped into the mortgage business for the easy money.

Then the Mortgage Meltdown hit, followed by the Real Estate Bubble popping, the Credit Crunch and the Recession we’re in now.

Today, mortgage guidelines are very different than they were April, 2007. Subprime, Zero Down, No Doc, Stated Income, Option ARM, are all gone along with loose mortgage guidelines.

Many mortgage people that got into the business after 2001 are struggling to adjust to the new lending environment. They’re used to just asking questions about FICO scores, income and assets. They don’t know how to ANALYZE a transaction to even ask the right questions to avoid nasty surprises, much less keep up on industry guideline changes.

Many of them claim to be experts by citing their time in the business, number of completed transactions or their ability to deliver the “best” price. I don’t see how any of that type of “expertise” helped the three homebuyers who got rejected this past week and had their home purchase dreams shattered.

Michigan passed a law April, 2008 requiring all loan originators (except those at federally charted banks) to pass a test by April 1, 2009. The test is heavily weighted with questions on federal & state lending regulations and underwriting guidelines. Many are failing it or are avoiding taking it until the last possible moment.

So, if you’re looking for a mortgage to buy a home or refinance, maybe you should be searching for more than just the lowest rate and fees. Maybe you should be asking loan originators what their credentials are and for proof they’ve passed the state test.

Banks Sneak in the Backdoor for more Fed Money

2009-01-17T17:10:00.000-05:00

Mortgage rates should be lower than they are. Why are banks smiling about this?

BLOOMFIELD, MI – On November 25th of 2008, the Federal Reserve announced a program to reduce the cost and increase the availability of credit for the purchase of houses.

Over several quarters, the Federal Reserve will buy up to $100 billion of direct obligations of FNMA, FHLMC & GNMA, and purchase up to $500 billion in mortgage-backed securities (MBS) that the entities sell on Wall Street.

The move is designed to put a floor under the housing market and break the vicious cycle of foreclosures pushing housing values down, causing more foreclosure, pushing prices down further.

The Fed started their purchases at the beginning of January and in response, mortgage rates dropped to 50 year lows.

This is great news for potential homebuyers as these historically low rates combined with marked down houses probably represent the best buying opportunity in a generation.

It’s also good news for homeowners as those with equity in their homes can refinance to lower their mortgage payments.

Increasing home sales, a refinancing boom – sounds like the clock’s been turned back to the “good old” days of a few years ago!

Well, this time around is very different for many obvious reasons and some not so obvious ones. Anyone notice that most banks are teetering on the brink of bankruptcy or insolvency? They’re not lending as eagerly as in the past, despite the government handing out $700 billion in TARP funds. Banks are desperate for money wherever they can get it. As such, they’re making this refinance boom dramatically different from previous ones.

Take a look at the chart below. It compares wholesale mortgage rates with those the consumer sees. The wholesale rate is represented by the FNMA 60 Day Delivery Rate, as best a wholesale rate as can be found. The weekly FHLMC Primary Mortgage Market Survey represents the consumer rate. Note that the survey has a “fee” component also.

The chart shows an overall widening between the two rates beginning in late November. Also notice the FHLMC survey shows consumer fees have increased since the end of October.

What’s going on? Well, to generate higher profits banks are keeping the improvements in wholesale rates while also raising mortgage fees (this is why it’s very difficult to get a no-cost refinance).

Remember, many banks are struggling to survive. They’re looking to increase revenues any & every way they can.

What’s interesting about this is that they’re taking advantage of the Federal Reserve’s purchase of MBS to lower mortgage rates for consumers. The Fed is spending taxpayer dollars to lower wholesale mortgage rates, but the banks are keeping the money, just like they’re keeping the TARP funds they received and were supposed to loan out to save the economy.

It’s just another sneaky way for the banks to get more money out of the government and taxpayers.

Media Hype Creates Mortgage Expectation Bubble

2009-01-10T18:56:00.000-05:00

News stories are only covering half the facts on falling interest rates, creating unrealistic consumer expectations.

BLOOMFIELD, MI – Everywhere you turn today is news about how low mortgage interest rates have fallen. Whether newspapers or internet, you can find coverage on the topic. People are talking about mortgage rates on the radio, TV, at work, everywhere.

The trouble is, all is not as the media so simply portrays it.

As the chart above show, this is the fourth major drop in interest rates Americans have seen since 1982. Back in 1982 mortgages were very labor intensive with handwritten applications, documents done on typewriters and everything sent by what we now call, “snail mail”. From application to closing could easily take 8 weeks, often longer. Many homebuyers took advantage of the increased purchasing power as a result of the lower rates, but many more existing homeowners took advantage of the lower rates to lower their mortgage payments.

