Mortgage Updates

From my perspective 2012 has gotten off to a good start with brisk sales in some of the new home communities.  Many more home buyers are out shopping for a home and looking to make changes.  That is good news in the greater Sacramento area. 

I have seen an increase in buyers who already own coming out to buy again... To change their home location....moving up, downsizing or just making a change to a new home from the old tired neighborhood. -Refreshing!  That tells me that something is "working" right in the housing market.

It seems that veterans are recognizing the "perfect storm" as it pertains to housing.  The lowest rates... and the best prices for the best quality in new homes.

Of course, I love working with first time home buyers, but is is refreshing to see customers bringing 20% down payments to the table.  Buyers that don't need to sell the home they are currently living in and are able to carry both payments (for qualifying purposes) while converting this to a rental property.

Also, emerging are new "first time buyers".  these are the folks that lost homes to foreclosure 3 -4 years ago.  After giving so much of their hard earned income to the government (no mortgage interest to deduct) they are now back.  Tired of renting and paying uncle Sam... these customers are serious about finding the right home at the right price.

I say... "Welcome back"!

Obviously, you don’t have to wait around for the home to start. This allows you to lock in a great mortgage rate and with the quick turnaround on offers you can know up-front what you are going to pay, unlike short-sales and foreclosures. The homes are already loaded with designer upgrades that are included in the price, so there are no surprises after visiting the design center. Since the home is already built you can “kick the tires” and really get a feel for how it will fit your family.

And, it is oh - so much nicer that an REO!  LOL - You'll pinch youself!

Foreclosure Fraud
Victims Lose Their Shirts…and Their Homes

07/22/11

He was their last hope—about 250 Southern California homeowners facing foreclosure and eviction believed him when he said he said could save their homes.

But in reality, he was their worst nightmare—he ended up fleecing the homeowners for approximately $1 million…and not a single home was saved in the process.

Last week, Jeff McGrue, owner of a Los Angeles-area foreclosure relief business, was sentenced to 25 years in prison for defrauding people who were at the end of their rope. Even the federal judge who sentenced him called him “heartless.”

It all started in late 2007, when McGrue—and several other conspirators who have pled guilty—orchestrated the scheme primarily through his company Gateway International. He paid unwitting real estate agents and others to serve as “consultants” to recruit customers who were facing foreclosure or were “upside-down” on their mortgages—meaning they owed more than their homes were worth. Many of the customers didn’t understand English or the contracts they were signing.

How the scam worked. McGrue and associates told the homeowners that “bonded promissory notes” drawn on a U.S. Treasury Department account would be sent to lenders to pay off mortgage loans and stop foreclosure proceedings; that lenders were required by law to accept the notes; and that homeowners could buy their homes back from Gateway and receive $25,000, regardless of whether they decided to re-purchase.

The payback for McGrue? The homeowners had to fork over an upfront fee ranging from $1,500 to $2,000…sign over the titles of their homes to Gateway…and pay Gateway half of their previous mortgage amount as rent for as long as they lived in the house.

Of course, nothing that McGrue told his victims was true: he didn’t own any bonds or have a U.S. Treasury account, plus the Treasury doesn’t even maintain accounts that can be used to make third-party payments. Lenders weren’t legally obligated to accept bonded promissory notes, which were worthless anyway. And Gateway International had no intention of selling back the properties to the homeowners. Evidence shown at McGrue’s trial revealed that it was his intent to re-sell the homes, once they were titled in Gateway’s name, to unsuspecting buyers.

The FBI began its investigation in 2008, after receiving a complaint from one of the victims.

During these uncertain economic times, there are many unscrupulous people looking to line their pockets at the expense of others’ misfortunes. One of the most effective ways to defend yourself against foreclosure fraud is awareness. According to the Federal Trade Commission, if you or someone you know is looking for a loan modification or other help to save a home, avoid any business that:

• Offers a guarantee to get you a loan modification or stop the foreclosure process;
• Tells you not to contact your lender, lawyer, or a housing counselor;
• Requests upfront fees before providing you with any services;
• Encourages you to transfer your property deed to title to them;
• Accepts payment only by cashier’s check or wire transfer; or
• Pressures you to sign papers you haven’t had the chance to read thoroughly or that you don’t understand.

