Did you know that lenders across the country have been appraised values when they decide that an appraiser has over-valued a property? It's true, and it has been going on for a couple years now. But, thankfully, Fannie Mae is stepping in to ban this practice, at least on loans that are pre-sold to Fannie Mae.
To understand the problem we need to back up a little to what has transpired with appraisals over the last few years. When the housing crisis began, part of the bank "almost failure was that lenders were being forced to issue was due to forced buy backs of home loans that had been sold to Fannie and Freddie if it was found the appraised values were over-inflated.
The answer to this issue was passage of HVCC (Home Valuation Code of Conduct) which mandated that all appraisals for loans to be sold to Fannie and Freddie, had to be performed by AMCs (Appraisal Management Companies). Seeing yet another opportunity to make more fees, many lenders, including the biggest banks, opened their own AMCs and kept up to half the appraisal fees that were being charged.
Most independent appraisers refused to work for these companies because they were being paid half what they were used to making for the same amount of work, so the AMCs were forced to hire inexperienced appraisers, and often sent out these inexperienced appraisers to areas they were unfamiliar with. To make matters worse, these appraisers didn't even have access to local real estate information. The result was these new appraised values became a "crap shoot.," Real estate agents, sellers, buyers, builders, and anyone else involved in the process never knew where a value was likely to come in. We saw wildly low values, because foreclosures and short sales were being used as comparable sales, and sometimes we saw crazy high values as well because the appraisers did not know the areas.
Historically, lenders have always required the down payment amount to be based on either the sales price or the appraised value, whichever was lower. So, when appraisals started coming in very low, lenders increased the required down payment to keep the loan to value ratio the same, based on the appraised value. The result was sales were falling apart across the country. There are too may stories of builders losing sales on new homes because the appraisal came in below the actual cost to build, nevermind a profit for the builder.
Buyers often will not, or cannot pay the additional down payment - sellers usually will not, or cannot come down on price, so sales have been falling through in astonishing numbers since this fiasco began.
Enter the lenders - becoming ever more cautious - some lenders have taken this to another extreme and have actually been reducing the valuations their own appraisers brought in, for fear of potentially having to buy back a loan they thought they had sold to either Fannie or Freddie. They base their lower valuations on a computer value (such as Zillow - we all know how inaccurate Zillow is). The computer values do not reflect the condition of a house - they don't increase values for remodels, are often lacking information even on room additions - so, like Zillow, they can be grossly inaccurate. There is never an on-site inspection with computer models, as there is with a real appraisal. Nevertheless, lenders are using these valuations as justification to reduce appraised values, and sales continue to fall apart.
Fortunately, Fannie has announced that effective September 1, lenders will no longer be permitted to reduce appraised valuations. Instead, they will be required to contact the appraiser to resolve discrepancies between their value and the computer model. If the disagreement cannot be resolved on that level a second appraisal must be ordered by the lender. It has not yet been disclosed who will be responsible for the cost of the second appraisal, should one be required by the lender.
In addition, Fannie is looking at some other issues that have arisen due to HVCC (which was recently adopted by FHA as well.) Among issues being researched is the increasing number of inexperienced and non-local appraisers employed by AMCs. The dilemma here, of course, is that if AMCs are required to utilize only more experienced appraisers, either they will have to accept a lesser share of the fees, or appraisal costs will very likely rise.
Experienced appraisers are applauding this new action as there has been an uproar among the appraisers, builders, real estate agents, and independent mortgage brokers since HVCC went into effect.
Fingers crossed that fewer home sales will fall apart due to appraised values soon. This has been a nightmare for buyers and sellers alike
Contact mwilkins@capitalfmc.com with any questions http://www.themortgagemark.com/
Tuesday, July 13, 2010
Monday, July 12, 2010
N.C. Law to Slow Military Foreclosures Could Wind Up Hurting Military Borrowers
Foreclosing on active-duty military members might become more difficult for lenders in North Carolina if a bill that passed the state Senate this week eventually becomes law.
At quick glance, that would seem to be cause for celebration. But this appears to be a case where the cure could be worse than the disease.
The proposed legislation would basically slow down the foreclosure process against active-duty service members and require lenders to seek relief from a judge, who would have the discretion to disregard a foreclosure sale depending on the individual circumstances.
