MisterVA Travels to Courthouses & Covered Bridges

FHA--The Loan of Choice

Some have dubbed FHA as the 'new subprime'.  It isn't.  FHA has been around since the 1930s and was in fact the first PMI company.  I have used FHA twice to buy homes and it is not because my credit stinks.  There are no income limits for FHA and the down payment is very small.  It could get even smaller once the House & Senate work out their differences.  Yes, the view on credit scores is more favorable to borrowers who have had problems in that area.  But there are other reasons to consider the program.

Seller contributions to buyer closing costs can be more than the standard 3% for a low down payment loan.  Gifts from family are acceptable for down payment or closing costs.  And non-resident co-borrowers, otherwise known as 'co-signers', are acceptable for the program.  Fixed rates are comparable to most conventional programs and discharges from a Chapter 7 bankruptcy need only to be 24 months old with re-established positive credit.  Alternative credit sources are acceptable to conventional tradelines as well.

There are some drawbacks.  Rural properties utilizing a spring or dug well for the water source, for example, will be ineligible.  A well can be drilled with the aid of the 203k rehab loan, which is another area of FHA's uniqueness.  There is an Up Front Mortgage Insurance Premium in addition to the monthly MIP, but it can be financed.  MIP stays in place for 5 years even if principal reduction occurs to get the loan balance below 80% of the original sale price.  But these are MINOR.  As a Realtor, it will pay big dividends to know which of your listings qualify for the program.  As a Veteran, you can reduce the down payment slightly by virtue of your status.  As a homebuyer, if you do not qualify for the VA program, this one could be your ticket to homeownership.  And as a mortgage officer, having this program will get you more business.  In 2008, FHA will be the loan of choice.

Homebuyers Should Have Goals, Too.

All too often, when you hear about goals or goal setting, it has to do with the business world or perhaps to a lesser extent, academia.  But, if you are in the markert for purchasing a home in 2008, you should have goals as well.  But, what kind of goals?

Certainly, finding out where you stand creditwise should be the first goal.  Get your credit reports and FICO scores.  If you are below 680, then you should meet with a professional to find out how to improve those scores.  It will save you a lot of money by being able to borrow at the lowest possible rates.  Paying off some debts may be a goal.  If that is the case, then you should focus on one debt in particular and go after it till it is gone.  Saving money might also be a goal.  Setting aside a pre-determined amount each pay period would be an excellent way to start. Believe it or not, some of those New Year's resolutions might very well fit into your home buying goals.  If you want to quit smoking, for example, and you presently smoke a pack a day at $3 per pack, then you can save $100 per month.  By putting things into a monetary perspective, you can attach a value to your actions.

Having some goals that are reachable, but challenging is the key.  If you want to lose weight, or improve a golf score, then you must be realistic about those goals and the timeframe.  And if they are acheived, then you can feel good about yourself.  Getting ready to buy a home could involve taking a homebuyer education class.  Being more informed about what is required is always a good thing.  And knowing what you can afford will help you to set realistic goals in this area as well.  I set goals every year in my business, but homebuyers should have goals, too.

Marketing With a Purpose

Oftentimes, fun can be helpful.  Let me give you an example.  8 years ago, I began to play various fantasy games on the internet.  Football, hockey, basketball, predictions, etc.  And I gradually moved toward playing these games with a group of guys with the league name of Maineiacs.  A Maineiac is someone who spends more than one winter in Maine.  I spent 6 there, although there was not much difference from the ones I have spent here in Vermont.  The ties from most of these guys is attending college in Maine.  Although some have remained there or have never left.  We play on ESPN, so you can find us very easily there.

One guy who plays is Jeff Gwynne.  We struck up a friendship as a result of common beliefs on how to play these games above board.  A couple of years ago, we met at a local [to him] golf course, and our enjoyment of that for real game that we both took up a short time ago has been a common topic of discussion in our communications.  We played again this past summer and hopefully, we will meet up again in 2008. 

