MisterVA Schoolhouses/Courthouses/Covered Bridges

Back In Business

The business in me will not disappear simply because I have changed careers.  As I was searching for a lesson plan for a book that I planned to read as a class novel, I stumbled upon an interesting site called Teachers Pay Teachers.  I found a neat lesson plan and bought it.  As I returned to the site, I thought, "Why not me?"  As a new teacher, I have not developed a lot of lesson plans, but I have used Power Point for many purposes in the classroom as well as for classes I have taken.  With all of the uncertainty in the economy, adding a separate channel--even if minor--made sense.

My first lesson was created with the new Common Core Standards in mind.  It took awhile to compile a 49 slide presentation with multiple purposes.  I then discovered that my first submission needed to be free.  Fair enough.  If I create something useful to many, it can be a bellwhether to other lesson plans.  In fact, it will be a model for several others I plan to create in the next few weeks.  Will I strike it rich?  Not the point.  It provides good quality at a small price for other teachers to employ.  I have discovered that time is at a premium and between the commute, the meetings, the lesson plans, and my officiating, that time saved will be valued by others.

I see my store building slowly but surely, and my creativity once used in the mortgage business for marketing purposes can be re-channeled into creating good looking usable lesson plans for teachers on the go.  I will also have a number of lesson plans at my disposal for future years.  The Power Point model works well for me, though I see using other plan types from time to time.  It is the best of both worlds.

 

The Truth Comes Out

Articles are starting to appear regarding RESPA reform.  "Reform" is a euphemism that is used for many things.  Rarely does it deliver what is promised.  Consumers are confused by the new form.  Costs are not clear.  Partly because some of the seller paid items appear on the form.  Partly because some items such as escrows for taxes and insurance are left out.  Some features such as the Q&A on the first page are good to have.  But, mainly, this will result in higher costs, closing delays, and more confusion, than if simple enforcement of the laws already on the books had taken place.

Naturally, the government agency which implemented this new form is defending it.  Lenders and brokers and closing entities have had to spend millions to update software.  And the consumer is no better informed than he was previously.  As time marches forward, we will see more, not fewer, complaints from consumers.  But will it result in a more sensible approach by the regulatory agencies responsible for the new form?  I think we all know the answer to that question.

If you are a consumer who has been put off by this new form, then you should make your opinions known to your Congressmen and Senators.  Do it in writing and be specific about the issues you have with the form.  It does not hurt to inform folks in the media, either.  Whether by letter to the editor or by contacting the business writers.  Things will not change if the opinions expressed are by industry professionals--they were not listened to when drafting the new form and regulation.  Only if there are enough complaints by consumers, and that will include regulatory entities as well, will any changes occur.

Is There a VA Reverse Mortgage?

I met with a Veterans Service Officer recently.  He told me of some statistics in the county that were eye opening.  20% of the county's residents were veterans.  He went on to say that nearly 70% of those were over the age of 60.  Because many folks come into the county office for varied services, many of them have to do with hard-earned monetary benefits, he alluded to the fact that a lot of those veterans are on fixed incomes and are being squeezed by ever increasing taxes, home insurance costs, etc.  Although I was there to discuss the VA loan program and to give him some information to help his clients, at that point in the conversation, I had to mention the Reverse Mortgage.

Some have asked if there is such a thing as a VA Reverse Mortgage.  There isn't.  Primarily because the Home Equity Conversion Mortgage insured by FHA now has the nationwide loan limit.  Much of the discussions about VA getting involved were tied to the disparity in loan limits.  VA was at $417,000 nationwide.  FHA was tied to the old County limit system with some as low as $200,000 [rounded down a couple hundred dollars].  Once the new loan limits were put into place in late 2008, the need for another program largely dissipated.

Other changes were put into place, too.  A limit on the origination fee with a cap of $6000 and a floor of $2500 was adopted.  The nationwide limit was raised to above the conforming limit.  It is supposed to revert to the Freddie Mac/Fannie Mae limit of $417,000 at some point.  We have not reached that point, though.  In most areas, the ceiling is $625,000--enough to cover most primary residential values.  Age 62 is still the minimum age to qualify and the older the homeowner, the larger percentage of value that can be borrowed.  While the Reverse Mortgage is not right for everybody, it is perfect for some.

Talking to Lead Buyers

There are a lot of ways to talk to mortgage professionals.  One way is to call them based on a referral from a friend, colleague, family member or Realtor.  Another way is to have them call you.  That can be accomplished via the internet very easily.  You can fill out a short form by clicking on a banner ad, a link from looking at a specific house for sale on a Realtor website, or any number of similar type of site.  These become 'leads' to mortgage professionals.  Some may not appear to be as professional as others and as a consumer you need to ask some questions yourself.  One question "How did you get my name?" is really not necessary.  By filling out the form, you authorized the call and whether the lead went directly to that person or if the person purchased that lead is immaterial.

