First, a little history (with a touch of nerdy stuff).  On July 15^th of 2010, FHA proposed to “cap the seller concessions in FHA-insured single family mortgage transactions at 3 percent of the lesser of the sales price or appraised value” after citing the industry norms of 3 percent for conventional loans and 4 percent for VA loans.  They attempted to justify this by saying that high seller concessions encourages inflated appraisals (translation of what FHA was really saying: “appraisers are crooks that don’t know how to do their job and the lenders that we approve don’t know how to underwrite appraisals”) and then they came up with some stats I could have cooked up in my mom’s basement when I was in 8^th grade and put them in a table (but they called it an actuarial table so that sounded cool and a lot of chumps bought it).  Of course there was no mention that higher seller concessions come on smaller transactions and smaller transactions on the whole are done for those who are more vulnerable to serious economic turmoil (not that we’ve had any of that lately).

Immediately after they announced these changes, the industry pushed back.  And when I say the industry pushed back, I mean everyone from builders to bankers to brokers to the National Association of Realtors®.  HUD backed down and instead kept their focus on continuously raising the annual mortgage insurance premium.  Now, in the face of a nearly imminent FHA bailout, they are acting on this again.  Why?  Will it really do anything to shore up how undercapitalized their insurance fund is?  No.  This is simply HUD and FHA bureaucrats making sure that they can say that they did something to avert the need for a bailout when it eventually comes.  It’s nothing more than political CYA.

With this action, the collective costs of political cowardice will be frightfully transparent.  The average credit score for FHA loans right now is 700.  FHA’s mortgage insurance is currently 35% more expensive than the private market alternative.  This proves that there is no actuarial basis for the current costs of FHA loans but rather, FHA is making their current customers pay for their poor decision making in the past in a desperate attempt to prevent themselves from having to face the political music come “bailout time.”  To make matters worse, and this shouldn’t surprise us from what’s happened with the Social Security “trust fund,” congress is now using FHA as a piggy bank at the same time that is faces having to bail it out.  And now we’ll face reduced seller concessions which with will force FHA purchasers on the more affordable end of the home buying spectrum into higher interest rates and do nothing to help the FHA insurance fund.

So if you end up taking a FHA loan and find yourself paying exorbitant mortgage insurance, a treasury override and not enjoying the historical program privilege of seller paid closing costs in excess of 3 percent, please know this: it has nothing to do with the risk you pose to the lender.  It is only a consequence of actuarial and political failure.

Charles Dailey – iLoan – NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

1. Lazy, because First Time Home Buyer Loan Programs require more work for mortgage lenders, but if you’re eligible take advantage of it.

2.  They haven’t taken the time to educate themselves about a great loan opportunity.  Instead, this person chooses to denigrate First Time Home Buyer programs through scare tactics and misinformation.

As a Mortgage Advisor,  I am fortunate to be able to offer First Time Home Buyers & Down Payment Assistance Programs offered through MN Housing Finance Agency.   If you are eligible, these are awesome, safe 30 Year Fixed Rate Programs Loan Programs and depending on Household Income level you may be eligible for one of three Down Payment Assistance Programs offered through MHFA.   Below is some very general information from the www.mnhousing.gov  website.

Minnesota Housing Mortgage Loan Programs

• Mortgage loans to purchase a home through local lenders for qualified low and moderate income first-time homebuyers in Minnesota
• 30-year loans with affordable, low, fixed interest rates for the life of the loan
• Interest-free loans to help with downpayment and closing costs for eligible borrowers

• Are a first-time homebuyer, meaning you have not owned a home in the past three years,
• Have federal income tax return copies for the last three years,
• Have acceptable credit,
• Have an income at or below prescribed Minnesota Housing Income Limits
  • For basic first-time homebuyer program for a family of one to four, 2011 income limits are as follows:

• Buy a qualifying home within prescribed purchase price limits as follows:

The recent, signed legislation to extend the payroll tax deduction means an increase in FHA’s mortgage insurance premium.  The FHA (Federal Housing Administration) has 2 charges to the borrower:

• Up Front Mortgage Insurance, which is currently 1% of the loan amount
• Annual Mortgage Insurance, currently at 1.15% and slated to increase to 1.25%

How could this affect you?

It could end in loan denial.  Namely, if as a borrower, you are near the limits of allowable debt-to-income ratios.  For example, on a $250,000 loan, this increase will add another $26.04 per month in additional mortgage insurance which also gets added into the debt-to-income ratios.  This increase couple topple the peak of allowable ratios and result in a denied status on your loan.

What do you do?

We Are All About Solutions!