Contact your local authorities or your state’s attorney general if you think you’ve been a victim of foreclosure fraud.

Courtesy FBI

1995 was the last time that our government had a shutdown. I remember that it was a painful time for pretty much everyone... but it wasn't a panic. If it happens again this time... things may be a bit different but I expect many of the same issues will resurface just in a different way. At our company we are preparing for a worst case scenario. If better we will all rejoice! We are preparing all the loans in our pipeline and working closely with buyers and agents that are working on new contracts, so the disruption will be minimal. Often, setting the appropriate expectations makes all the difference. So then, these are the top six areas that will be affected IF a shutdown were to occur:

• FHA Case Numbers: When an FHA loan is submitted for processing, the first thing ordered is a case number. This is needed to order the appraisal. It is important to note that the new FHA guidelines require a fully executed sales contract priorto the ordering of the case number. With a shutdown, we may not be able to order case numbers. Therefore it is critical for you to let us know when your contracts are ratified, so that we can order the case number immediately and not risk the loan (your sale) being on hold during the shutdown. However, the ability to close the loans may still be in question. This all depends on whether HUD keeps their website up and running during the shutdown. In addition to case number requests the HUD website is also used to run CAIVRS, EPLS and ADP searches. (During the 1995 shutdown, case numbers could not be obtained nor the other searches completed since everything was manual.) The 1995 shutdown only caused a delay rather than a drop in FHA Origination, but if lenders choose to stop accepting FHA applications, we would see a problem. It is my opinion that we will see some delays, but not a complete shutdown on FHA loans.
• VA:I expect to see disruption, rather than a shutdown. For like FHA we are dependent on the VA Portal website to order appraisals, receive appraisals and verify or issue certificates of eligibility. We are actively counseling our agents to be sure to refer their VA buyers earlyso that the Certificates of Eligibility can be ordered and any items such as verification of disability (to waive the funding fee requirement) can be completed. VA like FHA requires CAIVRS, EPLS and ADP searches. Those can also be completed in advance to avoid a possible delay. If the website were closed during the shutdown we would see delays on all VA loans.
• USDA: During a shutdown, the USDA office would be closed. Since USDA has government underwriters that insure behind the lender- with a shutdown we would see delays in ALL USDA loans.

Items affecting ALL loans- including conventional loans:

• FEMA:Homes in a Flood Zone: During a shutdown, FEMA would be closed. Therefore, flood insurance could not be ordered and received to insure properties that are in a flood zone,. Without flood insurance these transactions would not close.
• IRS 4506 Transcripts: Each loan requires verification from IRS that the income provided to the lender on the customers tax returns is as presented. In a shutdown, this process would be delayed or come to a halt if IRS employees are not at work to provide the information.
• SSI verifications; Investors require that each customer's social security number be verified through the social security department. During a shutdown it is likely that social security offices will be closed. Without this verification, there will be a delay.
• Government Employee Employment Verification: In the case where the buyer works for a government agency, there would be a delay in closing, even if an Employment Verification were already in the file, since lenders are charged to provide a verbal verification employment prior to funding. If the government were to shutdown we would be unable to provide the verification and there would be a delay.

Things for you, your agent and the lender to discuss:

• What can be done in advance to avoid a delay?
• How could this affect the rate lock? Should a buyer lock for a longer term? Wait to lock - float??
• How will the Seller handle a possible extension request?

We cannot avoid all potential pitfalls... Stay tuned for updates on this critical issue. Be sure to ask your lender on how they are planning to keep the loans moving... Do they have a proactive approach to this potential for closing delays.

As always your comments are welcome...

Who qualifies as a first time home buyer. That is a valid question. To answer it is important to know "who" is asking. The general definition is: Someone that has not owned a home in the past 3 years would be considered a 1st time home buyer. The word "home" becomes a key point. To prove lack of home ownership a buyer is required to provide copies of three years 1040 tax returns. Lenders, or agencies verify that no mortgage interest was deducted for those years.

But, what about the buyer that has owned real estate rental that was not the primary residence "home" for the last 3 or more years? Ironically, often that buyer does qualify for the down payment assistance. The items needed to prove the point:

* Copy of the rental agreement or lease for the primary residence

* Copy of the tax bill for the "other" property proving that it is "absentee owner".