What is important to ask?  Where are you located?  If the answer is in another state, then you will know that some of the answers you get in the course of discussion may be less than informed.  I live in Florida.  I can very intelligently discuss loan facets in Vermont & New Hampshire because I lived and worked there for many years.  I can, to a lesser extent, answer New York questions because I worked there for several years.  But I am not up to speed with changes that may have occurred there since I last did business there in 1995.  I have done some lending in Maine, but would defer to an expert there as well. Florida is where I live and if it is where you live, then a comfort level can be reached that is not probable with someone calling you from Nevada or Illinois.

What is your experience?  I wrote my first mortgage in 1981.  I have seen many changes over the years, but the experience I have gained in lean times and in busy times is invaluable.  If you are working with someone who answers 2005 or later for entry into the business, you may or may not gain that same advantage.  Some who entered the business in that time frame are very good at what they do.  But many are flummoxed by all of the rapid fire changes in our industry.

What do you recommend?  Knowing that there are fewer and fewer loan choices now than what there were a few years ago means that it will not take as long to zero in on the right product.  In some areas, if you have less than 20% as a down payment, then you automatically toss out conventional loans as options.  So, you have to discuss the other major products--FHA, VA, USDA and State Housing.  The questions the mortgage professional asks YOU are even more important.  What are your goals?  What payment are YOU comfortable with?  How long do you plan to be in the home?

If the answers you get and the questions you are asked allow you to develop a rapport with the mortgage professional, then you can probably feel good about proceeding.  Remember that RATE is really not the biggest factor to consider since most rates will be fairly similar.  Overall cost and trust mean so much more.  Good advice is priceless.  And a lead buyer CAN be the person you decide to select as your business partner.

The Number One Issue in Housing

It should come as no surprise that the housing market recovery is slow to take place.  And it follows that the economy is slow in recovering.  In fact, the two are very much intertwined.  The recovery in housing will fuel the recovery in the economy.  And the recovery in the economy will fuel the recovery in housing. It sounds a lot like the "You need a job to get the experience and you need the experience to get a job" oxymoron.  Has the government been of any help in this situation?  Or have they caused more harm than good?

Well, rates for mortgage loans are very low and housing prices have gone back down to levels not seen since the rampant escalation in values from 2001-2006.  A lot of money was directed to assist in the area of problem loans with the Troubled [or Toxic] Asset Recovery Program.  In theory, these funds were to have helped lenders by offsetting loans that had higher balances than the homes used as security.  In practice, those funds never hit that target.  They bailed out investment bankers, insurance companies, funded bank takeovers, went to automakers, etc ad nauseum.

What would have happened if those funds simply had been applied to individual loans in that situation? We surely would not have as many short sales & foreclosures.  And values of homes would not be as affected by the increasing inventory of this type.  Tighter underwriting standards would certainly help with loans written going forward as long as people had jobs to provide income to make the payments.  But, housing sales would not have stalled.  Banks will have had funds applied to the troubled assets which would help their balance sheets.  The investors may have taken a bit of a bath, but they took the risk in investing in securities backed by poorly underwritten loans.

It may have rewarded some consumers in a sense, since those who paid their bills on time were not gaining the same benefit, but by not having their homes decline in value, they still would come away with something.  We might not be seeing the over-regulation that is occurring right now, had the Federal Reserve not been given free reign over the TARP funds.  Housing drives the economy and provides many jobs.  When housing stalls, jobs are lost.  And when jobs are lost, there are fewer consumers who can qualify for mortgages.  It appears that the Federal Reserve now wants even more control and that is bad news for us all.  Given their track record, less responsibility is what is deserved.

When to Expect FHA Changes to Be Implemented

HUD announced some big changes recently and it is important to know when these changes are scheduled to be implemented.  This can serve as a rough guideline for you as you bring homes under contract in the coming months.   Buyers should be aware that things are changing if they are using FHA.

1. Increase in the Up Front Mortgage Insurance Premium to 2.25% of the loan amount from 1.75%.  This is usually financed and HUD expects this to go into effect in the spring.

2. Down payment remains at 3.5% of the sale price unless the credit scores are below 580.  Not many lenders are approving loans with credit scores lower than 620, so this should have little effect when is goes into effect in early summer.

3. Seller concessions to be reduced to 3% from 6%.  There will be a notice in the Federal Register in February, followed by a comment period.  It is expected to take place in early summer, so those looking at the First Time Home Buyer at credit should largely be unaffected.

4. HUD hopes to have the annual Mortgage Insurance Premium increased by legislative authority.  This would affect the monthly payment.  No timetable is set for this item.

Call Center Mortgages

That is what is coming if the big banks have their way.  You may comment to the Federal Reserve up until December 24th, but here are some of the highlights of the proposal.  Under the guise of Loan Originator compensation, the Fed wants to cap compensation for mortgage professionals.  Bear in mind that the SAFE Act that was passed recently will register all loan officers and require educational testing for some.  The reason I say some is that the bank employees are exempt.

