Mister VA's Mortgage News

What If The Tax Credit Went Away?

Would it be the end of the world?  Would it mean that the hopes and dreams of buying a home would be forever dashed?  Would anyone ever qualify to buy a home again? The way that many are talking would lead us to believe that the answer to all 3 questions would be 'yes'.  But that is not necessarily the case.  The broader outlook is that the economy has to improve and that does not mean Ben Bernanke telling us it has improved.  It means that consumers have to have confidence that their jobs remain stable.  And if a home purchase is to be made, that it will not be a bad decision.  The 'cash for clunkers' auto purchase program was a red herring.  Some people bought cars who might not have without the program.  But, now they have higher payments, insurance costs, etc. And now car sales are hurting once again.

Buying a home is serious business.  And having a housing budget is the most important consideration in buying a home.  The presence of a tax credit that is going away in 7 weeks should not be a factor.  If your rent is $700 a month and you are saving $500 a month, that does not mean you should plan to spend $1200 for housing.  And certainly not more than that.  Home repairs and unforeseen expenses that the landlord presently covers will now be your responsibility.  I always ask prospective home buyers what is the comfort level in writing that monthly check to cover housing [principal, interest, taxes, insurance, mortgage insurance] expenses.  What the maximum qualifying number might be could be higher than the comfort level.

Buying the wrong home just so you get the tax credit is not a good reason to put down a deposit to purchase.  Buying before you are ready is also a big mistake.  It is much better to find the right home at the right time than the wrong home right now.  Not every mortgage professional or real estate professional will give you that advice.  So it is important to be in a position to make a decision based on well thought out logic than to succumb to pure emotion.  Buying smart will always be the best way to go.

FHA Streamlines: Now Would Be A Good Time

The FHA streamline refinance has been around for a long time.  It is about to get a major facelift.  And when I say 'major', I really mean it.  Presently for a non-cash out streamline without an appraisal, you may have some minor credit hurdles regarding the payment history on the present FHA loan.  Most people jump those hurdles with ease.  The rationale behind this loan is that if the borrowers find it easier to make the payments, there is less likelihood of a default.  So, no additional qualifying was needed.  The new loan could be written for the original loan amount plus the new Up Front Mortgage Insurance Premium.  That was often enough to cover the closing costs and many borrowers brought next to nothing to the closing table.  Or they might bring their escrow balance to closing knowing a check would head their way in a couple of weeks from the old lender.

Not after January 1st.  The only way to NOT have to pay closing costs on a streamline will be to have an appraisal done on the property.  In some states, this may mean bringing $2500 to closing.  In others, that amount could be much higher.  An appraisal may not help in some areas of the country.  If values have declined since the purchase, the borrower is stuck.  So, saving 1% or more on the note rate may not be within the reach of many consumers.  And that is just another straw on the camel's back.  Helping the consumer does not appear to be in the cards for many of the sweeping changes that are taking place.

SO, if YOU have an FHA mortgage that is at 6% or above, and you have wondered about refinancing, please do not procrastinate any longer.  There will be a huge rush to get these closed by the year's end.  Around the 25th of the month is the optimal closing date.  And you all know what falls around that date in November.  And ON that date in December.  Another 'feature' kicking in on January 1st is the 6 month rule--if your loan is not 6 months old, you cannot streamline.  You can read about more of the details in HUD's Mortgagee Letter.  There are abundant rumors about even more changes with the program so stay tuned.

The Site Condo and FHA

When FHA announced sweeping changes in its condominium policies back in June, there were some negative changes such as the elimination of the Spot Condo approval, which allowed for a single unit approval based on a one page questionnaire even though the complex was not as approved as a whole.  Approval of condo complexes is now a streamlined affair as proclaimed by HUD.  But, the new news has to do with the cross-breed known as the Site Condominium as defined below:

Site Condominiums are single family detached dwellings encumbered by a declaration of condominium covenants or condominium form of ownership. Condominium Project approval is not required for Site Condominiums; however, the Condominium Rider must be included in the FHA case binder submitted for insurance endorsement.