Two things:

1. If you are an FHA buyer, get off the fence, find your home and CLOSE on your loan…now rather than later.   Push that spring market today!  Heck, even if you do still qualify after the increase, who wants to pay extra mortgage insurance?  Pew.
2. Convert your financing goals to conventional financing.  With as little as 5% down (good credit needed), you can get a loan with NO monthly MI.  HUGE advantages:
   1. No monthly MI means your purchase power just increased dramatically (see illustration below).
   2. Sellers and banks LOVE conventional offers!
   3. Many lenders will tell you that there is a rate increase for doing this “flavor” of conventional financing (called single premium financed MI).  DON’T LISTEN.  You can get the SAME rates as those borrowers paying monthly mortgage insurance.  You just need to ask and shop around for it.

Happy House Hunting!

612.363.1106     sherri@iloanhomemortgage.com

Forbearance Terms Eased for Freddie’s Borrowers

Freddie Mac gave unemployed homeowners who are struggling to pay mortgages owned or guaranteed by the company a break on Friday when it eased its temporary forbearance restrictions. Effective February 1, Freddie Mac servicers will no longer need prior approval from the government sponsored enterprise (GSE) before extending forbearance of up to six month’s duration to its borrowers who have lost their jobs. Servicers can also seek preapproval for a second six month period of forbearance for those borrowers if needed.Read the entire article from above

at http://www.mortgagenewsdaily.com/01082012_borrower_assistance.asp

You may be eligible for a HARP Refinance. Does Freddie Mac Own My Loan?  Find out here: https://ww3.freddiemac.com/corporate/

Forbearance Terms Eased for Fannie’s Borrowers

In this Announcement, Fannie Mae is introducing an Unemployment Forbearance program that provides servicers the flexibility to assist borrowers who have a financial hardship due to unemployment. These new requirements are consistent with the Unemployment Forbearance guidelines established by the Federal Housing Finance Agency for Fannie Mae and Freddie Mac.

You may be eligible for a HARP Refinance. Does Fannie Mae Own My Loan? Find out here: http://www.fanniemae.com/loanlookup/

Joe Harvey

Senior Mortgage Advisor

NMLS 242632

Email: Joe@MortgageJoe.com

Direct: 612-701-6346

You are in your jammies, its 1:00 AM and visions of new homes are dancing in your head.  How much is this going to cost?  What interest rate will you get?  Who are you gonna call?  No need, my friend…the internet has got you covered!

Information is GOLDEN.  And if you are like most, you are a do-it-yourself-er (DIY).  You want and expect information at your fingertips until you reach a certain point in the home buying process.

I GET THAT.

Most people prefer to browse and learn online before shopping with the aid of a real estate or lending professional.  We GUARD and PROTECT our privacy.  Anonymity rules.  But where do you start?  Well, bookmark this blog because The MN Mortgage Mom has just dialed in for you.

1)      Interest Rates

Cool.  You can find “estimated” interest rates all over the net.  I say, “Not so cool.”  Why?  Because interest rates, to some extent are derived from credit scores, loan-to-value and other criteria.  Typically, the posted rates you find on the internet are for those with a minimum of a 740 credit score with 20% down, conventional financing.  Maybe you are an FHA borrower/buyer?  VA or Rural Housing?  Maybe your credit scores are around 680?  You need CURRENT mortgage rates based on YOUR INDIVIDUAL criteria.  You can get that HERE.  (Disclaimer:  Don’t be sending me nasty grams at 1:00 AM that the rates aren’t LIVE.  Yep, markets close just like businesses.  If you want real live rates, you’re going to have to check them during business hours.)

2)      Closing Costs

How much is this mortgage going to cost?  (First, if you are buying a home there may be a possibility of getting seller paid closing costs.  If you are refinancing, there is a possibility of rolling the costs into the mortgage, thereby reducing your cash-to-close.  But, that is a whole new blog…I will get into that another day.)  I have never seen a web site that offers the public real closing cost estimates.  But, fear none, I got this one. Same link as the one above:  Closing Cost Calculator.  Enter your criteria and you will receive the interest rates and closing costs specific to your deal.  Real Estate Agents!  This tool can be invaluable for you and your clients when working up an offer.

3)      Calculating Monthly Payment

This is fairly self-explanatory.  To incorporate the rates you see into a monthly payment, you can use the mortgage calculator on the right side of our website (about half way down) by clicking here.  All you’ll need to do is add the rate,estimated purchase price, estimated down payment, property taxes, estimated homeowners insurance and (if applicable)mortgage insurance.

          a.  Property Taxes and Homeowner’s Insurance?

Yes.  You do not want to forget about these.  In most cases, your total monthly mortgage payment will include PITI (principal, interest, taxes and insurance).  If you have your eye set on a property or two, you can readily check the current property taxes right here.  Click on your state and find the appropriate County link to search by property address.  You can get a broad idea of your homeowner’s insurance premium by multiplying the price of the home by .006.  Then, divide that number by 12.

b.  Mortgage Insurance!