With each successive drop in interest rates since then, consumers have benefitted from the increased use of technology by the mortgage industry. Computers, faxes, websites and email have all sped up the mortgage process, making mortgages cheaper, dramatically easier to obtain and increasing product options – until now.

The refinance opportunity that started at the end of 2008 brings the lowest rates in over 50 years, but it also brings challenges not seen in over 30 years.

Falling home values, tightening lending criteria, fewer loan programs & options, higher down-payment requirements and more, are challenges many borrowers have never experienced.

You’d never know this though from following the media hype about the drop in interest rates. Most articles about the topic rarely mention that borrowers face a brave new world of qualifying for these low rates.

Reality Check
Traditionally, the mortgage rates lenders offered were the same for all borrowers as long as they qualified for the corresponding mortgage program. Either the borrower had the credit, income and assets to qualify or they didn’t. That all changed on March 1, 2008 when FNMA announced Loan-Level price Adjustments (LLPA) on their products to compensate for increased risk.

Effective June 1st of 2008, even though a borrower may qualify for a mortgage program, their mortgage rate now depends on their FICO score, Loan-to-Value of the property and on refinances - more for taking cash out. At the extremes, some borrowers may pay up to three discount points more than others (keep in mind a discount point is not a percentage point).

Imagine the surprise of millions of borrowers being told they’re approved for their mortgage, but not at the advertised rate they applied for.

Unfortunately, it gets worse. On December 29, 2008, FNMA announced major changes to their LLPA’s that go into effect April 1, 2009. Because of the lag time from application to close and then lender delivery to FNMA, many lenders have announced they will implement these higher costs January 12th.

Want to finance a condo? If you finance more than 80% of the value it’ll now cost you an additional 0.75 in discount points regardless of your credit score. How about taking some cash out of your home? It could cost you as much as three additional discount points. There are now also hits for manufactured homes and subordinate financing.

The timing of this FNMA announcement is very odd in light of the Feds actions in buying Mortgage-Backed Securities to lower mortgage rates. One part of the government is trying to lower rates to help the housing market, while another part is raising the cost of those same rates.

Another bit of news the media has neglected to report is that “no-cost” refinances are almost a thing of the past. FNMA and the banks are changing the pricing model of the industry to discourage these types of transactions. Why? To stop what’s called, “portfolio runoff”. The rates offered by the industry have built-in assumptions that once a loan is closed, it’ll stay on a lender’s books for at least a minimum number of months. In previous refinance “booms”, lenders got burned by borrowers refinancing every 2-3 months and lost a lot of money. So, borrowers looking to refinance will have to either roll refinance costs into the loan amount or pay them in cash.

Rates hit Record Lows!

2009-01-06T15:54:00.000-05:00

The Fed follows through on their Mission of Buying Mortgage-Backed Securities to Drive Rates Down.

After rising the last 2 weeks, rates have plunged this week in response to the Fed's buying binge.

See the graph below:

Keep in mind this is a graph of MBS prices, which is inverse to mortgage rates. Notice the peak today (as of 4pm) exceeds all previous high marks.

We are seeing challenges though in getting these prices to translate to lower rates.

Lenders are getting slammed with refinance applications and are holding back on passing on all the pricing benefits to better rates. This is one way they control the number of loans submitted.

On top of that, lenders laid off tens of thousands of employees in 2008 and are short on manpower.

We are advising all our clients to get their applications in with us so we can start the underwriting process, while we watch the rates to lock in when it makes sense.

Gotta run and take care of clients:)

New Year’s Resolutions for the Mortgage Industry

2009-01-03T16:27:00.000-05:00

What are the chances of repeating last year’s actions and getting better results?

January 3, 2009 -- BLOOMFIELD, MI – What a challenging ride the year 2008 was. A worsening mortgage meltdown, the nationwide decline of real estate values, lack of credit liquidity causing a banking bailout, a bailout of the domestic auto industry, rising unemployment and the beginnings of a worldwide recession. Did I miss anything important?

The real estate and mortgage industries were decimated by the deteriorating economy, not to mention almost 25% of home owners nationwide watching their biggest investment going upside down.

One of the definitions of insanity is doing the same thing over and over again, hoping for different results. What changes can be made so that the industry has better results in 2009?

1. Registration and testing of all loan originators, including those working for federally chartered institutions.

WHY: Although borrowers should ultimately be held accountable for their ignorance and greed in taking out mortgages they couldn’t afford, a percentage of mortgage professionals did some serious misleading and worse. A mortgage is no more a commodity item than a 401k, yet consumers took mortgage advice from loan officers with little or no training. Several federally chartered organizations, most notably WAMU and Countrywide, had “sweatshop” refinance operations. Both these organizations were involved in lawsuits filed against them for mortgage abuses.