His business partner, Todd, joined us for golf this past spring.  They focus on marketing plans for companies.  One point they make is that many companies do not do any PLANNING for marketing.  Using the "let's try this" method is hit or miss.  And you can probably guess which result is more common. To this end, they have begun a blog to help you called "The Science of Marketing".  One thing that should always take place in your business is marketing with a purpose.

What's In YOUR Dash?

A little over a decade ago, Linda Ellis wrote a simple poem entitled "The Dash".  If you go to any cemetery, you will see gravestone after gravestone with two dates separated by a dash.  Some will have epitaphs.  Others will state relationships.  The poem's focus is on what has happened in between.  Were people touched by that individual in a special way.  Mike + The Mechanics recorded a song called "The Living Years" in the late 1980s which reflects some of the same sentiment.  It is too late to say "Thank you," or "I love you," or many other things once the other person has died, or if YOU die before saying something.

A book based on the poem has been published by Simple Truths and is well worth reading...and giving.  People will not remember the day you were born, and may not remember the day you die.  They will remember what you did when you were living the dash.  Take some time today to thank someone or write them a note as to how that person has impacted your life.  You may never know how much it could mean.  The quote on the back of the book is from Joseph Epstein who once said,"We do not choose to be born.  We do not choose our parents, or the country of our birth. We do not, most of us, choose to die; nor do we choose the time and conditions of our death.  But within this realm of choicelessness, we do choose how we live." This is what The Dash is all about.  What's in YOUR Dash?

Changes for Realtors in 2008

In order to be successful, you need to be aware of changes in other industries that affect YOU.  Life does not operate in a vacuum, and just as mortgage professionals need to be aware of changes in the appraisal industry and the real estate industry, Realtors need to be aware of changes in the mortgage industry.  Knowledge is power.  Lack of knowledge is giving power to someone else.  You can read about some changes in the newspaper.  You can hear about some changes on television.  But would you rely on those sources alone when it comes to real estate sales?

Of course, you wouldn't.  You would want to hear from industry experts about the changes and the reasoning for those changes.  That way, when your clients ask you questions, you can give them well-reasoned and thoughtful answers. You also want to do the very best job in selling homes for your main clients--the sellers.  So, if you have a good working knowledge of changes in the mortgage industry, then you can provide even better service to them than you already do.

BIG CHANGE #1.  Private Mortgage Insurance will be more costly to folks who do not have at least a 700 FICO score.  While you may not have direct knowledge of these numbers and due to Privacy laws, may not obtain this information from your mortgage professional, you need to know that this will affect how much mortgage a buyer can afford and how much of a down payment will be required.  If the PMI costs are too great, the buyer may not feel comfortable with the monthly payment, or may not qualify for financing a particular home.

BIG CHANGE #2. Loan rates themselves will be affected by FICO scores.  To obtain the same rate as someone with a 680 FICO score, a borrower with a 620 score will have to pay 1.75 points.  Plus, they will be hit with a higher PMI rate if they have less than 20% down.  Closing costs will be significantly higher to obtain the best rates.  The costs will be reduced in exhanged for a higher rate.  EIther way, this may affect qualifying.  And your contract!

BIG CHANGE #3. Many of the previously available reduced document loans are going away.  No Income/No Asset & No Ratio will be No More. Even the subprime loans, that have mostly disappeared, will not have these products.  Stated Income/Stated Asset & Stated Income/Verified Asset programs will still be around.  But only for those with high credit scores and only for the self-employed.  There will be no more easy financing based on credit score and property value alone.

BIG CHANGE #4.  FHA will be a much bigger part of the market.  That means you want to make sure that your listings meet guidelines.  And you want to make sure area appraisers can do FHA appraisers.  That way, if a loan doesn't fit a conventional program, a full blown second appraisal will not be required.  Most property issues can be solved.  Water & Septic issues are the big ones to cover.  No springs or dug wells.  Distance requirements from water source to septic & leach fields must be met.  With loan limits likely to increase soon and with less reliance on credit scores to qualify, more buyers will need to select this route for their mortgage.