The guidlelines of ownership is the key element.  These are homes on their own lots in a development that have condo ownership in some common elements and may have some common care covenants.  Here in Pinellas Park, FL, one such area had lost its FHA condo approval status for several of the 'units' which consisted of dozens of single family ranch style homes.  But, since they are considered 'Site Condos', they can be financed using FHA just like a single family home. So, the Mortgagee Letter in this case, gave the nod for more possibilities, not less.  Condo master policies are still needed and there is the HOA dues amount to factor into qualifying, but things sure got a lot easier for folks buying and selling in The Mainlands.

FHA Makes Changes

In a flurry of Mortgagee Letters issued in the past couple of weeks, HUD has changed the landscape of FHA loans--both forward and reverse.  How those changes will be interpreted is anybody's guess.  Some have already been implemented.  Some have a start date of January.  The elimination of brokers needing to get FHA approved by HUD is juxtaposed against lenders being responsible for all in the origination channel.  Will lenders who wholesale to brokers eliminate that channel altogether?  Will those who wholesale exclusively change their business model?  [Wholesalers generally have no contact with the consumer.]  Will this mean the end of brokers being able to do FHA loans?  Will this mean fewer consumer choices?

Well, certainly if wholesalers are concerned about the lack of control over brokers, they may turn to retail and they may sign up brokers as employees to do what they have always done--work directly with the consumer.  But, the broker, or former broker, will now only have one lender to choose from.  The Account Executives or AEs as they are commonly referred as will need to adapt to become loan officers if there are no brokers to interact with in the future. [Bear in mind that this is merely speculation on my part, but my nearly 30 years in the business have given me a lot of insight.]  Brokers without the FHA product will be severely hampered.

The FHA streamline now has more defined terms with respect to payment histories, benefits to the borrower, etc.  Many consumers were streamlined even if there was little benefit to doing so.  It is not all about the rate.  If it takes 5 or 6 years to re-capture closing costs in terms of payment savings, the consumer may very well have been better off not refinancing.  Mortgagee Letter 09-32 outlines many of these and other changes in the program.  Slowing the default rate is the impetus behind these changes.

If you have a pre-approval that is more than a few weeks old, things may have changed for you, too.  Especially if your credit scores hovered around 620.  Many lenders are moving those minimums to 640 or higher.  And that can mean your approval is no longer an approval.  So, it is important to continue to do things to improve your scores.  Making payments on time, reducing revolving balances to aggregate of less than 50%, and even watching to make sure credit card companies have not increased your minimum payments.  Be diligent and pro-active and be in constant contact with your mortgage professional.

Using Social Networking Sites

Referrals only come if you ask for them.  Referrals from people you know are the best kind of referrals.  Giving referrals goes hand in hand with asking for them.  If past clients have a business or provide a service that is outside of your line of business or even if it is loosely related, it makes sense to send a referral and to have the client mention your name when doing so. 

You have not asked directly for a referral, but you have helped someone you know in increasing business by sending someone.  Maybe it is a car repair shop.  Maybe it is a hair stylist.  Maybe it is an appliance dealer.  Maybe it is a lawn care service.  Maybe it is to a factory worker's brother's business.  You just never know who may ask you for advice.  And you may never know who will ask someone else for advice which could mean a referral for you.

Facebook is a networking site where you have contacts with friends.  And those friends can benefit by you referring business to them.  The reverse is also true.  One quote I use quite often is from Jeffrey Gitomer.  "All things being equal, people want to do business with their friends.  All things being not so equal, people STILL want to do business with their friends."  That is true on so many levels.  Gitomer goes on to offer the following: "You don't need more techniques and strategies.  You need more friends." 

Of course, there are a number of other sites where you can develop relationship such as Linkedin and Plaxo.  But the point is that you need to look at giving, or adding value, not just asking or taking.  There really is no secret to using social networking sites.