The problem is that lenders might have to begin evaluating — and charging — military borrowers differently knowing that it’s significantly more difficult to foreclose. Lenders worried about losing money are likely to take steps to insulate themselves, such as requiring bigger down payments or higher credit scores.
And that has the potential to make it increasingly difficult for some military families to secure home loans.
The proposed legislation could impact borrowers seeking all manner of financing, but VA loans could be particularly hard-hit. VA loans require no down payment and typically have more flexible underwriting standards. The average credit score for a VA borrower last year was slightly more than 700, about 50 points below the average score for all borrowers.
North Carolina has a huge population of military homebuyers, including nearly 21,000 who received a VA guarantee in 2009.
Finding ways to keep military families in their homes is an important task. But this may not be the best path. In fact, it might keep deserving military members and their families from becoming homeowners.
Contact me if you have any questions http://www.themortgagemark.com/ mwilkins@capitalfmc.com
At quick glance, that would seem to be cause for celebration. But this appears to be a case where the cure could be worse than the disease.
The proposed legislation would basically slow down the foreclosure process against active-duty service members and require lenders to seek relief from a judge, who would have the discretion to disregard a foreclosure sale depending on the individual circumstances.
The problem is that lenders might have to begin evaluating — and charging — military borrowers differently knowing that it’s significantly more difficult to foreclose. Lenders worried about losing money are likely to take steps to insulate themselves, such as requiring bigger down payments or higher credit scores.
And that has the potential to make it increasingly difficult for some military families to secure home loans.
The proposed legislation could impact borrowers seeking all manner of financing, but VA loans could be particularly hard-hit. VA loans require no down payment and typically have more flexible underwriting standards. The average credit score for a VA borrower last year was slightly more than 700, about 50 points below the average score for all borrowers.
North Carolina has a huge population of military homebuyers, including nearly 21,000 who received a VA guarantee in 2009.
Finding ways to keep military families in their homes is an important task. But this may not be the best path. In fact, it might keep deserving military members and their families from becoming homeowners.
Contact me if you have any questions http://www.themortgagemark.com/ mwilkins@capitalfmc.com
Friday, July 9, 2010
Credit Action Transforms Credit Scores with Precision
Most home buyers today are not aware of a report that is available to them through their lender that will allow them to see a significant increase in their credit score based on precise action taken on their part.
Credit action reports are available at minimal cost through all three of the main credit repositories; TransUnion, Equifax and Experion.
In the past, it was a loan officer’s “best guess” as to which credit action would produce a credit score increase and then if it did, the amount of the increase was uncertain. The following proposed actions are among the more normal ones:
1. Pay down the balance on a credit card or revolving account to an amount lower than 25% of the limit.
2. Pay off a small medical collection for $88 and have the paid off account reported as paid.
3. Remove a disputed late payment from the past 12 months of history on a current automobile loan.
Any of the above three credit actions will almost definitely produce some sort of positive credit score benefit. But will the benefit to taking this action be enough? Let me give you an example.
Many lenders who offer FHA loans are requiring a 640 minimum credit score as the borrower’s middle score (of the three repositories mentioned above). In fact, FHA now requires a minimum score of 620 and by now, all FHA lenders are requiring this as well.
A hopeful borrower who has had some credit difficulty in the past and finds his middle score at 545 right now would normally be given a few “hints” from a lender and told to call back when he has taken care of them. He calls around for a second opinion and finds that some of the advice he gets is conflicting. One lender suggests opening a new credit card (which is never a great idea for various reasons) while others suggest paying off a car loan. The disoriented borrower stumbles forward and tries again in a few months only to find that his scores have not risen all that much. This depressing scenario plays over and over leaving the person in essentially the same place for months.
Today we can do much better. With the credit action report tool, we can tell this borrower exactly which credit actions to take, in which particular order and estimate the actual numeric credit score benefit that will likely be seen with each one.
This gives the borrower confidence that taking these actions will produce a helpful result and thus increases the chance for follow through.
Other applications include getting better rates on conventional loans for both refinancing and purchasing; as well as increasing your standing with insurance companies that use credit scores as part of their matrix for evaluating risk and premium levels.
Put it on your list to talk to your local lender and request a “credit action report”. Make the improvements now before you need them – it could save you both time and money.
