Mister VA's Mortgage News

What Are You Doing This Weekend?

It's  not just me, is it?  Don't you hear it all week long leading up to Memorial Day weekend?  In a way, I wish Congress had just left things alone. [I think that a LOT.]  Monday holidays have made us forget instead of remember.  Presidents' Day instead of Washington's Birthday. [And it NEVER falls on his actual birthday which is the 22nd].  Columbus Day is on the 12th of October rarely. But the big one that got moved is Memorial Day.  Some  celebrations still occur on the, but most Americans seem pre-occupied with cookouts and get-togethers.  And those who remember think of it as another Veterans Day.

It is a day to honor the dead.  More specifically, the servicemen & servicewomen who paid the ultimate price for their service to our country.  And by extension, those who served who later died.  My grandfather served on a submarine in WWI.  Memorial Day is for him.  And for millions like him.  And someday it will be for my Dad who turns 84 this week and was aboard a troop transport in WWII.  Those who march in the parades are honoring THEM.  If their is a parade in your town tomorrow [or next Saturday], GO.  The cookouts can wait.  Buy a poppy.  Visit a cemetery and look at all of the flags.  These are the folks who fought for your freedom and the freedom of your neighbors and friends.  Maybe your answer will be different this time. 

 

Is Your Past Client Still Your Client? Part III

If you sell a house in March, and you wait until November to send out a Christmas card, then you are making the same mistake that I made.  How many friends, co-workers, relatives and acquaintances of that happy buyer will hear the house story between March & November?  And if the buyer cannot remember your name, how will business get referred to you?  Even if it was the happiest buyer in the world?

 

The real reason for my reluctance was that I did not want to spend the money.  I did not want to spend time, effort and money for no return.  In January, I placed a postcard order for some recipe cards.  Postcards, unlike letters, will be seen on the way to the trash can.  But, recipe cards, landscaping tip cards or other cards with useful information will not only be looked at, they likely will be kept.  I still procrastinated as the postcard order came in about 10 days before I was to depart on vacation.  I thought about how dumb it would be to not be in the office right after the mailing.  Then I thought how much dumber it was to have procrastinated for nearly a year.  And I mailed them.

 

Back to the airport.  My client, who was going to be my former client, had called because she just received that first recipe card.  And instead of going elsewhere, my loan officer took the application.  By the time I had returned, I had at least 11 more calls as a result of my mailing and I took 4 new loan applications.  What would have happened if I had waited until after vacation to mail them?  Someone else’s sign would have been on the front lawn.

 

I can tell you that I received phone calls each and every month after a mailing.  And I often ended up with a new loan or two.  In times such as these, working with familiar clients can really make a difference.  And you will think of each transaction as you mail them out, too.  The postcards I have sent out come from In Touch Today.   An order of about 350 cards costs about $165 or so including shipping.  So, what are you waiting for?

 

Is Your Past Client Still Your Client? Part II

There has been research done in the real estate area.  Homeowners have been surveyed.  And many of them do not even remember the name of their Realtorâ.  So, how could they call?  The same holds true for mortgage officers by the way.  That sign on the front lawn now means making multiple cold calls instead of a single warm call.  Your past client is no longer yours.  The same holds true for the mortgage refinance or the new purchase mortgage, too, for the mortgage officer. So, what could be done to prevent this from happening again?  You probably cannot prevent it from EVER happening, but you can make it an unusual occurrence.

 

A few years ago, I flew into Denver for a seminar with 3 great speakers.  I had read many of their articles in trade publications and was anxious to hear what they had to say.  They all spoke about how much easier it was to maintain client relationships than to build new ones.  And they all said that you have to be in touch with past clients regularly to make sure they are not past clients, but future clients and referral sources. 

 

As I boarded the plane for the long flight back I thought of all the great ideas I got at this conference in March.  I remembered the vendors at the seminar and all of the great products that could be used to maintain client loyalty.  I had built up a pretty good sized business, but I needed to get organized.  I lacked a database.  When I got back to the office, I built a database and found that I had a couple hundred names at least.  And I continued to think of all of these great ideas.