If you are in this position, ask your lender to check with the DAP agency to see if you would qualify. Most lenders will automatically dismiss you.

If you are divorced and filed joint returns with your X using the interest deduction, again ask your lender to check with the agency providing the down payment assistance. If you can prove that during this time you maintained a separate residence, providing a copy of your lease or rental agreement you could be a winner.

Additionally, I have found that often previous home owners who have lost their homes through short sale or foreclosure often disqualify themselves as first time home buyers.  The key here is the timing... If the transfer OUT of your name occurred over three years ago... you may qualify.  I say may, because again it depends on the agency.  Some agencies will "pro-rate" meaning go by the date on which the transfer occurred.  Others want the whole year free from interest deductions before you will be considered a First Time Home Buyer and gain the extra benefits associated with the program. 

The benefits include down payment assistance by various degrees and the Mortgage Credit Certificate mentioned below.

As a first time home buyer you may also qualify to have Uncle Sam apply 20% of the interest paid on your loan towards your income tax liability. For information on MCC click here.

I'm always happy to answer questions... feel free to contact me.

Choose your loan, before you shop for your home.  There are two main types of loan catagories; Conventional Loans and Government Loans.

The loan options available to you will be determined by:

* Down Payment

* Loan Amount

* Loan to value or need for mortgage insurance

* Credit score

* Property Type

Down payment:  If your assets allow a down payment of 10% or more then a conventional loan may be a worthwhile consideration.  The mortgage insurance costs will be lower and it may be possible to remove the mortgage insurance earlier than on the government counter part.  FHA requires a minimum 5 year current payment history where as mortgage insurance is written for a minimum of 24 months. - That is without additional principle reduction, in which case the mi would be removed.

Loan Amount:  If your loan amount is $417,000 or below in the continental US, an FHA, VA, USDA or Conventional loan are your options.  If over the $417,000 then your transaction would fall into the JUMBO loan category.  September 2011 is the latest that FHA loans may be funded up to the $417,000 loan amount.  We will have to see what the new maximum loan for FHA will be after that date.

Loan to Value:  If your down payment will be less than 10% then you'll fare better with a government loan.  FHA still requires 3.5% down payment all of which could be a gift or a combination gift/grant etc.  VA requires no down payment from qualified Veterans with full eligibility.  USDA also provides 100% financing however, the property be located in a less populated or rural area.

Credit Score:   Credit scores play an important role in the options for financing.  If you combine scores and down payment... 680 is the minimum mid credit score allowable for a conventional loan with a down payment under 20%.

Property Type:  Not all loans are available for all types of properties.  Most notably, condominiums.  Condos need to meet certain requirements for both FHA and conventional loans.  The approval requirements are quite stringent.  Some condo's meet FHA standards, some Fannie Mae and some both or VA.  Most condos will not be in an area that conforms to USDA requirements.

It is for all of the above reasons that wise buyers start early with an informed lender.  A lender that presents all options available.  Some options are more attractive to the lender, or broker... but an alternative program or layered program might prove the most advantages to a customer. 

Pre qualification is as much about finding the options available to you as it is choosing which option or combination of options will be best as it is to satisfy yourself,( the Seller and agents) about your ability to conclude a positive end and close the purchase transaction.

For questions or more information feel free to contact me at: ipierson@teamvitek.com

An early Easter present has been announced by FannieMae who in an effort to stabilize communities through the speedy resale of Fannie Mae owned homes is providing buyers with a 3.5% credit towards closing costs.  This extra credit is being offered on Fannie Mae "HomePath Properties". The HomePath loan also available for borrowers to use in the purchase of these homes includes an additional "no appraisal" required benefit and a 3 to 5% down payment.  The 5% can be a gift. The "catch" on the closing credit is that the contract needs to be written AFTER April 11th 2011 and escrow MUST close by June 30th, 2011.

In this situation, again... It is crucial to be pre-approved with a lender BEFORE shopping for your home.  If you aren't pre approved, and by that I mean that the lender has ALL your documentation... w-2's, pay stubs, bank statements, rental history... etc. and preliminary underwriting. You may not meet the closing time frame - especially if you haven't written a contract as yet.