2. The return of common sense underwriting. There seems to be a lot of pressure on underwriters to be perfect, causing a lot of good mortgage applications to be rejected or picked apart. FNMA/FHLMC should issue some guidance on this.

WHY: Underwriting guides were too loose in recent years, but now the pendulum seems to have swung the other way. The government’s stated goal is to unfreeze the credit markets. Hypersensitive underwriting practices work in opposition to this.

3. FNMA/FHLMC should create a streamline refinance program that does away with appraisals & income verification modeled after HUD’s FHA Streamline program. FHA Streamline allows no cash out, but only requires that mortgage payments for the last 12 months have been on time. I’ve written about this several times before and there was a news leak on December 10th that it’s finally being considered.

WHY: Homeownership really boils down to affordable payments. Most people lose their homes, or walk away from them, when they can no longer afford the payments. Allowing homeowners upside down in their homes to still refinance and lower their payments, will keep more homes out of foreclosure. Slowing foreclosures will slow the dropping of real estate values, which will improve consumer confidence that’s now at a record low.

4. FNMA/FHLMC should remove their current limits and allow real estate investors to buy up foreclosed homes and rent them out. The limit is now 4 mortgages backed by FNMA/FHLMC, but with restrictions it should be unlimited.

WHY: The pool of qualified homebuyers has dramatically shrunk with the end of zero-down programs, easy credit requirements (both extremely abused) and the increasing number of consumers with foreclosure blemishes. This is one of the reasons we have excess real estate inventory. Many of these same people though, would like to rent a home, even rent-to-own it. Qualified investors are best suited to accomplish this. They just can’t get commercial financing due to the credit freeze. To avoid abuses, investors should only be allowed to buy foreclosed properties, have deed restrictions against reselling for 12-24 months and have either significant experience or liquid reserves.

5. Even though the program was a bit ill-conceived by politicians, lenders should embrace HUD’s Hope for Homeowner’s program (H4H) to avoid foreclosures.

WHY: The H4H program allows lenders to refinance nonconforming loans through FHA at 90% of the home’s current value. These loans usually won’t qualify for FNMA/FHLMC and are in danger of foreclosure. The current lender does have to write off the difference, but this is usually less expensive than the property going through foreclosure & being resold or being sold through a short sale.

6. Creative rules should be conceived that will motivate lenders to better staff their loss mitigation departments.

WHY: Ever tried calling a lender concerning a short sale, loan modification or foreclosure? You get to speak to someone with little training, reading from a limited script, that can’t make a decision. If you mail/fax/email something to them, it has a high probability of getting “lost”. In actuality, the easiest thing for these overworked individuals to do is to claim they never got what you sent. If the government is serious about doing more to keep homeowners in their homes, creative penalties need to be instituted to motivate lenders to solve this problem.

I’m sure some of these ideas will be addressed and some may end up not being feasible. We do need to do something though, or we’ll be worse off at the end of 2009 than we were at the end of 2008. Send me any ideas you may have.

Michigan Rewards Goof-off Grasshoppers instead of Attentive Ants

2008-12-27T15:23:00.000-05:00

The Michigan Loan Officer Registration Act (LORA) deadline of January 1st, 2009 proved unobtainable, so an extension has been granted.

December 27, 2008 -- BLOOMFIELD, MI – So much for being on the ball. Michigan just turned the Aesop Fable of The Ant & the Grasshopper upside down by announcing a LORA deadline extension on December 8th.

Aesop’s Fable told the story of a lazy grasshopper playing all summer long and making fun of an ant hard at work storing food for the winter. When winter comes, the starving grasshopper begs the ant for some food.

If you were a Michigan loan originator (Ant) that took the original LORA legislation seriously and signed up for the required testing ASAP, you just got the rug pulled out from under you. All those LO’s that procrastinated (Grasshoppers), or didn’t even know about the new legislation, get to laugh at you now for stressing out, studying and taking the test at 8am on a Sunday morning.

For those scratching their heads as to what I’m writing about, the Michigan legislature passed a bill, called the Loan Officer Registration Act (LORA), that Governor Granholm signed into law April 3, 2008. LORA requires Michigan loan originators to register with the Office of Financial Services (OFIR), requires taking a 24 hour class or having 4.5 years of experience, passing a test, annual continuing education, background check and fingerprinting.

The original deadline for all this was January 1, 2009.