Many mortgage professionals have invested a lot into becoming more proficient and to be better able to offer sound advice to consumers.  Most of the bad guys have left the business.  With an investment as large as a home, wouldn't it make sense to use a professional who knows the industry, the programs, the qualifying methods and who has the background you can have full confidence in?  The call centers the big banks are promoting would not necessarily be here in the US, either.  So, further erosion of the American job base as well as a large drop-off in quality service is sure to occur should this be imposed.

And if employees are providing mortgage advice along with selling other types of unrelated products with little or no training or background, how is the consumer going to be helped by that?  Remember that many of the bad loans were originated via call centers and that type of business model in the first place.  If you were going to have a medical procedure performed, would you want a professional?  Or a call center employee talking you through things?

It is important for you as a consumer to have the SAFE ACT given an opportunity to work.  You don't pull a casserole out of the oven 5 minutes into baking time and decide that you need to change the recipe.  But, it appears that what the Federal Reserve is proposing is exactly the same thing. 

A New RESPA

Despite many comments from many different angles opposing the change, HUD has gone ahead and issued rules for a new Good Faith Estimate and HUD Settlement Statement.  Even with contradictions to the Truth In Lending Act [Reg Z], HUD has gone forward.  This new Good Faith Estimate [GFE} will lump settlement costs into categories and some will have certain tolerance levels for changes and some will not.  There is no place for signatures, no outline of escrow payments and how it would affect the monthly payment, and no place to disclose just how much money a consumer will actually need to close a transaction.

There are a number of restrictions placed on a lender, too, including one that will likely preclude the provision of a Good Faith Estimate to a consumer looking to do a pre-approval.  Since a lender will be held to certain figures EVEN if the loan amount and purchase price [another notable absence from the form] changes, no lender will be willing to provide a written GFE in advance of a property being identified.  So much for consumers having a tool in advance to compare offerings.

Mortgage Brokers could feel the squeeze, too, as lenders may not want to be held responsible for documents not originated by the lenders themselves.  Since this begins on January 1st, and HUD has not even published new settlement cost booklets for consumers, expect this to be another delay factor in buying and financing a home.

Another Haircut For Reverse Mortgages

I just got a haircut on Tuesday.  It'll grow back.  The Home Equity Conversion Mortgage [HECM] is getting a second haircut shortly.  Not sure if and when IT will grow back.  My haircut was painless.  But the haircuts for Seniors looking at a Reverse Mortgage are not without pain.  Seniors will be able to access 15% less from the program than they were able to four months ago.  Coupled with the fixed rate single advance option being the most attractive one, seniors are faced with less choices.  Less choices rarely is a good thing.

The concern about the insurance fund for FHA is the driving force.  Also there are fears of a continued decline in real estate values.  Rather than adjust the Mortgage Insurance premiums, which are already higher than for the regular FHA programs, HUD is going this route.  And for seniors who have not acted swiftly, it means less money available.  And this is not a program that should have quick decisions rendered.

Will more haircuts be on the way?  Difficult to tell, but it appears that the regular FHA program is scheduled for the next round of adjustments.

FHA Chief Proposes Changes

Changes loom for FHA in 2010.  We have seen plenty of changes over the past 12-24 months with mortgage programs and FHA is not immune.  And although most of the projected default issues lie with mortgage loans that are pre-dating those changes, the perceived risk to the insurance fund is prompting more adjustments going forward.

FHA traditionally has not used credit scores for qualifying, although many lenders impose their own guidelines.  Consideration is being given to imposing credit score or FICO guidelines.  The pricing of Mortgage Insurance based on this type of risk factor may be a byproduct of this line of thought.  The statutory ceiling for monthly [annual] MI has been reached.  The Up Front MIP can be as high as 3% under statute.  Right now it is 1.75%.  It appears that a change in the statute may be requested.  And it would seem that the monthly amount may be the target.  The UFMIP is usually financed, so funding the insurance through actual payments from the borrowers seems to be a better way to manage the insurance fund.

The down payment was adjusted to 3.5%, but some feel a greater amount is needed.  Some say 5% and some say 10%.  The 10% down payment would probably slow the program to a trickle and would not help the housing recovery at all. {Note:  I am weary of certain phrases at work in the English language, so I will refrain from using the much overused phrase regarding buyer funds invested.}  In addition, the generous 6% seller contribution may be halved.  Gifts from family are still allowed, but this will mean an increased investment on the part of home buyers.  For a home of $100,000, the down payment could be $5000 or even $10,000 versus $3500 today.  And the seller contribution would be reduced from $6000 to $3000.  This probably translates into buyers accepting higher rates to lower closing costs.

None of these proposals have been enacted at this point.  But if you are saving toward a home purchase, it may become more expensive an investment in the new year.