A Matter of Trust

One of the most unsettling things about moving to a new area is developing trust.  Especially, when it comes to automobile repairs.  To find someone that will not take advantage is a real chore.  My car had developed a problem with wheel bearings, so I knew that it could be a huge repair bill and that dollar signs could be an issue if I ended up at the wrong repair shop.  I went to a recommended shop in St Petersburg and had two bearings replaced, some brake work and a new hub cap for a much smaller price tag than I envisioned.  That was in early June.  The noise returned a couple months later.  I feared another large bill for repairs and a battle over defective bearings.  So I went back last week.  About 4500 miles since the previous repair, and probably 1500 miles since the noise had started up again.  The repair was done while I waited.  I asked how much the bill was and the reply was that it was under warranty and the labor was gratis.  Bob Lee Tire now has a customer for life.

As a mortgage officer, developing trust with potential clients is the same in reverse.  With all of the bad press, it is unsettling for potential clients or Realtors to take a chance on someone who is untested.  It is not easy to be a stranger.  But when the opportunity to excel presents itself, an exponential chance to develop trust among multiple parties exists.  And once that bond of trust is developed, additional opportunities will be present.  Just as I trust Bob Lee Tire for my car, I want my clients to trust me with their mortgage.  Treating people right and with respect is the best way to develop that trust.

When Can I Close?

Sometimes, it goes down to the wire.  Last minute changes or conditions to satisfy. Someone else's closing that affects yours.  Delays are sometimes unavoidable.  But, some of them can be avoided.  And that is where a good loan officer comes in.  Having a locked loan in plenty of time for closing can eliminate last minute disclosure issues brought about by recent changes in the laws regarding the Truth In Lending Act [TILA].  An accurate Truth In Lending Disclosure if any changes have occurred [and they do if your rate is not locked] must be sent out several days before closing.  Early disclosures need 7 days advance notice & any changes in the TILA disclosure must be disclosed 3 business days before closing.

It may mean short lock periods of less than 15 days are now history.  Shorter lock periods have more favorable terms.  So, being sure your loan is locked in plenty of time has become more important for loans applied for after July 29, 2009.  And if there are title problems to be cleared or if another transaction has delays that affect yours, you really need to be aware of them.  With rate volatility, any laxness on your part can cost you money.  And maybe even qualifying.

If you are closing on Friday and your loan is not locked today [Monday] for another TILA disclosure to be sent out, you may not be closing on Friday. Making sure you are ready to close is largely the responsibility of the Loan Officer.  However, you can be your own best friend by being diligent.  And asking questions.  And not taking things for granted.  These are different times.  And they call for more attention to detail by everybody.

A Little Refresher Never Hurt Anyone

One of my favorite quotes from one of my favorite books from one of my favorite authors is this:  "All things being equal, people want to do business with their friends.  All not being not quite so equal, people STILL want to do business with their friends."  Jeffrey Gitomer leads of his Little Black Book of Connections with those two sentences.  And that is before you even turn to the table of contents page!!!  So you KNOW it must be important.  And it is.  Whether you are a Mortgage Officer calling on Realtors, a Realtor making a listing presentation, or WHATEVER it is you are doing, if you develop a friendship, it becomes easier to make connections with them for a specific transaction or series of transactions.  AND when that friend refers a client to you or you to them [this is a two way street], you have someone who already has begun to trust you.  And once trust has begun, it is a whole lot easier to build even MORE trust.

Nobody likes to receive cold calls.  Just as much as people don't like making them.  So by looking at people differently, as potential friends, you will increase the odds of getting warm referrals.  And the more warm referrals you get, the less cold calling you need to do.  It is a cycle.  And it really makes sense when you think about it.  Gitomer also says [before the table of contents] that "you don't need more techniques and strategies, you need more friends."  Pretty simple stuff.  Instead of the great products, great service, great prices mantra that everyone touts, why not try to get to know something about that Realtor or that client that you can ask about during your next visit or conversation?  Don't you think, "Hey, Jim.  You must be happy about that trade the Red Sox just made" will mean more than "We just came out with a new program"?  The discussion about the program will come in time.  Especially, if Jim talks about a transaction that is not going so smoothly and you can relate it to what you have to offer.  And even if you offer a suggestion to complete a nearly complete transaction, you will have helped.  If the competitor cannot complete the transaction, at least you made the suggestion.  And if they can as a result of the transaction, guess who looks pretty good?  And that is a perfect opportunity for follow-up and to ask for the shot at the next transaction.  You provided a solution that got the agent paid or thought of something that might have gotten the agent paid.