A disagreement arose though, with the Michigan State Police concerning interpretation of the fingerprinting and background check requirements. This resulted in the extension announced December 8th pushing the deadline back to April 1, 2009.

The only good thing about the extension was that the legislature took the opportunity to stiffen the requirements a bit more. The FBI will also now be involved in the background check and fingerprinting.

I’ve written before that LORA is way over due. Too many crooks and incompetents got in the mortgage business for the fast cash and took advantage of unsuspecting homeowners, helping to contribute to the current housing crisis. The industry needs a housecleaning! When similar legislation was enacted in Indiana & Ohio, over 30% of the mortgage originators “disappeared”. More need to go. Just this past week, I met a guy who has his own mortgage brokerage and he didn’t even know about LORA. How scary is it, that he could be doing mortgages and not know about state requirements concerning his livelihood?

Overall, the extension is really a shame. All the bad eggs we want out of the business get more time to do more damage. Is it just a coincidence that the new deadline coincides with April Fools Day?

Show your support for higher standards in the mortgage industry by only doing business with those that have already passed the required LORA test. Don’t settle for a verbal verification of this. After taking the test, we all immediately get a printout with our picture on it that tells us if we passed or failed.

To Refinance, or not to Refinance?

2008-12-22T07:04:00.000-05:00

Mortgage rates have dropped, but many homeowners are saying, “So, what”.

December 22, 2008 -- BLOOMFIELD, MI – the Federal Reserve dropped the overnight rate to a record low of 0.25% on Tuesday, December 16th. More importantly, they announced a plan to buy mortgage-backed securities in quantity. This sent mortgage rates to their lowest levels in 50 years.

Mortgage lenders around the country rejoiced, expecting another refinance boom just in time for Christmas. Stories spread about the millions of dollars of loans locked and there was even talk of lenders hiring again.

Homeowners though, don’t seem to care.

In addition to blast emailing everyone in my database with what I thought was great news, I personally called over 70 clients that had a rate and loan amount where it could make sense for them to refinance. Surprisingly, I seemed to be the only one excited about this opportunity. Most clients didn’t seem to be interested for various reasons – too busy getting ready for Christmas, savings not enough, too much paperwork to deal with, and the best one, “I think rates will go lower”. Several of my associates in the industry I talked to got the same feedback.

I’ve been thinking about these responses for a couple days, wondering why there hasn’t been more interest in refinancing. In years past, a drop in rates like this would’ve had my phone ringing nonstop. With the large number of lenders out of business and the corresponding dramatic drop in loan originators, one would think the “survivors” would be swamped.

Me thinks homeowners are a lot more cautious these days, which is a good thing. They’re not willing to just refinance for the sake of refinancing or to convert home equity into dollars to spend. Too many have been burned by mortgage crooks or overspent and are worried about losing their homes.

There’s also the fact that a significant percentage of homeowners with mortgages are upside in their homes.

As I’ve written about in the past, it’s estimated almost 25% of homeowners nationwide are upside down in their homes. Nevada leads the nation at almost 53%. Here in Michigan, the number is almost 47%. FHA & VA loans already offer the option of refinancing without needing an appraisal. On December 10th, word leaked out that the government was considering making the same option available for conforming mortgages.

If that comes to pass, I wonder if it would make a difference with homeowners and increase their interest in refinancing?

Then there’s also the issue of interest rates. There are an abundance of news stories from Wall Street & Washington D.C. about how low interest rates may go. One homeowner referred to me stated he wanted to wait to refinance and time the market so he could get the lowest rate. I wonder how that strategy has worked for him in the stock market?

Don’t be greedy. Besides the odds being against you in trying to time the market, there are several other possibilities that could work against you: your home value could fall below that needed to refinance or enough to require PMI, mortgage rules could change again for the negative, you could lose your job, your credit could get damaged or your neighbor’s foreclosure could drop your home’s value.

Contact me to discuss refinancing. If you’ve dealt with me in the past, you know I take pride in only refinancing when it makes financial sense. Also, please refer your family and friends to me that have financing questions or are looking to buy.

Have a great & safe Holiday Season.

The Great American Housing Challenge

2008-12-13T16:18:00.001-05:00

What can be done to stop foreclosures and the resulting drop in housing values?

December 13, 2008 -- BLOOMFIELD, MI – Mortgage rates dipped this past week to 40 year lows and although many homeowners would like to refinance and lower their mortgage payments, a significant portion cannot due to being upside down in their homes.

Nationally, as of October, almost 25% of financed properties have less than 5% equity in them or are upside down. Nevada leads the nation at almost 53%, followed by Michigan at almost 47%. Refinancing to lower mortgage payments will be difficult for many homeowners as they would have to bring money to the closing that they probably don’t have.