Good luck in the "hunt".  There are great homes, great prices and great rates for current house hunters. Best of luck.

As always, I can be reached via e mail for comments or questions...

Finding the loan that is "right" for you and your family.  Tip Number 6 is that you should meet with a qualified lender to review program types BEFORE choosing a home.  It is important to know what type of loan and which program before going out shopping to avoid disappointment.

Essentially there are two types of loans; Conventional and Government.  From there they break down into sub categories.  The conventional loans fall under  Fannie Mae, Freddie Mac and RFC (Jumbo) guidelines.  Government loan categories include; FHA, VA, CalVET and USDA.  These programs all have different types of mortgage insurance for loans with down payments of less than 20%.  Conventional loans work with private mortgage insurance companies, government loans utilize government mortgage insurance (FHA) VA guarantee Fee; USDA government Mortgage insurance, CalVET - Guarantee Fee.

Each of these loans has different requirements.  Some, such as USDA, have geographical restrictions.  The loans also have varying property requirements.  For these reasons alone it is critical that a buyer knows which type of loan before house hunting since some properties may be excluded due to condition or location.

It is therefore wise to know which loan works best for you and your family... then have a "back up" loan or program that would work IF your primary loan is not an option.  But, if as a first time buyer you really have only one option... say 100% VA financing, then you would want clear communication between your lender and your Realtor about the property types and specific nuances requiring upfront negotiation for your home purchase to become a reality.

Mortgage rates this week were driven by the world events which overshadowed domestic news. The violence in the Middle East and the incredible disaster in Japan moved mortgage rates a little lower. Incredibly the US economic data  which had strengthened  had a minuscule impact. 

The present environment is rare for that reason unrelated events in around the world are exerting this type influence on US mortgage rates. While global economic growth rates will always be a significant factor, they typically shift at a gradual pace. The disaster in Japan is so unusual in that it produced an extremely abrupt decline in Japan's economic outlook.

Slower economic growth in Japan will probably bring about slower growth in the US.Which is not good for our economy, but which can be favorable for mortgage rates. The current and potentially future uncertainty in the Middle East can also be favorable for mortgage rates, since it leads to higher oil prices which bring about slower economic growth. Rates were pushed in both directions this week due to changing conditions in the Middle East. The factors seen were increasing violence in Bahrain, then the prospects of diminishing violence in Libya.

This was a week with a packed economic calendar along with a Fed meeting and all were pushed to the background through the news from over seas. World events affected our rates more than local events this week. 

Otherwise, the generally stronger than expected economic data might have caused mortgage rates to move higher.

Rising food and energy prices produced greater than expected inflation readings in February.

Core CPI inflation, which excludes food and energy, rose just 1.1% from one year ago, but it has been moving higher in recent months.

The Fed statement contained no surprises and produced little reaction.

To summarize, this last week it was world news front and center that influenced our rates to your advantage.  Unfortunately, there will be again be times when world events will cause rates to not just rise but spike.  Those are the days that make nightmares for lenders and buyers alike.

Comments always welcome... e mail me by clicking here.

Interest rate options can come with pricing differences.  Those differences are called "points".  A point is a fee charged by the lender, typically a percentage of the loan amount.  Most buyers when inquiring about rates are looking for a rate quote at "par" pricing.  This is the lowest interest rate at a given point in time where the lender only charges 1% for the Origination Fee and there are no further "point" costs.

The rate on a real estate loan can be bought up or bought down based on investor or bank pricing over and above the 1% for the Origination Fee.  For example;  If a buyer does not have quite enough cash to close, the Lender may agree to rebate the 1% Origination cost by offering a slightly higher interest rate.  This is acceptable to the Lender since they expect to recoup the rebate over the life of the loan.  In the same way, if a buyer wants a lower long term rate, pricing from the lender can accommodate the rate buydown through the charging of discount points.  So that paying the lender a premium upfront will result in a discounted note rate for the life of the loan.

Most buyers, especially first time buyers don't buy the rate down for the long term.  Sometimes, however, a Seller will offer to credit the buyer up to 6% of the purchase price (FHA/VA limit) towards closing costs. Then it could help by lowering the qualifying house payment.  In this market most sellers are not willing to agree to such high closing credits.  The exception will be found in new home communities where a new home is move in ready... and a previous buyer "fell out".  In these cases some exceptional opportunities may exist.