Oh pew, you say.  Yep, if you are putting less than 20% down on a conventional mortgage, you will be contending with MI (exception with VA financing).  Mortgage insurance is simply insurance that aides in covering a lender’s losses after foreclosure and sale of the property….and you get to pay that premium.  Use this resource to learn and compare MI products, options and costs.  If this looks like hieroglyphic mumbo jumbo, you may need to pick up the phone and call your loan officer.  There are many options and he/she can detail what makes most sense for your needs.  Want to jump right to an MI calculator?  Jump!

For 30 year fixed FHA financing with minimum down payment, the MI calculation is quite simple:  Loan amount x 1.15% / 12.

4)      But How Much Can I Afford?

Final step!  You have your interest rate, you understand the closing costs and you have worked up the monthly mortgage payment.  Can you afford it?  Take the Pre-Qualification Test Drive!  This is a simple spreadsheet that will allow you to enter your debt and income information and get a general idea if you can qualify for that dream home dancing around inside your cranium.  Download this worksheet and off you go.

Woot!  The numbers look great!  This just may be the home!  It’s 2:00 AM and you are chompin at your fingers wanting confirmation of all your hard work.  Aw heck, pick up that phone and call (or email) The MN Mortgage Mom.  I just “may” pick up the phone.  After all, I’m most likely working up the loan for your neighbor who just called me at midnight.

Happy House Hunting!

Cell: 612-363-1106

Fax: 651-964-2722

Email: sherri@iloanhomemortgage.com; Email: sherrisherpy@gmail.com

Web: www.sherrisherpy.com

NMLS 287770

LendSmart NMLS 4474

**THE #1 HOME SEARCH TOOL**

Our assumption is that lenders will be absolutely DEVASTATED with new refinance applications in the coming months, underwriters will prefer to deal with the “cleanest” files first. There is a distinct advantage to being first in line with an underwriter–not only can your loan close sooner, you may qualify for better loan terms.

You can read a detailed HARP Q&A here

New HARP

The defining characteristic of the newly expanded HARP program is the allowance of an unlimited loan-to-value (LTV) ratio. No matter how underwater you are… you can still apply.

HARP 2.0 gives homeowners the ability to refinance into today’s low mortgage rates without concern for private mortgage insurance, high closing costs and fees, and not even requiring an appraisal in most cases.

Beyond that, a HARP loan looks a lot like any other mortgage. Lenders are looking for borrowers with solid incomes, good assets and quality credit scores.

5 steps for your HARP preparation

Since HARP mortgages are backed by Fannie Mae and Freddie Mac, the underwriting process will resemble that of any other conventional mortgage. There will be loan disclosures to sign and supporting financial documentation to get to the processor and then to the underwriter.

To ensure your HARP application lands on the top of the stack, you’ll need to follow these 5 preparatory steps:

1. Ensure Fannie or Freddie backs your mortgage

Since day one, only those with mortgages owned or guaranteed by Fannie or Freddie could qualify. Fannie and Freddie each have a loan lookup tool which allows homeowners to search for their loan.

To check if your mortgage is backed by Fannie Mae, visit http://www.fanniemae.com/loanlookup/. If your mortgage is not found, try Freddie Mac’s loan lookup at https://ww3.freddiemac.com/corporate/.

Mortgages not listed on either website are not backed by Fannie or Freddie and, therefore, are not HARP-eligible.  There is still a remote possibility depending on if you entered your information correctly or not.

2. Determine if your mortgage is old enough

Only those whose mortgages were securitized prior to June 1, 2009 can apply for HARP. In general, this means that your mortgage must have started in mid-May 2009 or earlier. You can find your mortgage start date by looking at your closing paperwork. In the upper-right-hand corner of your settlement is your “funding date”–that’s the date you’re looking for.

Note: Since it can take up to 60 days to securitize a Fannie or Freddie loan, even if your start date is close to June 1, 2009, you still may be ineligible.

3. Does your current mortgage have LPMI?

HARP 2.0 is designed to help homeowners with or without private mortgage insurance (PMI), but the government’s revisions specifically excludes homeowners that chose lender-paid mortgage insurance (LPMI).

LPMI is mortgage insurance that’s built into your rate. If your mortgage statement itemized your monthly PMI, you have borrower-paid mortgage insurance and are thus eligible. All other mortgage insurance types are ineligible–including single-premium insurance.

4. You must be current

HARP 2.0 requires that all homeowners have made their last six mortgage payments on time, with a maximum of one 30-day late payment in the past year. This information is verified against your credit report, so be sure to review your credit reports prior to submitting your application.

5. Find and organize your supporting paperwork

Since HARP mortgages are underwritten like every other type of mortgage, you will be required to provide bank statements, a driver’s license, homeowners insurance information, pay stubs and W-2s. If you’re self-employed, you’ll have to provide at least 2 years of tax returns to verify your income along with some more supporting documentation.

Your speed in which you return these items to your lender can dictate your mortgage rate. If you plan on applying for HARP 2.0, gather all these items in advance. The less you leave to the last minute, the smoother your application will go.