The government’s efforts in creating programs to help homeowners, have so far failed to significantly slow the deluge of foreclosures.

FHA Secure, designed to help homeowners refinance out of subprime ARM’s, has reported questionable result numbers according to the New York Times. In fact, the definition of the program was changed to pump up the program’s numbers.

FHA’s Hope for Homeowners has also generated dismal results. A 47 page list of participating lenders, updated by HUD December 12th, doesn’t have any of the top ten lenders in the country on it. These lenders account of almost 70% of the mortgage market, if they’re not on the list, consider the program a failure.

On November 11th, the government announced an initiative for lenders to modify mortgages held by FNMA & FHLMC. An $800 per loan incentive was even offered. This program was so well received by lenders that there’s now talk about tying the receipt of federal bailout funds to participation in the initiative.

So, what would be a better solution to help keep people in their homes and seriously slow foreclosures? It’s all about affordable monthly payments. So, how about doing away with appraisals altogether on refinance transactions that don’t pull any cash out of a property and lower the homeowner’s mortgage payment?

Through ownership of FNMA/FHLMC/FHA/VA the government already effectively owns over half the residential mortgages in the U.S. As such, we’ve got nothing to lose by ignoring appraised values. We can only gain by lowering monthly payments to make it more affordable for homeowners to stay in their homes and avoid foreclosure.

This solution also avoids the issues of trying to force lenders into doing loan modifications and the investor lawsuits associated with those same modifications.

Anyone have a better idea?

Santa, all I want for Christmas is a 4.5% Mortgage Rate

2008-12-06T19:58:00.000-05:00

Homeowners get excited about a Holiday rumor.
Even IF it somehow stuffs our stockings, will it just be a lump of coal?

December 6, 2008 -- BLOOMFIELD, MI – On Wednesday, December 3rd, beleaguered homeowners thought Santa really did exist and they were getting an early Christmas present. A rumor hit the media that the government was going to lower mortgage rates to 4.5% to help people stay in their homes and slow foreclosures. CNN picked up the rumor CNN Article.

On Thursday, emailed stories were flying around the internet and phones at lenders started ringing off the hook. The Wall Street Journal picked up the story WSJ Article.

By Friday, TIME Magazine had the story on their internet site TIME Article. The rumor had evolved into only applying to mortgages used to purchase a home.

The serious coverage and how fast the rumor spread, shows that a solution to the housing crisis is near the top of everyone’s Christmas Wish List this year.

How much relief would such a rate drop give a homebuyer? As the graph here show, a 1% rate drop on a $200k mortgage would save $122/month. A 2% drop would double that amount.

Experts are all over the board on how many more homes would sell if this rate was available, if the increase in sales would be enough to prop up home values and slow foreclosures.

Of more immediate concern is how likely the rumor is to become reality? To do so, the government could just set FNMA/FHLMC rates at 4.5%, something they can do now that they own the two. These would lead to issues though, of either the government owning individual mortgage or having to sell the mortgages on Wall Street at a loss. The government’s other option would be to buy all the mortgage-backed securities it can to drive market yields, and hence rates, down.

Either way, the government ends up subsidizing or owning mortgages. Can you say, “Socialism”? How about, “Communism”?

What should a homebuyer or homeowner do? Well rates dropped last week and although they’ve given some of that drop back this week, they are lower than they’ve been all year. The dip last week was short-lived, but another may be coming. Borrowers need to get a mortgage application in NOW to be ready to lock at a moment’s notice!

If Santa does stuff our stockings with a 4.5% rate, borrowers can always refinance again.

The Lifespan of Loan Modifications

2008-11-23T16:27:00.000-05:00

Like a Mayfly (or fishfly), loan modifications won’t be around long,
but they may leave a nasty “smell” just like the refinance boom has.

November 23, 2008 -- BLOOMFIELD, MI – If you live near a freshwater lake or river, chances are you’re familiar with mayflies. These small flying insects hatch by the millions in late spring or early summer, swarming over everything, especially light sources. Having no mouth or digestive system, they frantically mate to reproduce before dying, smelling all the while like dead fish. The only good thing about them is their short lifespan – some species live for an hour, most not more than a day.

Loan modifications have a lot in common with these creatures.

This past spring and early summer news coverage of loan modifications swarmed in frequency and the public became very aware of the term and concept. Recently, the activity of loan modifications has also swarmed as lenders have fallen over themselves announcing how many hundreds of thousands of loan modifications they’re targeting to do.