 

Ideas are totally useless, however, unless you act on them.  I had a stumbling block.  And it was not because I could not decide on which product to use.  I did use that as a reason to not implement that idea right away.  And I thought of some other pretty good reasons, too.  And the months rolled by.  The ideas stalled.  And yet, I KNEW I had to do something because I was tired of seeing new mortgages in the land records for past clients that now were someone else’s present clients.  So, I sent out Christmas cards.  At least it was SOMETHING.

 

Is Your Past Client Still Your Client? Part I

It happened when I called in for messages at the airport just before departing for vacation.  A past client with whom I had done 2 transactions after having offered advice on the home purchase was going elsewhere for a refinance, until….  I will come back to that part of the story a bit later.  The point is that I had worked very hard for this client and as a result, a home purchase was made when everyone else passed.  It was a private sale.  And, at my suggestion, private financing was given, which enabled this couple to buy a home instead of waiting.  And since this was an opportunity that would not repeat itself, waiting was not an option.  When I saw the couple at a home show, they were so overjoyed and still in disbelief that everything I suggested came to pass.  This was a happy client.  When the balloon was coming due, I was able to refinance them as promised  since their credit issues were far enough into the past.  And a subsequent refinance got them still a lower rate and out of PMI.  So, why would they even think of going elsewhere for their new mortgage?

 

In sales, it is always easier to work with someone you already know and who already knows you.  You have cultivated a relationship.  You know about their family, their interests, their line of work, and they have made a purchase using your services.  And, in most cases, it is a happy occasion and they are glad that you played a major role.  You walk away from the closing table knowing that you helped someone realize a dream.  And you just know that you will receive repeat business and referrals because you did such a great job.  So, you wait for it to happen.

 

A couple of years go by, and you are driving by their home and you see a “For Sale” sign on the front lawn.  And the sign isn’t yours.  How could they use someone else after all you did?  You helped them buy the home and you certainly could help them sell it.  Why didn’t they at least call you?  After all, you sent a thank you card and a Christmas card to them.

The More You Change, The More You Stay The Same

One of the problems that led to the mortgage mess was poor appraisals.  By poor appraisals, I mean appraisers sent out of an area to do appraisal work where they were unfamiliar with the market.  Sometimes loan officers would send 'their guys' to do them, even if those markets were 100 or more miles away.  Case in point, I know of a mortgage originator [hoping it is now in the past tense] who would send an appraiser from the extreme southern end of the state to the extreme northern end.  At one end was the Boston market & influence and at the other there was an absence of plentiful data.  So, a value may haave been 'pushed' and the consumer may have gotten the money for a loan, but they did not get any favors as a result of an inflated value by an unfamiliar appraiser.  To be fair, lenders & underwriters were extremely lax in examining appraisals and must share the blame.

Along comes Andrew Cuomo.  His idea of fixing a problem is to make so many changes and requirements that it has to have been fixed for sure.  There are some problems with those assumptions.  In not wanting contact between lenders & appraisers, he thought the 'problem' was able to be solved by creating a middle layer--Appraisal Management Companies.  The companies, which surprisingly are owned by lenders [this fact must have escaped Mr. Cuomo's watchful eye], are now assigning appraisals to various appraisers in the field.  When has adding a layer of bureaucracy made things less expensive and more efficient?  What is happening now is that AMC's are taking a portion of the fee for the appraisal for managing the process.  [VA has a rotational assignment process that has worked well for years and THEY DO NOT CHARGE FOR IT.] That fee is more expensive than under the previous method.  But the appraisers are receiving LESS than they were under the previous method.  And so appraisers who accept the asignments tend to be 'from away', which means they are unfamiliar with the markets and are apt to produce an inferior product.

Does this sound familiar?  It should.  And there will be a lot of consumers on the hook for millions of dollars in appraisal fees for transactions that fall apart because an AMC [Appraisal Management Company] has assigned someone out of the area to do the work that a local appraiser under the previous method could have done for less money to the consumer and wold have generated a far superior product.  This system called HVCC has been the subject of two articles on successive days over the weekend in the St Petersburg Times.  What is pitiful is that laws were on the books and standards of ethics were in place in both the appraisal field and the lending field to curb abuse and punish the guilty.  But, it isn't glamorous for politicians such as Mr. Cuomo or those in Congress or state legislatures to direct funds for enforcement behind the scenes.  So, for now, the bank-owned AMC's are supposed to eliminate the contact between lenders and appraisers to influence values.  [See how ludicrous that previous statement looks?]