 

 

More Things That Don't Make Sense

I was speaking to a gentleman the other day about the pre-approval process.  As I always do, I asked about his present situation.  He mentioned that he had to sell his property first, but that he was going to try to modify his loan and then probably have a short sale after that.  But, what he said next really blew me away.  "I have sent in the last 3 payments, but they are holding them and reporting me late, so that I will qualify for the loan modification program."

So, let's see.  A guy who is upside down on his property and wants to be able to modify his loan terms has to be past due in order to do so, even if there are other factors at work such as negative equity, reductions in income, increased payments, and so forth.  So, that fellow has to scar his credit even FURTHER by becoming late on mortgage payments in order to do a loan modification with his lender. Wouldn't you think that a guy that is making his payments now would be MORE likely to make them with a loan modification for lower payments meaning the lender was LESS likely to have a foreclosure on their hands in the not too distant future?  What is wrong with this picture?

Short sales fall under this umbrella, too.  Lenders, in many cases, will not consider offers for less than what is owed unless the seller is delinquent.  How dumb is that?  Why not at least earn interest on the loan with current payments being made and therefore lose LESS money on the sale?  And why not have the seller at least be able to salvage their credit ratings by making those payments in the meantime?  What is wrong with this picture?

If we want to be able to move forward from the housing problems of recent years, wouldn't it make sense to reward those who are being responsible with their payments in situations like this?  Meanwhile, the government listens to such experts as Fed Chairman Ben Bernanke, who presided over much of the fiasco, and instead of using its resources to ferret out the bad guys on loans gone sour, it prefers to hammer away at the remaining folks in the business of helping homeowners and homebuyers finance homes--many of whom have been honestly helping the public for many years. 

Whether it is limiting the use of premiums to lower closing costs to lenders [who approved the loans--good and bad] and outright elimination of Yield Spread Premiums [YSP] which do just that. Or deciding that loan officers [who do not approve the loans, appraise the properties, prepare the closing documents, etc] should be the only ones to bear the risk if someone becomes delinquent via job loss, death in the family, divorce, or some other unforeseen circumstance. Or even allowing credit bureaus to accept and publish information without verification that harm consumers by lowering credit scores with bogus reporting and consequences imposed by other creditors that are undeserved. The government, which only a few years ago was promoting the use of many of the loan programs that came into being, seems to be scapegoating instead of problem solving.  What is wrong with this picture?

Try Rural Development First

The USDA Guaranteed Loan Program is really the first place to look when considering the purchase of a primary residence.  There are two main considerations when considering the program.  The first one is property eligibility.  USDA does not guarantee loans in all areas.  In Florida, some urban areas and some whole counties are not eligible, for example.  USDA has a great mapping tool, though, so you can enter a property address and find out if it is located in an eligible area relatively quickly. Just click on this link and follow the instructions. 

Income eligibility is the other consideration.  Again, this information can be found on the link above. In Florida, the 1-4 household limit is $73,600 in most counties.  Some counties have higher limits and adjustments can be made for child care, etc., which means the limit is not on gross income alone.  For families of 5-8 persons, that income limit is at $97,150 in most counties and higher in others.  Please note that income is considered for household members who may not even be on the promissory note.  And that income may be higher than what is used for loan qualifying purposes.

Credit standards are a bit more relaxed for USDA in that non-traditional credit references can be used and FICO scores can be in the 600-619 range, although pricing adjustments will be made.  Closing costs can be paid by the seller in entirety.  And the appraised value, not the sale price, determines the maximum loan.  No down payment is needed.  A guaranty fee of 2% can be financed and no monthly mortgage insurance is required.  Taxes and insurance are escrowed with the payment.  You should always look to the USDA Guaranteed Loan to see if you qualify before looking at other programs.  Ask your mortgage professional if that program is available.  Of course, in Florida, I hope that professional will be me.