Whether buying the rate down is something you wish to do, takes some thought and calculation.  If you are buying this home and planning to live there until it is paid off, then the investment of some extra up front dollars for a lower life of the loan rate would make sense.  Additionally these points are tax deductable in the year paid. But, since many folks really don't plan on being in their home until paid off keeping the extra cash in the bank could be more sensible. This is especially true for first time home buyers who can expect to have additional expenses in the first year of home ownership.

Not all Lenders will offer or allow permanent rate buydowns.  For instance CalHFA already offers some of the lowest interest rates for first time home buyers, therefore paying additional points is not an option.  Also, the one-half percent down payment program offered to any home buyer who meets county income limits, has a set price with no option to buy the rate down. 

 As always your questions and comments are welcome. 

You will need funds for down payment and for closing costs.

Buyers typically tell me they have so much ($5,000 - 50,000) to put down.  My question follows... Is that what you plan to invest in your purchase, or is that only for down payment... meaning that you will have additional funds for closing costs. 

Therefore... what you really to let your lender know is how much do you have to invest. That will along with your income and debt determine how much house you can buy.

Let's seperate the two; down payment and closing costs.

1. Down payment refers to the required investment amount for the loan program used for your purchase.  Examples:

VA - No down payment for Veteran's with 100% entitlement.

USDA - Zero down payment in qualifying areas

FHA- 3.5% down payment

Conventional - 5% minimum down payment

2. Closing costs are charges for services related to the closing of your real estate transaction.  They include but are not limited to;

Lender fees; Origination fee (typically 1% of the loan amount) Admin fees; appraisal fees; inspection fees; credit report fees.

Mortgage Insurance; some pre paid some financed

Title policy issuance fees charged by title companies to insure the chain of title for the buyer (CLTA) and for the lender (ALTA).

Escrow fees charged by the company acting as the neutral third party in the transaction... commonly referred to as an Escrow Company.

Fire or home owners insurance as well as flood insurance if it is determined that the property is in a flood plain.

Recording fees paid to the local County recorder's office.  These fees are charged per page of your loan document.

Drawing Fees, Notary and over night delivery fees also part of the escrow transaction.

Your lender should be able to give you a summary of what to expect for total costs including both re curring and non-recurring closing costs. For a full definition of what re-curring and non recurring closing costs are ... please visit my web site... by clicking here...

A knowledgable lender will know how to help you with some of these fees through grants if you are a first time home buyer or as a repeat buyer you meet certain income limitations for your county.  For more information on CalHFA downpayment assistance see previous blog or visit my web site by clicking here. 

It is really amazing that first time home buyers can still buy a home for as little as a 1/2 % down payment!

If you have a specific question or wish to have me provide you options for your California home purchase please e amil me by clicking here.

1. You must have bought – or entered into a binding contract to buy – a principal residence located in the United States on or before April 30, 2010. If you entered into a binding contract by April 30, 2010, you must have closed on the home on or before September 30, 2010.

2. To be considered a first-time homebuyer, you and your spouse – if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.

3. To be considered a long-time resident homebuyer you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased.

4. The maximum credit for a first-time homebuyer is $8,000, half that amount for married individuals filing separately. The maximum credit for a long-time resident homebuyer is $6,500. Married individuals filing separately are limited to $3,250.

5. You must file a paper return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit with additional documents to verify the purchase. Therefore, if you claim the credit you will not be able to file electronically.

6. New homebuyers must attach a copy of a properly executed settlement statement used to complete such purchase. Buyers of a newly constructed home, where a settlement statement is not available, must attach a copy of the dated certificate of occupancy. Mobile home purchasers who are unable to get a settlement statement must attach a copy of the retail sales contract.

7. If you are a long-time resident claiming the credit, the IRS recommends that you also attach any documentation covering the five-consecutive-year period, including Form 1098, Mortgage Interest Statement or substitute mortgage interest statements, property tax records or homeowner’s insurance records.

8. Members of the military and certain other federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and qualify for the credit.

For more information about these rules including details about documentation and other eligibility requirements for the First-Time Homebuyer Tax Credit, visit http://www.irs.gov/recovery.