For the consumer, paying more for less is what lies ahead.  And when enough of them get good and mad, maybe, just maybe, this farce of a system will be scrapped.  The more you change, the more you stay the same.

Is Now the Perfect Time to Use the VA Benefit?

There are several big factors at work when buying a home.  How much home can you afford?  The interest rates and home sale prices will tell you that.  Will the first time home buyer tax credit help?  Is the Realtor knowledgeable about VA home loans?  Is the Loan Officer experienced in using the VA mortgage program? And will the market get any MORE favorable for buying?

The Dept of Veterans Affairs is more concerned about the veteran than anyone else in a VA mortgage transaction.  And that is why there are two methods of qualification.  They want to be sure that you do not get in over your head.  The single debt ratio of 41% for housing & other credit obligations is simple enough.  For every dollar you have in gross monthly income, 41 cents can pay your housing expense and other credit obligations.  But unlike most porgrams, that is the secondary method for qualifying.  The family support requirement is primary.  At the end of the month, VA wants to be sure you have X number of dollars left after expenses based on family size and mortgage amount.  If you don't meet that support requirement, you do not qualify.  Even if you have a 31% ratio.  Everyday expenses like utility costs, income taxes & social security taxes are calculated.  If this was the requirement of all programs over the past 8-10 years, I doubt we'd be in the mess we are.

Interest rates are low and can be had between the mid-4s & mid-5s.  And housing prices are low, too, which gives you more buying power.  Sellers are motivated,  so asking for contributions to closing costs is not unexpected.  No down payment is required.  Which makes for a perfect storm for buying a home.  Throw in the first time homebuyer tax credit that many will qualify for and it may very well be that now is the perfect time to use the VA benefit.

Get Your Tax Credit Early

According to a release today, HUD Secretary Donovan is going to allow an advance of the $8000 tax credit for first time home buyers to be used for the down payment on FHA loans. Rather than waiting for refunds after the closing, funds will be available at the closing.  A second mortgage will be filed and repayment terms will vary.  It is important to keep the home as a primary residence for at least 3 years.

Updates to the HUD handbook are as follows [although lenders who implement the program will have clearer instructions]:

II. FHA Guidance

The Tax Credit: Secondary Financing:

Entities that can offer tax credit advances with second liens.
• Federal, state, and local governmental agencies and nonprofit instrumentalities of government.
• FHA-approved nonprofits.

Additional information about these entities:
• Government agencies and instrumentalities of government are described in handbook HUD-4155.1 REV-5, paragraphs 1-13 A and B.
• FHA-approved nonprofits can be found, per each Homeownership Center jurisdiction, at: http://www.hud.gov/offices/hsg/sfh/np/np_hoc.cfm

How the secondary financing works:
• The tax credit advance, when combined with the FHA-insured first mortgage may not result in cash back to the borrower. The second lien may not exceed the total needed for the downpayment, closing costs and prepaid expenses.
• The tax credit advance must provide that if the borrower does not repay the amount borrowed by the designated deadline, that principal and interest payments begin automatically.
• If payments on the tax credit advance are required, they must be included in qualifying the borrower and, when combined with the first mortgage, cannot exceed the borrower’s reasonable ability to pay.
• If payments on the tax credit are deferred, the deferment must be for a minimum of 36 months in order for the payment to not be included in the qualifying ratios.
• The tax credit advance second mortgage must not provide for a balloon payment before ten years.

The Tax Credit: Short-Term Loan:

Entities that can offer the tax credit advance with short-term loans:
• Federal, state, and local governmental agencies and nonprofit instrumentalities of government, FHA-approved nonprofits, and FHA-approved mortgagees may provide short-term or “bridge loans” secured only by the anticipated tax credit due the homebuyer as collateral.

How the short-term tax credit advance loan works:
• The amount that may be borrowed in this manner may not exceed the anticipated tax credit due the homebuyer based on the computations of form IRS 5405.
• Fees and charges for the tax credit advance loan are not to exceed a nominal amount necessary for preparing and administering the loan.

The Down Payment Assistance Program has come back in another form.