Contact me at http://www.themortgagemark.com/ or mwilkins@capitalfmc.com
Credit action reports are available at minimal cost through all three of the main credit repositories; TransUnion, Equifax and Experion.
In the past, it was a loan officer’s “best guess” as to which credit action would produce a credit score increase and then if it did, the amount of the increase was uncertain. The following proposed actions are among the more normal ones:
1. Pay down the balance on a credit card or revolving account to an amount lower than 25% of the limit.
2. Pay off a small medical collection for $88 and have the paid off account reported as paid.
3. Remove a disputed late payment from the past 12 months of history on a current automobile loan.
Any of the above three credit actions will almost definitely produce some sort of positive credit score benefit. But will the benefit to taking this action be enough? Let me give you an example.
Many lenders who offer FHA loans are requiring a 640 minimum credit score as the borrower’s middle score (of the three repositories mentioned above). In fact, FHA now requires a minimum score of 620 and by now, all FHA lenders are requiring this as well.
A hopeful borrower who has had some credit difficulty in the past and finds his middle score at 545 right now would normally be given a few “hints” from a lender and told to call back when he has taken care of them. He calls around for a second opinion and finds that some of the advice he gets is conflicting. One lender suggests opening a new credit card (which is never a great idea for various reasons) while others suggest paying off a car loan. The disoriented borrower stumbles forward and tries again in a few months only to find that his scores have not risen all that much. This depressing scenario plays over and over leaving the person in essentially the same place for months.
Today we can do much better. With the credit action report tool, we can tell this borrower exactly which credit actions to take, in which particular order and estimate the actual numeric credit score benefit that will likely be seen with each one.
This gives the borrower confidence that taking these actions will produce a helpful result and thus increases the chance for follow through.
Other applications include getting better rates on conventional loans for both refinancing and purchasing; as well as increasing your standing with insurance companies that use credit scores as part of their matrix for evaluating risk and premium levels.
Put it on your list to talk to your local lender and request a “credit action report”. Make the improvements now before you need them – it could save you both time and money.
Contact me at http://www.themortgagemark.com/ or mwilkins@capitalfmc.com
Wednesday, July 7, 2010
How mortgage changes have impacted home buyers
Independence Day is a time we all (should) be reflecting on the formation of this great nation and the challenges our founders faced in those times. Meanwhile we sit today in a stalled housing market with home construction at a very low, home sales volume very low, interest rates at or near an all time low, and guidelines for qualifying for a home mortgage as stringent as at any time since the 1980s. Leaving out everything but the major changes in lending practices, with or without government interference, let’s revisit for just a moment the changes since July 4, 2007.
Anyone who has paid attention to home mortgage qualifications over the last several months knows the ability to borrow money has returned to, and in many cases, passed a level of reasonableness to both allow for home purchases and mortgage refinancing. In the summer of 2007 the non-conforming mortgage industry had already begun to change and, at the time at least, we really believed the changes to be for the good of the economy and the good of home buyers and home sellers.
Non-conforming loans, also called sub-prime loans because they were made to people who did not meet conforming loan qualifications, allowed people who did not have the ability to prove their income to “state” there income. These stated income loans were originally intended for home buyers who were self-employed and who may have used part of their home for their business and their activities resulted in erratic pay cycles but still with enough Adjusted Gross Income with add-backs of certain deductions to qualify for a home loan. Over time almost anyone, including an order taker at a fast food restaurant, was allowed to state their income. Fortunately that was corrected but unfortunately it was so over-corrected the self-employed with good but obfuscated income are also no longer allowed to use the technique.
Another way lending has changed I can’t find anything bad to say about and that is the disallowance of stated asset loans. Never did I support someone saying they had money or income they did not have. However the market made these loans available and literally millions of loans were approved with people stating both their income and their assets. Although they were dubbed “liar loans” I did not support that phrase until stated asset home loans entered the picture.
Building on the stated income, stated asset home loans theme along came a mortgage loan called the “no doc” meaning there was no stating of anything - the borrower simply did not show or state income or assets. This loan was issued based on credit score and payment history. It probably would have been okay had it been limited to people with credit scores in the high 700s and credit accounts at least 10 years old with no late payments or other derogatory credit information in the last 5 years but it was not.