Swarms of bankers, mortgage originators, attorneys and others have been drawn to loan modifications like a mayfly to a streetlight. The opportunity to make a quick buck with loan modifications is eerily similar to the fast money that attracted many to the mortgage refinance boom, just a few years ago.

A lack of regulation and almost nonexistent entry requirements allowed many incompetents and crooks into the mortgage industry. They greedily refinanced homeowners into bad situations, took their money and quickly disappeared - leaving behind the rotten stench of the current foreclosure mess.

The bad news is the growing industry of loan modifications has little, if any, regulation. Many desperate homeowners will be duped out of money they can’t afford to lose by greedy opportunists, way over-promising and delivering nothing.

The good news is that just like a swarm of mayflies, the industry’s days are already numbered. FNMA hastened the end with their announcement to standardize loan mods and offering lenders an $800 incentive to do them. Once the list of qualifying homeowners is worked through and real estate values stabilize, loan mods will be a thing of the past.

Federal Agency Announces Mortgage Modification Plan

2008-11-17T20:20:00.000-05:00

Will the plan do enough to stop foreclosures or just temporarily slow them down?

November 17, 2008 -- BLOOMFIELD, MI – At 2pm on Tuesday November 11th, Veterans Day, James Lockhart of the Federal Housing Finance Agency held a press conference. He and several government officials announced FNMA & FHLMC would pursue, “a simplified, streamlined loan modification program to get struggling homeowners into mortgages that they can afford.”

He pointed out that FNMA/FHLMC combined control 31 million mortgages or about 58% of the nation’s total, but only account for 20% of delinquencies. He called on private label mortgage servicers and investor to adopt the FHFA program as the industry standard as they account for roughly 60% of the serious delinquencies.

The program, rolling out December 15th, targets borrowers 90 days or more behind on the mortgage for their primary residence, who haven’t filed for bankruptcy protection. Housing payments will be reduced to 38% of monthly gross income through a combination of lowering interest rates, lengthening loan terms and “deferring payment on part of the principal.”

Servicers will receive an $800 incentive to restructure FNMA/FHLMC mortgages.

Will this be enough to miraculously stop foreclosures and save everyone’s home? That’s impossible and not the goal.

To qualify, homeowners need to show enough income to make a reasonable payment. Homeowners without a job aren’t likely to qualify. With recession spurred unemployment increasing, many will still lose their homes to foreclosure as they won’t be able to make any consistent payment amount.

Notice the announcement doesn’t in any way imply forgiving part of the loan balance. “Deferring payment on part of the principal” only implies “Interest Only” payments, a disappointment for the millions of homeowners upside down in their homes.

Why the requirement of being 90 days behind to qualify? Doesn’t that encourage homeowners to stop making payments to be eligible? Well, most of the “servicers” referred to that’ll be handling the modifications are actually banks, the same banks posting billions in losses and cutting employees as a result. So, the system doesn’t have the resources to help everyone, just the worst off.

The real focus of the program is to stop the “death spiral” of foreclosures causing home prices to drop, causing more foreclosures, causing prices to drop further and on and on until we’re in another depression. If pulled off correctly, it may just succeed.

Michigan State Legislature works on Home Foreclosure Prevention Act

2008-11-12T07:27:00.000-05:00

Are they trying to force lenders to do loan mods?

November 12, 2008 -- BLOOMFIELD, MI

Elections are over and the Michigan legislative "lame duck" session begins in earnest in Lansing.

The House legislature is expected to start working on establishing the Home Foreclosure Prevention Act, which would establish a state database on mortgage foreclosures and allow a state commissioner to mediate foreclosure matters.

Lawmakers are off today, for Veterans' Day, but will be in session Wednesday and Thursday. Then the Legislature will be on a two-week break before returning to work in December.

A bill concerning foreclosures, HB 6615, is before the House Banking and Financial Services Committee for a hearing on Wednesday. The bill would affect foreclosures on primary residences secured by a subprime loan.

You can read an outline of the bill below, but my take on it is that the legislature is trying to force lenders to consider more loan modifications by extending the time before starting foreclosure or by requiring mediation to do so. I think it’s a great start in the right direction, especially given the bailout money the Feds have committed to the banking industry.

More of the bailout money needs to trickle down to homeowners instead of winding up as bonuses in the pockets of those that ran the banks and got us all into this mess.

An outline of the bill’s provisions:

1. Require a foreclosing party to notify the borrower 45 days prior to starting the foreclosure process that they may be eligible for a loan modification or other solutions.