Again, there will be a crush of new applications when HARP 2.0 is open to the public. If you’re going to apply, you must follow these tips to be one of the first approved and one of the fastest to close.

Fannie Mae HomePath Mortgage Loans… NO Appraisal, NO MI and NO Condo Certification!

Looking for a fix up property… with mortgage financing readily available?

You believe you are either a handy person when it comes to home fix up projects or maybe you know someone who is handy.    Shopping for foreclosed homes seems like a great idea for you, as foreclosed properties are the properties most likely to have some fix up projects that need to be completed.

This is a great idea, right up until you are not able to get financing on that foreclosed property. You may qualify for a mortgage, but the property must also qualify for financing and this is determined by an appraisal inspection. If the appraiser determines there are work orders on the property, the lender may flat out turn down the mortgage or it will be a requirement that the work be completed prior to closing.  And, to make it interesting, generally speaking the seller will not allow you to do the work and many times will not do it themselves either.  Pretty much turns the property into a cash only opportunity.

Do not give up… you just need to look in the right place.   Fannie Mae has a number of foreclosed properties on their books, and believe it or not, they are not interested in being in the business of retaining properties, so they came up with special financing, called the Homepath Mortgage.

The Homepath Mortgage might be just what you need to meet your home purchase goal of doing some fix up yourself. Not all the properties are going to have repair needs, but it is one of the best resources for finding those that do!  Depending on the property, there are other special features of the Homepath Mortgage, which make it the right choice for today’s buyer.

No appraisal – so there are not going to be any work orders of items to be repaired prior to closing or any other property issues.

No Mortgage Insurance – even though you have less than 20% down payment, it will not be required.

Down payment starts at 3% requirement for owner occupied – lower than FHA requirement of 3.5%

Down payment starts at 15% for investment properties – lowest investor down payment requirement available in the market.

Seller paid closing costs – up to 6% for owner occupied (please note: often, the banks will only give 3.5%, best to make full price offer if you want the full 6%, just my opinion) and 2% for investment properties.

No Condo Certification – no extra cost of paying for a condo review or worries about passing the requirements.

First Look Feature – owner occupied buyers have a 15 day advantage to purchase these properties before they are available to investors.

To find a property that qualifies for Fannie Mae Homepath Financing, go to www.homepath.com  and you will be able to search all the properties that Fannie Mae has available in your area.

Please do not hesitate to contact me if you have any questions or concerns regarding this special financing, I have been writing these mortgages for years, it just might be the perfect mortgage for you!

Thanks!  Deb Muelken – The Mortgage Lady

Personal ID NMLS#364933 Company ID NMLS#4474

Preferred Phone – 651.353.8531

Secure Fax – 1.877.869.7392

Email: deb@iloanhomemortgage.com or deb@debthemortgagelady.com

Website: www.debthemortgagelady.com

The mortgage process begins and ends in the same place, with the mortgage loan application. It is filled out and signed at the beginning and updated for signature at the closing. But here’s the key point; every step of the mortgage process is dedicated to verifying a fact or validating an assumption on that was disclosed on the initial loan application. The loan application is broken in to 10 straightforward sections:

1) Mortgage type and terms requested

2) Property information and loan purpose

3) Borrower information

4) Employment information

5) Monthly income and housing expenses

6) Assets and liabilities

7) A summary of the credits (i.e. earnest money and the mortgage) and the costs (i.e. purchase price and closing costs) of the transaction

8) Miscellaneous affidavit section (this covers intent to occupy the property, citizenship and other items)

9) The agreement section (this is the fine print legalese and where the loan application is signed)

10) Information for government monitoring (this covers race, ethnicity and gender)

Nearly all documents a borrower is asked for or asked to sign will directly or indirectly relate to this document. Nearly all of the 3^rd party reports and vendor services used in the loan process will directly or indirectly relate to this document. Throughout the process, as new or updated information is obtained by the lender, the application is updated and re-reconciled with underwriting guidelines. In short, almost all of the mortgage loan process is a collection of acts designed around verifying facts or validating assumptions in this document; the loan application.

Knowing this, what should a prospective borrower seek to do?

If asked to fill out an online application, a paper application or do one face to face with a loan officer. . . be thorough when the initial loan application is filled out. For instance, if there is approximately 11 thousand dollars in a savings account, don’t put 11 thousand dollars on the application if the real figure is 10,771.41. Use 10,771.41 as the figure for the application. If the income is approximately 4000 a month but in reality its 4166.67, make sure the figure on the initial application is 4166.67. Also, insist that your loan officer be accurate on the initial loan application. If you see errors, however small, make sure that he or she corrects them immediately. Don’t tolerate sloppiness.