In summary, you want to be sure that buyers making offers have been pre-qualified and have had their credit pulled by a reputable lender.  That way, the buyer knows what options are available.  A pre-approval is even better.  Especially before an apprasial is ordered.  If you can save the buyer money, you will look good.  FHA lenders will be worth their weight in gold.  Because, if state housing or conventional will not work for the buyer, that option of going FHA can save your transaction and keep the timeline on your contract viable.

Senate Questions Some Aspects of Reverse Mortgages

The US Senate has passed the FHA Modernization Bill.  There are some differences between this version and the House version.  I will focus only on the changes as they affect the HECM Reverse Mortgage in this column and will deal with the other parts of the bill in a subsequent column.  The Senate does have some concerns related to reverse mortgages and is conducting hearings on them.  The items they are focusing on need to be addressed for the protection of seniors using the program.

If either you, or a family member have been exploring the possibility of a reverse mortgage, you should pay attention to these areas of concern.  The first concerns the sale of annuities financed by reverse mortgage proceeds.  Seniors should not use a loan for this purpose and if somebody is steering you in this direction, you should really pay attention.  If you are expecting to use proceeds of a reverse mortgage to make you more comfortable in meeting expenses, you could end up with limited or no access to these funds if they get invested in annuities with any lengthy deferral period.

Direct mail pieces that ”look official” are also concerning to Senators.  Some tout “An Important Government Benefit”, or use language and graphics that may convince some seniors that reverse mortgages are a government assistance program as opposed to a loan secured by real estate.  Many credit card companies already employ this mailing practice and advertising companies push the sale of this type of mailer because it is so effective.

Another concern has to do with the quality and consistency of counseling.  HUD counseling is a pre-requisite to obtaining a HECM reverse mortgage.  The Senate also wants to be sure that the funding of these counselors is not coming from the lenders.  HECM counselors are not supposed to recommend a specific lender or loan officer to seniors.

The fourth concern has to do with ads promoting the opportunity to sell reverse mortgages, some through ‘advisor’ programs, that seem to indicate it is an easy way to earn money and get rich quick.  No particular background, experience or licensing is required and there is a fear that unsavory characters may be drawn in to sell these products to seniors whether they are appropriate or not.

There is also some very good news in addition to working out some protections for the above concerns.  A new nationwide FHA limit specific to HECM loans would be set at the conforming loan limit.  This increases the loan amount in our area to $417,000 from $200,160.  Folks with homes appraising between those two numbers are presently unable to use all of their equity for the program.  Using the reverse mortgage to buy a home will be possible. The origination fee would decline to 1.5% of the maximum claim amount from the 2% presently allowed.  And it eliminates the ceiling for the number of HECMs the Federal Housing Administration may insure.

The question now is not IF Congress will pass legislation, but WHEN.  And we appear to be very close to that point.

Simple Truths

Sometimes, you just stumble upon good things.  A few weeks ago, a member of Broker Outpost, posted a link to a great story.  An inspirational story.  It was how a grocery store bagger with Down's Syndrome made a difference in the whole store's attitude by doing something simple.  I will not spoil the story for you but will provide the link for you to see it yourself.  I actually had misplaced the link myself until scrolling through sent emails and I viewed it again today.  It truly is a masterpiece.

I also noticed a blog by the site owner, so I checked it out. The series just concluding is Change Is Good, You Go First. In our industry, we have seen so many rapid changes, that it is hard to keep up with them all.  It is also tough to keep our focus on what is really iimportant.  One story recounted by Mac Anderson, author of the blog, references a story of an airman during WWII leaving his cockpit to shimmy out on the wing to extinguish a fire in one of the engines secured only by a rope around his waist.  Winston Churchill had summoned him to 10 Downing Street and noticed how the airman could not answer questions because he was so nervous.  Churchill emphathized with him and told him that he could only imagine how Churchill felt in HIS presence.