To sum it up there are people who deserve a home today who cannot qualify because of their self-employment but there are also millions of homes not being sold to people who have not established a historicity of deserving a home loan. In the end the changes are good, at least better than what we had that helped lead to the financial collapse. And while this is true there would have been a much better way out of this mess than we had and yes, we do know what that answer was.
Contact me at http://www.themortgagemark.com/ mwilkins@capitalfmc.com
Anyone who has paid attention to home mortgage qualifications over the last several months knows the ability to borrow money has returned to, and in many cases, passed a level of reasonableness to both allow for home purchases and mortgage refinancing. In the summer of 2007 the non-conforming mortgage industry had already begun to change and, at the time at least, we really believed the changes to be for the good of the economy and the good of home buyers and home sellers.
Non-conforming loans, also called sub-prime loans because they were made to people who did not meet conforming loan qualifications, allowed people who did not have the ability to prove their income to “state” there income. These stated income loans were originally intended for home buyers who were self-employed and who may have used part of their home for their business and their activities resulted in erratic pay cycles but still with enough Adjusted Gross Income with add-backs of certain deductions to qualify for a home loan. Over time almost anyone, including an order taker at a fast food restaurant, was allowed to state their income. Fortunately that was corrected but unfortunately it was so over-corrected the self-employed with good but obfuscated income are also no longer allowed to use the technique.
Another way lending has changed I can’t find anything bad to say about and that is the disallowance of stated asset loans. Never did I support someone saying they had money or income they did not have. However the market made these loans available and literally millions of loans were approved with people stating both their income and their assets. Although they were dubbed “liar loans” I did not support that phrase until stated asset home loans entered the picture.
Building on the stated income, stated asset home loans theme along came a mortgage loan called the “no doc” meaning there was no stating of anything - the borrower simply did not show or state income or assets. This loan was issued based on credit score and payment history. It probably would have been okay had it been limited to people with credit scores in the high 700s and credit accounts at least 10 years old with no late payments or other derogatory credit information in the last 5 years but it was not.
To sum it up there are people who deserve a home today who cannot qualify because of their self-employment but there are also millions of homes not being sold to people who have not established a historicity of deserving a home loan. In the end the changes are good, at least better than what we had that helped lead to the financial collapse. And while this is true there would have been a much better way out of this mess than we had and yes, we do know what that answer was.
Contact me at http://www.themortgagemark.com/ mwilkins@capitalfmc.com
Monday, June 21, 2010
Tax Credit Buyers Get an Extra 3 Months to Close!
About 200,000 home buyers can step back and take a breath.
The Senate last week pushed back the closing deadline for first-time buyers hoping to capitalize on the landmark $8,000 tax credit. Originally, buyers had to ink a purchase agreement by April 30 and close on the home by June 30 in order to qualify for the credit. Now, an amendment to a major piece of employment legislation has given buyers an extra three months to close — the new, extended deadline is Sept. 30.
The measure was sponsored by Sen. Harry Reid, D-Nevada, whose home state has been the epicenter of the foreclosure crisis. More than 180,000 home buyers were in jeopardy of missing the initial June 30 deadline, according to estimates from the National Association of Realtors.
The deadline extension also applies to the program’s counterpart, a $6,500 tax credit for existing home buyers.
However, it does not appear to have any bearing on the other major extension already in place — that’s the one for active-duty military who were serving outside the U.S. while the tax credit was in place. Those who served at least 90 days on extended duty have until April 30, 2011, to purchase and until June 30, 2011, to close. There are exceptions for service members who fell short of the 90-day mark because of medical issues.
Military members must also meet the tax credit program’s basic criteria. Qualified borrowers can combine the savings and buying power of a VA loan with the tax credit to create a tremendous one-two punch.
www.themortgagemark.com mwilkins@capitalfmc.com
The Senate last week pushed back the closing deadline for first-time buyers hoping to capitalize on the landmark $8,000 tax credit. Originally, buyers had to ink a purchase agreement by April 30 and close on the home by June 30 in order to qualify for the credit. Now, an amendment to a major piece of employment legislation has given buyers an extra three months to close — the new, extended deadline is Sept. 30.