This may seem like a tedious way to start the mortgage loan process but it has down line consequences. Benefits of an accurate initial loan application include better loan recommendations, faster processing, faster underwriting, a more predictable transaction but most of all . . . fewer if any surprises.

Sure the loan process has a lot of confusing moving parts but if you want to keep it simple, just know that it’s almost all about the accuracy of the loan application and you’ll be way ahead of the game!

Charles Dailey – iLoan – NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

I was reading a few blogs last night and saw some from some “mortgage guys” and I saw a few different titles that intrigued me. 

If you’ve read any BLOGS on the difference between a LICENSED Mortgage Loan Originator and  REGISTERED Mortgage Loan Originator than you know that anyone who is writing loans is a MORTGAE LOAN ORIGINATOR.  There is no other official title or designation at a National or State level unless they’ve given it to themselves.  The Loan Originator will have an MLO # or a NMLSR ID #.   The extra R refers to someone who is REGISTERED vs LICENSED.  This means that they work for a Federal or State chartered bank or Credit Union.   I’ve felt strongly about changing the MLO to LMLO to have the acronym refer to a Licensed Mortgage Loan Originator.

What I still love to see is all the gratuitous titles that these guys give themselves to try to set themselves apart from the crowd.   There are the basics we’ve all heard to the cleverest.

Mortgage Originator, Loan Officer, Loan Originator, SENIOR Loan Officer, Mortgage Planner, Mortgage Specialist, Mortgage Consultant, Mortgage Advisor, Senior Mortgage Advisor, Mortgage Banker, Director/FHA Streamline Specialist (that’s my favorite).

Based on this… I’ve decided that I should now have the title of:  “Super Special Senior Mortgager Loan Consultant Advisor Guy”.

Can anyone make a BADGE for me?

Some actions can be taken that require no congressional approval. We, the signers of this petition, ask that the administration to work through the executive branch to implement the following:

• Have the FHFA change Fannie and Freddie’s guidelines regarding how long a consumer waits to be eligible for a new mortgage after a short sale to no waiting period if there were no late mortgage payments prior to the short sale and 1 year if there were.
• Have HUD amend FHA’s requirement to wait 3 years after a short sale where the consumer had late payments in the 12 months preceding the short sale. It should be amended to a 1 year.
• Have HUD clarify their guidelines regarding buying a short sale where the consumer didn’t have late mortgage payments prior to the short sale.
• Have the FHFA, pressure PMI companies to waive their right to deficiency judgment in the event of a short sale.
• Impose a 5 year moratorium on deficiency judgments on first mortgages.

Thank you for your consideration.

Sources:

*http://info.trulia.com/index.php?s=43&item=131

**http://www.mortgageorb.com/e107_plugins/content/content.php?content.9913

***http://iloanhomemortgage.com/uncategorized/fannie-mae-and-freddie-make-mac-move-to-no-loan-to-value-limit-loans-on-harp/

CLICK HERE!!!

Charles Dailey – iLoan – NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

The Federal Housing Finance Agency, with Fannie Mae and Freddie Mac, has announced a series of changes to the Home Affordable Refinance Program (HARP). This program was designed to be able to help people who were in a position of negative equity. Now, it someone is upside down on their home, there will be no limit to how far upside down they are in order to qualify for these loans. This program will continue to be available to borrowers with loans sold to the Fannie Mae or Freddie Mac on or before May 31, 2009 with current loan-to-value (LTV) ratios above 80 percent.

Here’s a summary of the most significant changes to the HARP program:

• Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;

• Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;

• Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;

• Eliminating the need for a new property appraisal where there is a reliable A VM (automated valuation model) estimate provided by the Enterprises; and

• Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the Enterprises on or before May 31, 2009.

This change, coupled with serious talk of the Fed doing more quantitative easing involving purchasing mortgage backed securities, could be mean BIG opportunities for people who, while well qualified as borrowers, have been locked out of being able to get today’s more favorable interest rates.

To find out if a loan is owned by Fannie Mae or Freddie Mac, first find the property’s standardized address by going to the United States Postal Service website, click on “lookup a zip code,” and find the properties “standardized address.” Then, enter that address into these lookups to see if there’s a match:

Does Fannie Mae Own My Loan?

Does Freddie Mac Own My Loan?

FHFA Harp Changes.pdf

Charles Dailey – iLoan – NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

Let’s use an example where someone is pre-approved for a FHA loan and the target purchase price should be around $180,000. Let’s assume that they want to be in their new home at least within 8 months of starting the process and want to buy in Saint Paul, MN (although these principles apply to most markets). How might this buyer benefit from 3 sets of search criteria?