It is always easier to have someone else initiate the change and blaze the trail, so to speak.  But, only by undergoing the change yourself, can you move forward.  Nobody can experience change for you. And that is one of life's simple truths.

Getting to Know Your Neighbors

Last week, I met with Mr. Ken Gordon of the Area Agency on Aging in St. Johnsbury, Vermont.  Ken heads up an umbrella organization for seniors. The Agency acts as a clearinghouse for service providers to area seniors.  Everything from Medicare signup assistance to co-ordinating rides to doctor appointments to referring the Meals on Wheels sites, Ken and his staff make sure that area seniors only need to call one number to get answers to their questions or to get them in touch with someone to provide those answers.

Before meeting with Ken, I had a general idea of the services provided there.  But, now I know more specifics and I can now direct people to them for help.  It is very important to be able to work within your community as a Loan Officer.  And, as Jeffrey Gitomer is fond of saying, "It is not who you know, but who knows you."  Offering Reverse Mortgages Locally is more than a slogan for me.  I meet seniors in their homes.  I get to know them even if I will never do a loan for them.  By knowing people like Ken, I can be even more helpful to them.

If you are serious about helping in your community and happen to offer Reverse Mortgages, it is important that you reach out to agencies such as this.  You may find that you will be rewarded by the sense of helping if you do.  It is a good thing--getting to know your neighbors.

Examining Our Situation

As 2007 runs its course, it is pretty easy to look back and see all of the new issues that have cropped up to change how the mortgage industry operates.  And it is easy to lookinto 2008 to see how these changes will affect us all.  For sure, one thing is definite--things are different now.  And that means that all of us will need to change if we have not already done so.  It is not going to be 2003 again anytime soon.  Just looking at my previous post is testament to that.  Rates shot up a couple days afterwards.

One present you should give to yourself this Christmas is "Who Moved My Cheese?".  This book is timeless.  The basic premise is that when things change, YOU must change.  If the products are different, then you must not expect the OLD products to return. You must not wait for them to return.  And you should not expect that because there are fewer and fewer people waiting, that they [and you] will be rewarded for your patience.  Will the VHS recapture market share from the DVD? Will the low prices available for analog TVs mean a smart investment has been made by the purchasers of them?  Think the bag phone is going to make a comeback?

New products will replace old products.  Old products that are still useful will be improved.  Mortgage Officers that recognize these truths will indeed survive what has been a turbulent time in our industry.  If your goal has been to make as much money as you possibly can, then you are missing the point.  If you are looking to help others, then you will find great reward.  To spell out the old that have or will be replaced: Subprime where anything goes will be replaced by limited products that conventional products will not cover.  No doc & no ratio loans will not be replaced anytime soon.  Low FICO borrowers with the same rates as high FICO borrowers will be replaced by risk-based pricing.  FHA will be used more heavily than in the recent past.  Reverse Mortgages will become a larger segment of the market.  And lenders who engaged in risky lending will be replaced by those who did not.  In any event, this is a very good time to be examining your situation.

Streamline Time Again

Time to pay attention to interest rates again.  Many FHA & VA loans done in the past few months may have carried a note rate of 7% or so.  As rates creep down toward 6%, a phenomenon of 3-5 years ago may be making a comeback.  The streamline FHA & VA loan.  These loans do not need new appraisals and as long as the borrower is current, a refinance is a sure thing.  Although, some lenders may require timely payments for the last 12 months, this may be an ideal time to review loan documents.  Many of these loans can be done in a few days.  For consumers, this can really be a help as a refinance done right now will mean lower monthly payments and a skipped monthly payment in January,  The benchmark is usually 1% to make economic sense, so doing it for much less of a savings is not really worthwhile.   It may very well be streamline time again.