The measure was sponsored by Sen. Harry Reid, D-Nevada, whose home state has been the epicenter of the foreclosure crisis. More than 180,000 home buyers were in jeopardy of missing the initial June 30 deadline, according to estimates from the National Association of Realtors.
The deadline extension also applies to the program’s counterpart, a $6,500 tax credit for existing home buyers.
However, it does not appear to have any bearing on the other major extension already in place — that’s the one for active-duty military who were serving outside the U.S. while the tax credit was in place. Those who served at least 90 days on extended duty have until April 30, 2011, to purchase and until June 30, 2011, to close. There are exceptions for service members who fell short of the 90-day mark because of medical issues.
Military members must also meet the tax credit program’s basic criteria. Qualified borrowers can combine the savings and buying power of a VA loan with the tax credit to create a tremendous one-two punch.
www.themortgagemark.com mwilkins@capitalfmc.com
Flood Insurance?
They never thought of it. Twenty-one families living in a small neighborhood well out of the ordinary flood zone for a tributary leading to the Chattahoochee River in Austell, Georgia, were among the hundreds of homes hit by record flooding in the last several months. Atlanta, Nashville and even parts of Oklahoma have all recently seen homes flooded in areas where no living person can recall having ever seen the waters rise.
Construction siltation, re-routed streams, hard surface coatings like streets and parking lots have all contributed to abnormal flooding in areas previously thought safe. Certainly their home owner’s policy has a flood insurance clause, right?
Unlikely. In fact if you do not specifically obtain flood insurance you don’t have it. Read your policy to be sure. Flood insurance, a separate policy for most home owners, is normally backed by a federal government National Flood Insurance Program. In past times when the Program was about to lapse it was a simple process to pass it through congress and it would be re-authorized. Not so in our times of fundamental change.
“Just because you haven’t experienced a flood in the past, doesn’t mean you won’t in the future. Flood risk isn’t just based on history, it’s also based on a number of factors: rainfall, river-flow and tidal-surge data, topography, flood-control measures, and changes due to building and development.” -Floodsmart.gov
Senate Democrats and House members as well have included the re-authorization of the NFIP in another massive bill which includes many unwelcomed fundings. During Senate floor debate on today, June 17, Senator David Vitter (R-Louisiana) strongly urged the Senate to remove the authorization of NFIP from the bill and pass it on a stand alone motion. He wished to introduce a single page bill to accomplish just this but was met with strong objection from Michigan Senator Debbie Stabemore (D).
While both senators agreed it should be passed it was left inside the existing bill due to the objections in an effort to get senate Republicans and Independents to vote yes on the larger spending bill.
Meanwhile hundreds, if not thousands of home sales are being delayed at the peril of the home sellers, buyers, attorneys, loan officers, communities and the economy at large. Lenders will not fund loans on properties which are in a Federal Emergency Management Agency (FEMA) designated flood zone without the buyer funded NFIP meaning no loan, no sale.
“Homes and businesses located in moderate-to-low risk areas that have mortgages from federally regulated or insured lenders are typically not required to have flood insurance. However, flood insurance is highly recommended because 25% of all flood claims occur in moderate-to-low risk flood areas. A lender can require flood insurance, even if it is not federally required.” - Floodsmart.gov
Visit http://www.themortgagemark.com/ if you have any questions!
mwilkins@capitalfmc.com
Construction siltation, re-routed streams, hard surface coatings like streets and parking lots have all contributed to abnormal flooding in areas previously thought safe. Certainly their home owner’s policy has a flood insurance clause, right?
Unlikely. In fact if you do not specifically obtain flood insurance you don’t have it. Read your policy to be sure. Flood insurance, a separate policy for most home owners, is normally backed by a federal government National Flood Insurance Program. In past times when the Program was about to lapse it was a simple process to pass it through congress and it would be re-authorized. Not so in our times of fundamental change.
“Just because you haven’t experienced a flood in the past, doesn’t mean you won’t in the future. Flood risk isn’t just based on history, it’s also based on a number of factors: rainfall, river-flow and tidal-surge data, topography, flood-control measures, and changes due to building and development.” -Floodsmart.gov
Senate Democrats and House members as well have included the re-authorization of the NFIP in another massive bill which includes many unwelcomed fundings. During Senate floor debate on today, June 17, Senator David Vitter (R-Louisiana) strongly urged the Senate to remove the authorization of NFIP from the bill and pass it on a stand alone motion. He wished to introduce a single page bill to accomplish just this but was met with strong objection from Michigan Senator Debbie Stabemore (D).