Person-to-Person Sale Search:

In a person-to-person sale, there is no element of the transaction on the seller’s side that requires approval from a bank. The seller is free to negotiate solely on the basis of their own interest. I recommend setting up a search labeled “person to person,” enter your search criteria and be sure to exclude Bank Owned and Short Sale transactions so you know that these are less likely to have the property characteristics and negotiation differences that those transaction types would. Then, I’d investigate the local market data to find what the percentage of the original list price sellers are getting in that area. In this scenario it would be 91.1% (see chart below). If the seller is getting 8.9% less than asking price then you want to make sure that your search criteria is setup for 108.9% of the price you’re pre-qualified for. In this scenario that would be a little over $196,000. Skipping this step could cause a buyer to miss out on the property they’re really looking for.

Bank Owned Sale Search:

With your “bank owned” search, you want to make the same computation. In this case it would be 10.6 percent less than asking price and 110.6% of the pre-approved amount in this scenario would be a top end search criteria of a little over $199,000. When viewing the results of these search criteria, you want to keep a few things in mind.

The properties in the results are more likely to have physical deficiencies due to being abandoned by their previous owner. This can not only add to the costs of owning that home but present complications with financing. In this scenario, many of the properties showing up in the search might have problems that would lead to FHA work orders. Sometimes, even the presence of FHA work orders can kill a transaction as the bank/seller might refuse to do anything about it and won’t allow the buyer to cure the issue either. In this case, the transaction will fall apart. Additionally, depending on the city the property is in, these physical deficiencies can lead to code compliance issues which can present obstacles to being able to occupy the property or even have the title conveyed to the buyer.

Another feature of bank-owed transaction is that typically the contract used is the contract chosen by the bank and it is heavily favored towards their interests. Often times, it’s easier to lose earnest money and many have clauses for monetary penalties for delayed closings. Lastly, these transactions statistically close more quickly than any other type. This means that a buyer’s financing must be well organized and ready to go (not that it shouldn’t be anyway).

These won’t be on all bank-owned properties and I’m not suggesting that a buyer necessarily exclude them but when looking at a list of properties through a separate “bank owned search”, it’s nice to know when one is looking at them what one can expect should they proceed.

Short Sale Search:

Short sales are unique because it’s the only situation where the seller doesn’t have a true profit motive. Sellers in this situation are not allowed to make money so they are often inclined to take the first semi-reasonable offer with a buyer who looks likely to close. This can translate to very good deals for a buyer and that plays out statistically where we find in this scenario that sellers selling short are taking 83.4% of their original asking price. This would mean that we’d take 116.6% of the pre-approved amount and set this search at nearly $210,000. That’s a striking difference from a person-to-person or bank owned sale and can open up some excellent housing possibilities for a buyer who might otherwise have limited their search.

There are two concerns to be aware of with these purchases though. One is that there are sometimes physical deficiencies in these transactions that can be hard to cure if they’re significant since the seller is likely to be cash strapped. Nonetheless, these are typically easier to deal with in a short sale transaction than a bank owned transaction. The other, and most important one, is timeline. In this scenario, if the buyer wants to be in their new home within 8 months and want to consider buying a short sale, they’ll likely need to submit their purchase agreement within 40 days of starting their search since these transactions take the longest to get done (see chart below). The seller’s bank has to approve the transaction and that creates considerable delays. If this buyer has gotten 3 or 4 months into the home searching process with no luck, it might be wise to stop considering short sales as it would likely be unreasonable to get that process done in time to meet the buyer’s deadline.

What you need it a Home Searching Tool:

Different people will have different opinions about this but mine is that it can be tedious for both a buyer and their Realtor to establish these 3 separate searches and make the ongoing tweaks, adjustments and refinements that arise as a buyer narrows down what he or she wants. For that reason, a secure and buyer-driven search tool which allows the buyer to setup multiple searches and modify them as needed. The tool would have to be rich in options available to the buyer as far as crafting search criteria is concerned. Beyond the basics it would have to include the ability to require a search for short sales at the exclusion of bank-owned and person-to-person sales and any other combination thereof. I usually recommend the Home Buyer’s Scouting Report as it meets this need along with many other. I’m sure there are others that do this but I haven’t run into them as of yet.

Conclusion:

Today’s market requires a buyer to look at their home search in three dimensions. This can help them find properties they otherwise might not find, avoid transaction inconveniences that otherwise might come up at inopportune times and it can also assist them in managing their home buying timeline. With the assistance of a Realtor in understanding all of the differences in transaction types, the best way to do this is to leverage powerful home searching tools to keep the search process organized and in context.

Percent of Original List Price Taken

Chart 1

Average Days on Market Until Sale

Chart 2

Charles Dailey – iLoan – NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

This is often false and has devastating consequences. In many cases, proving imminent danger of default is all that is needed. Imminent danger of default is defined this way, “a borrower is considered to be in imminent danger of default when he or she is likely to default on his or her mortgage payments within the next twelve months.” Before we get into the consequences of misinformation, let’s review the facts:

1. Fannie Mae does not require a mortgage to be late in order to qualify for a short sale.

2. Freddie Mac does not require a mortgage to be late in order to qualify for a short sale.

3. FHA does require a mortgage to be late in order to qualify for a short sale (stupid).

4. VA uses the “imminent danger of default” rule on modifications but there hasn’t been a clear Circular regarding its use with short sales, . . . yet (and it doesn’t say they need to be delinquent either).