2. The notice must also include:
i. an itemization of all past due amounts
ii. an itemization of any and all charges to bring the loan current.
iii. The earliest date foreclosure proceedings may commence.
iv. A statement that the borrower may have options to avoid foreclosure.
v. The address, phone number and other contact information for the lender or their agent authorized to discuss other solutions.
vi. The name, address & telephone number of HUD or MSHDA approved counselors.
vii. The address and phone number for the consumer complaint area of the Office of Financial and Insurance Regulation.

3. Within 3 days of sending this information to a borrower, the foreclosing party must file this information with the state court administration office.

4. By January 1, 2009, the state court administration office shall design a database to hold this info. This info shall not be available to the public.

5. The commissioner of the program shall solicit solutions other than foreclosure from all sources.

6. If, after review of a foreclosure case, the commissioner decides there is merit to avoid foreclosure, they can either delay the start of foreclosure proceedings by up to 90 days or require the borrower and lender to pursue mediation.

7. After December 14, 2008 lenders are required to file a certification that all the above is true BEFORE commencing to foreclose on a primary residence secured with a subprime mortgage.

8. A subprime mortgage is defined as a mortgage originated after December 31, 2001 and prior to January 1, 2008 with an APR that exceeds the comparable US Treasury yield by 3% for a 1st mortgage or 5% for a 2nd mortgage. A loan will also be considered subprime if it’s APR exceeds the mortgage rates published by the Federal Reserve by 1.75% for a 1st mortgage and 3.75% for a 2nd mortgage.

Read the entire bill at http://www.legislature.mi.gov/documents/2007-2008/billintroduced/House/pdf/2008-HIB-6615.pdf

Why all the Doom & Gloom about Michigan?

2008-11-08T16:16:00.000-05:00

More and more people are talking about leaving Michigan for better opportunities. But, where's the grass really greener?

November 8, 2008 -- BLOOMFIELD, MI – With the Presidential election over and Americans’ focus turning back to the economy, the news isn’t good concerning the domestic auto industry.

Rising unemployment, falling consumer confidence & lower spending are causing a severe drop in domestic auto sales. The automakers have responded with more plant closures, employee layoffs & buyouts.

The most recent report from the U.S. Department of Labor shows that Michigan has the 2nd highest unemployment rate in the country. Michigan also led the nation with 28,300 jobs lost in the period from September to October of this year.

It’s no surprise that as a result of all the automaker job cuts, the 3rd quarter statistics from RealtyTrac have Michigan ranked 7th in the nation in foreclosures. Michigan also comes in at 2nd of all states in terms of financed homes with negative equity. 38.6% of Michigan homes are worth less than the mortgages on them.

So, we should all pack up and leave Michigan right? Perhaps head for those sunny locales where everything has to be better?

Well, let's look at the stats for those popular destinations California, Arizona, Nevada and Florida to see.

California and Nevada rank 5th and 6th respectively in unemployment. The top four states in foreclosures are Nevada, California, Arizona and Florida. The Case-Shiller Index shows those same four states suffering from the worst drops in home values. Finally, Nevada is number one in the percentage of financed homes being upside down, with Florida, Arizona and California being 3rd, 4th, and 5th.

So much for the, “go west” advice for greener pastures!

I'm not leaving Michigan as it's not significantly better anywhere else. I will try to make a difference here by thinking positively and choosing to focus on the postive rater than the negative.

Is there any Mortgage Relief for the Average Homeowner?

2008-11-03T08:39:00.000-05:00

Is there any Mortgage Relief for the Average Homeowner?
There’s lots of buzz about HUD’s Help 4 Homeowners program and Loan Modifications. Average homeowners want to know if there's help for them!

November 3, 2008
By: Drew Sygit
CMPS, CMLO, CALO, MBA

BLOOMFIELD, MI – The media headlines have a new update or wrinkle about the Federal Bailout of banks daily. Stories abound also about new programs and initiatives to stem the tide of foreclosures sweeping the country. All this talk of aid for banks and for distressed homeowners has the average homeowner wondering and hoping there’s something in all of this for them.

The latest figures show that roughly 90% of homeowners are paying their mortgage on time and are not a financial risk for foreclosure. So, why are these homeowners worried and looking for some type of aid? It could be that recent estimates have nearly 20% of this nation’s homeowners being “upside down” in their homes – owing more on their mortgages than the homes are worth. Another 5% of homeowners barely have any equity in their homes and values are predicted to drop another 10% in the coming year. That’ll leave 25% of homeowners nationwide upside down and perhaps reconsidering what the American dream of homeownership means to them.

From a pure financial perspective, it makes no sense to keep throwing good money after bad on an asset declining in value. Especially when you can buy that same asset, next door at a steep discount. Homeowners everywhere, from the well-off to those cutting corners to make their mortgage payments, are wondering why should they keep making their payments.