What is Yield Spread Premium? [YSP]

Often we hear terms bandied about and do not understand what they are or how they affect us.  Yield Spread Premium or YSP is one of those terms.  In listening to some legislators, it seems like a very bad thing indeed.  But, once it is understood, it can make good sense.  And when it can preserve resources of the consumer in a home purchase, it does make good sense.  As long as it is not abused, and the vast majority of the time it is not, it is a good tool to use in obtaining mortgage financing.  The best way to illustrate it is to look at something completely different.

When you go into the supermarket, there is often a premium that is offered by the grocer.  Buy 3, get one free.  The consumer purchases the 3 items at the regular price and then gets a 4th item without having to pay for it.  An alternative could be a reduction in price for those other 3 items which would result in paying a similar price for the 4th item instead of getting it 'free'.  In the end, the consumer ends up with the same products without paying any more for them.

In the mortgage world, lenders provide a premium based on certain rates.  These premiums can be used to help pay closing costs.  The closing costs are still the same as they would be without the premium, but the distribution of who is paying them changes.  Consumers can make a choice.  Although this is not exactly the same as the supermarket example, the concept is the same.  Pay a higher price [note rate] over time to save money [lower out of pocket closing costs] now.  Or, pay more costs now [out of pocket closing costs] to save money over time [lower note rate].  Removing these premiums simply reduces consumer options.  Let's look at some simple transactions to illustrate this on the mortgage side.

The borrower wants to borrow $100,000 to purchase a home.  There are 3 choices [really there are many more].  He can pay no points, one point or two points with a lender.  He can pay a 2% broker fee entirely, split the cost with the lender, or have the lender pay the entire amount out of Yield Spread Premium.  If the borrower obtains a rate of 5%, for example, the lender has a premium available to offset any points that may be charged.  In this example, $2000.  A point is one percent of the mortgage amount.  If the borrower wants 4.75% as a note rate, then one point [$1000] would be charged.  The lender still receives $2000 as 1 point comes from its premium.  The borrower electing a 4.5% rate would pay 2 points or $2000 to the lender.

If you are using a broker, simply substitute the broker fee as terminology for points.  At 5%, the lender pays the broker fee of $2,000 and the borrower pays nothing out of pocket.  At 4.75%, the lender pays from YSP $1000 to the broker and the borrower pays $1000.  And at 4.5%, the borrower pays the entire $2000 broker fee.  Yield Spread Premium legislation has been proposed to eliminate it entirely.  Which means, whether using a broker or lender, fewer options will be available to the consumer. 

The lack of knowledge on its purpose is the main reason it is even being talked about.  The illustrations above are not meant to be anything other than illustrations.  In some instances, a broker can find a more attractive mortgage for you than a direct lender.  Sometimes, the opposite is true.  But the point is that YSP is not a bad thing, only a misunderstood thing.

USDA: An Alternative in Non-Urban Areas

Undergoing numerous name changes over the years, and still being called USDA, Farmers Home, Rural Development, Rural Housing, among other things, this guaranteed loan program is seeing a new resurgence in popularity.  Why?  For one thing, the government is not lending the funds for these mortgages, they are only guaranteeing them.  And secondly, no down payment is required.  There are a lot of benefits to this program for new homebuyers and it is worthwhile to check out the program to see if it is an option in your area.

Income limits were recently simplified, too.  Family size is the determining factor, but now there are only 2 categories--1-4 in the family and 5-8.  So, there are now just two income limits.  And they are pretty generous, too. Here is the resource site.  RD loans do have size limits insofaras property values, but they cover a lot of ground.  Typically, the debt ratios are 29% of gross monthly income for housing and 41% for all debts including proposed housing.

However, the appraised value is king here.  If a home appraises for more than the sale price, it is possible to include some closing costs in the loan amount.  The guaranty fee of 2% can be financed and there is no monthly mortgage insurance.  Sellers can pay the closing costs and pre-paid expenses in their entirety or family gifts can cover them.  Down payments are not required, but can be made.  Even though these fixed rate loans are for 30 year terms, there is no pre-payment penalty, so you can shorten the term by paying extra on the principal.  Ask your mortgage broker or loan officer if the USDA loan could work for you.  You could be pleasantly surprised.