5. PMI providers do not universally require a mortgage to be late in order to qualify for a short sale – some do and some don’t (the trend is leaning towards more not doing it in the future and most of their policies are published on the web).

There is risk in getting this advice wrong both for real estate professionals and home seller’s alike. For seller’s, should they go into default solely for the sake of getting a short approved, they will forfeit their chance to be eligible for buying a home after a short sale using FHA financing for 3 years. They will also undermine their chances of getting a shorter pre-foreclosure waiting period with Fannie Mae financing if they want to use the extenuating circumstances argument. In short, it knocks them out of home ownership for 2 but more likely 3 years.

If a seller doesn’t know that they’re giving these opportunities up when they make late payments and should later find out that it may not have been necessary, the person who gave the wrong advice might want to refer to this whole paragraph as the “provable damages” section of this post. Unless the person giving such advice was an informed attorney or the loan servicer, any other might as well be practicing law without a license.

Loan servicers get this wrong quite frequently too although somehow they get kind of a pass on this one. The bottom line is that they need to adhere to the servicing agreements between them and the owner and insurer of the loan. Say for instance your call a loan servicer, . . we’ll call them P.J Chevy Morgan and they are servicing a loan that’s owned by Fannie Mae that doesn’t have mortgage insurance and they say that the loan must be late in order to get approved for a short sale, the solution is simple. Kindly inform them that they aren’t servicing their loan in accordance with the wishes of the owner of the loan and they should review their contract and quit making ignorant statements. And, in the meantime, continue processing the short sale under the assumption of imminent danger of default. If evidence of their mistake is provided (links above), they will proceed. A lot of these people working for servicers are truly surprised to learn that they’re wrong and are accommodating after the fact.

There are two lessons here. Home sellers doing a short sale should do the extra research on the owner and insurer of their loan and look into their policies on “imminent danger of default” vs. true default and real estate professionals should be wary of giving advice on these matters and would do best to carefully and concisely relay communication (with a paper trail) from other parties to the transaction rather than make suggestions. Indeed many real estate professionals are requiring the retention of outside counsel to handle all short sale negotiations and this just may be the wisest course.

Useful links:

● Does Fannie Mae Own My Loan?

● Does Freddie Mac Own My Loan?

If you are planning on getting married soon and buying a home – then why not use your registry as a Down Payment Registry.  This is a nice way to help add to your down payment funds. FHA has a Bridal Registry Program that allows the funds you receive as wedding gifts to be used towards your down payment.

Guidelines for the Bridal Registry Program

This program was originally introduced in 1996 as a way for FHA to promote homeownership. For many years this program sat almost dormant, but in the last several years with the economy tightening up newlyweds have been getting creative on saving for down payments. Keep in mind originally this program was only allowed by banks, then in 1997 FHA modified the program allowing new flexible options and for brokers to participate.

Breaking it down to several easy steps:

• Open a savings account at your bank prior to the wedding
• Family and friends will be given the banking information where the gifts will be deposited
• The entire amount of the gifts are allowed to go towards the FHA required 3.5% down payment
• Anyone with an interest in the purchase cannot be party to the gift funds (i.e. realtor)
• There is no requirement that you be married prior to closing on your new home

So, what is required from your lender when it comes time to purchase?  Just provide proof of your savings account named “Bridal Registry Account” and it’s that simple!

Michael Dietrich – NMLS ID 334183 – 651.206.3377

Sir Didymus (Dids)

In my considerations for a move recently, I had a bit of a time trying to locate most of the off-leash dog parks in the twin cities metro area.  After collecting some information I’d thought I’d share.

Remember that some of these parks require passes, dog licensure and all have rules so be sure to do your research!  Most cities have some kind of requirements but here are Saint Paul and Minneapolis dog requirements:

Minneapolis:

• Purchase Off-Leash Permit Online
• Print 2011 Off-Leash Permit Application
• Get your dog licensed through the City of Minneapolis
• Off-Leash Info Sheet

Saint Paul:

• Leash Law Brochure
• Safety Tips and Etiquette
• Dog Off-Leash Citation Procedures
• Complaint Process Sample

Many of the links to the dog parks will take you to the pages that also have outlined the rules and regulations.

Bedrooms, bathrooms, square footage, layout, schools. . .  There are so many things to remember to consider when moving.  Just don’t forget the considerations of all of your loved ones.

“This post was written in loving memory of my boy Sir Didymus (Dids) who lived gloriously from October 7^th, 2000 until he died tragically of a twisted stomach on October 21^st, 2010.  I think of him every day.”

P.S.  If I have omitted an off-leash dog park that you know of, please let me know about it in the comment box below so I can be sure to add it!