They also have questions about fairness. Why is so much being done to help delinquent homeowners, many of whom made foolish decisions buying more than they could afford and taking out toxic mortgages to do so, while nothing’s being done to help those that made wiser decisions?

Our office receives several calls a day from homeowners who are not delinquent on their mortgages, but are upside in their homes and looking for some type of relief. Most want to know if anything can be done to reduce the amount of their mortgages in light of the falling values of their homes. Sadly, there are no easy answers for them.

Every program and relief effort announced so far is targeted at helping distressed homeowners avoid foreclosure. Loan modifications are reserved for those facing a viable hardship and even then, a reduction of mortgage balance is not very likely. Lenders understand that to keep people in homes they just have to make the payments affordable. On the other hand, homeowners have to show the ability to make the negotiated lower payment, otherwise the lender will just continue to foreclose.

Hud’s new Hope 4 Homeowner program not only requires a homeowner to be delinquent to qualify, but also requires the servicer/lender of the mortgage to take a loss on the mortgage amount that exceeds 90% of a property’s current value. Lenders are not falling over themselves to do this.

So, why should the 90% of homeowners that are not delinquent continue to make their mortgage payments and not walk away from their upside down homes? Besides the arguments that they have to live somewhere and a foreclosure trashes your credit record, we can find viable answers in analogies.

How fair is our tax code that shifts more of the tax burden to those that do well and gives some of that back as welfare to the poor? Why are so many leaving their money in the stock market, which has dropped as much as many home values, willing to take a long-term view there? Beyond those examples we have the fact that something has to be done to break the vicious cycle we’re now in – foreclosures cause nearby property values to drop, resulting in more foreclosures, which drives values down further, etc…

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Drew Sygit is President of The Lending Edge and holds mortgage industry designations CMPS, CMLO, CALO and has an MBA. 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. His blog: http://drewsmortgagenews.blogspot.com/

FDIC pushes for more Loan Modifications

2008-10-28T22:56:00.000-04:00

FDIC pushes for more Loan Modifications
Is this what the housing market needs to stabilize home prices?

October 28, 2008
By: Drew Sygit
CMPS, CMLO, CALO, MBA

BLOOMFIELD, MI – Sheila Blair, the Chairwoman of the FDIC, is trying to blaze her own trail out of the worse foreclosure crisis since the Great Depression. Her solution, systematically and aggressively modify mortgages instead of foreclosing on properties.

The federal takeover of IndyMac Bank gave her the opportunity to try out her theories. So far, only 3500 mortgages have been modified, but she says over 15,000 letters soliciting modifications have been sent out.

What she has succeeded in doing is getting everyone’s attention and “rocking the boat”. At a conference for the mortgage industry over a year ago, Blair was pushing lenders to be more aggressive with modifications. She was ignored then, but now is leading by example and building momentum. Last week President Bush was urged by Barney Frank, D.-Mass., chairman of the House Financial Services Committee, to appoint Blair to head an industry wide effort to avoid foreclosures with modifications.

If Blair succeeds in making her plan a standard for the industry, it could put a floor under falling housing prices by slowing the flood of low-priced foreclosures hitting the market. Lowering the supply of homes is key to stabilizing home prices and getting buyers off the sidelines. As long as home values continue to fall, buyers have a perfect excuse not to buy – why buy something you can wait to get for less?

Much ado had been made about HUD’s new “Hope for Homeowners Program”, but the program requires lenders to forgive any mortgage debt that exceeds 90% of a home’s current value. Lenders didn’t endorse the program when HUD announced it and yawned at its introduction on October 1st. Desperate homeowners have lit up lenders’ phones calling about the program, but no lender is actively participating in the program yet. Rumors are floating around that many lenders are instead holding out for the federal government to buy or insure troubled mortgages, which would negate the motivation to partake in the program.

In the midst of all the cries of the federal bailout reeking of socialism, capitalism is thriving as evidenced by the relatively overnight appearance of a loan modification industry. Googling “loan modifications” leads to 170,000 results, with all kinds of companies and offers. It’s the “wild, wild west” as there’s little to no regulation of the industry. RESPA and other regulations don’t apply as no new loan is being originated. While there are many well intentioned companies and individuals, the desperation of millions of homeowners is sure to draw many thieves looking for a quick score.

If Blair of the FDIC is going to push for more loan modifications, she would be wise to also push for some laws to protect homeowners. Otherwise, they’ll be another mess to clean up.

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Drew Sygit is President of The Lending Edge and holds mortgage industry designations CMPS, CMLO, CALO and has an MBA. 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.