While both senators agreed it should be passed it was left inside the existing bill due to the objections in an effort to get senate Republicans and Independents to vote yes on the larger spending bill.
Meanwhile hundreds, if not thousands of home sales are being delayed at the peril of the home sellers, buyers, attorneys, loan officers, communities and the economy at large. Lenders will not fund loans on properties which are in a Federal Emergency Management Agency (FEMA) designated flood zone without the buyer funded NFIP meaning no loan, no sale.
“Homes and businesses located in moderate-to-low risk areas that have mortgages from federally regulated or insured lenders are typically not required to have flood insurance. However, flood insurance is highly recommended because 25% of all flood claims occur in moderate-to-low risk flood areas. A lender can require flood insurance, even if it is not federally required.” - Floodsmart.gov
Visit http://www.themortgagemark.com/ if you have any questions!
mwilkins@capitalfmc.com
Friday, June 18, 2010
Senate approves home tax credit extension!!
Senate approves home tax credit extension
By ANDREW TAYLOR (AP) – 1 day ago
WASHINGTON — The Senate on Wednesday approved a plan to give homebuyers an extra three months to finish qualifying for federal tax incentives that boosted home sales this spring.
The move by Senate Majority Leader Harry Reid would give buyers until Sept. 30 to complete their purchases and qualify for tax credits of up to $8,000. Under the current terms, buyers had until April 30 to get a signed sales contract and until June 30 to complete the sale.
The proposal, approved by a 60-37 vote, would only allow people who already have signed contracts to finish at the later date. About 180,000 homebuyers who already signed purchase agreements would otherwise miss the deadline.
Reid, D-Nev., added the proposal to a bill extending jobless benefits through the end of November. Nevada has the nation's highest foreclosure rate, and Reid is facing a tough re-election campaign.
The Realtors group has been pushing hard in Congress for the extension. Mortgage lenders, the trade group says, have been swamped with borrowers trying to get approved by the end of the month. Many potential borrowers are unlikely to make the deadline.
"If Congress fails to act promptly, then prospective homebuyers might not get the benefit of the homebuyer tax credit, even though they have completed contracts," the Realtors said a a letter to lawmakers.
First-time buyers were eligible for a tax credit of up to $8,000. Current owners who bought and moved into another home could qualify for a credit of up to $6,500.
The $140 million cost of the measure would be financed by denying businesses the ability to deduct from their taxes punitive damages paid when losing lawsuits or judgments
Visit http://www.themortgagemark.com/ or email mwilkins@capitalfmc.com with any questions.
By ANDREW TAYLOR (AP) – 1 day ago
WASHINGTON — The Senate on Wednesday approved a plan to give homebuyers an extra three months to finish qualifying for federal tax incentives that boosted home sales this spring.
The move by Senate Majority Leader Harry Reid would give buyers until Sept. 30 to complete their purchases and qualify for tax credits of up to $8,000. Under the current terms, buyers had until April 30 to get a signed sales contract and until June 30 to complete the sale.
The proposal, approved by a 60-37 vote, would only allow people who already have signed contracts to finish at the later date. About 180,000 homebuyers who already signed purchase agreements would otherwise miss the deadline.
Reid, D-Nev., added the proposal to a bill extending jobless benefits through the end of November. Nevada has the nation's highest foreclosure rate, and Reid is facing a tough re-election campaign.
The Realtors group has been pushing hard in Congress for the extension. Mortgage lenders, the trade group says, have been swamped with borrowers trying to get approved by the end of the month. Many potential borrowers are unlikely to make the deadline.
"If Congress fails to act promptly, then prospective homebuyers might not get the benefit of the homebuyer tax credit, even though they have completed contracts," the Realtors said a a letter to lawmakers.
First-time buyers were eligible for a tax credit of up to $8,000. Current owners who bought and moved into another home could qualify for a credit of up to $6,500.
The $140 million cost of the measure would be financed by denying businesses the ability to deduct from their taxes punitive damages paid when losing lawsuits or judgments
Visit http://www.themortgagemark.com/ or email mwilkins@capitalfmc.com with any questions.
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