Charles Dailey – iLoan – NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

We also know that the Government wants to make “mortgage rates” a commodity and make it EASY to shop for.  But the problem arises when someone calls up and says “whats your rate?” and truly expects to get an instant answer back.   I certainly wish I could answer that question with a simple “we’re at 4.25% today” or “3.5% for a 15 yr”… but its not that simple.

In general I (and everyone else you talk to) needs to get MOST of this list to give you an ACCURATE quote for you and your situation:

1. Loan Amount
2. LTV (loan to value)
3. CLTV (combined loan to value)
4. Credit Score (lower of all borrowers middle score is used)
5. Credit History
6. Escrow Preference
7. Closing Date
8. Loan Type (Conventional, FHA, VA, RD, HomePath, Rehab)
9. Type of Mortgage Insurance (monthly, cash, split, financed or lender paid)
10. Property Type (single family, townhome, condo, 1-4 family)
11. Occupancy Type (primary, secondary or non-owner occupied)
12. Available Assets for down-payment
13. Available Assets for “reserves”
14. Asset Seasoning
15. Co-borrowers
16. Housing Ratio
17. Total Debt Ratio
18. Improvements Needed
19. Employment Type (W2, Contract or self-employed)
20. Employment History
21. Documentation Available
22. Relocation
23. Seller Contributions
24. Gifts
25. Cash-out

This is a long list and not all items are needed depending on the type of transaction (purchase vs refinance).

The BOTTOM LINE is: if you want to know what our RATES are… we’ll need to know a HANDFUL of information about YOU, Your Situation and what you’re looking to do before our rate quote should ever be “set in stone”.

IN FACT… if you really want help in figuring out who to do your loan: go ahead and ask “what’s your rate?”.   If you get a really quick answer… that’s the guy to STAY AWAY FROM.

Steven Brand – NMLS#261849 – iLoan – 612.386.5306

Here in the Mpls/St.Paul MSA borrowers purchasing power with FHA loans is being reduced by almost $50,000 very soon. The loan limit for MOST of the country has been at $365,000 for quite some time excluding the “high cost areas” that have seen this number at a VERY large number.

The loan limits will revert back to the limits set in 2008 if Congress does not step in to intervene. Lets ASSUME that this will not happen in the next 23 days if we know anything about how the system works.

RECAP: (with mortgage acronyms at the end)

• Early 2008 Congress temporarily increase FHA loan limits with ESA
• Five months later HERA was enacted to establish the FHFA who was to have the responsibility to establish conforming mortgage limits.
• Seven months after passing HERA… Congress enacted ARRA in Feb 2009.
• Loan limits have been extended by Congress each year, most recently through the CAA of 2011

Bottom line after all these acronyms: ON OCTOBER 1^ST IN THE MPLS/ST PAUL MSA the following loan limits will be in place:

Single family homes or Condos: $318,550

Duplex $407,800

Triplex $492,950

Four-plex $612,600

To see OTHER areas in MN (or any other metro area)… CLICK HERE. Then choose MN in the dropdown and hit SEND. After that CLICK HERE to send your home shoppers to get pre-approved!!

HUD: US Dept of Housing and Urban Development

FHA: Federal Housing Administration

HERA: Housing and Economic Recovery Act

ESA: Economic Stimulus Act

FHFA: Federal Housing Finance Administration

CAA: Continuing Appropriations Act of 2011

For these transactions to work, the following criteria must be met:

• The homeowner must be upside down on the value of the home
• The homeowner must be current on the existing mortgage to be refinanced
• The homeowner must occupy the subject property (1-4 units) as their primary residence
• The homeowner must qualify for the new loan under standard FHA underwriting requirements and possess a “FICO based” decision credit score greater than or equal to 500 (actually, 600 with us)
• The existing loan to be refinanced must not be a FHA-insured loan
• The existing first lien holder must write off at least 10 percent of the unpaid principal balance;
• The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent of the appraised value
• Non-extinguished existing subordinate mortgages (2^nd mortgages and HELOC’s) must be re-subordinated and the new loan may not have a combined loan-to-value ratio greater than 115 percent of the appraised value (the subordinate mortgages cannot have a balloon inside of 10 years, must permit prepayment, and must have monthly payments)
• For loans that receive a “refer” risk classification from TOTAL Mortgage Scorecard (TOTAL) and/or are manually underwritten, the homeowner’s total monthly mortgage payment, including the first and any subordinate mortgage(s), cannot be greater than 31 percent of gross monthly income and total debt, including all recurring debts, cannot be greater than 50 percent of gross monthly income (these are very rarely accepted and if this is the outcome of initial underwriting, other options should be considered)
• FHA lenders are not permitted to use premium pricing to pay off existing debt obligations to qualify the borrower for the new loan
• FHA lenders are not permitted to make mortgage payments on behalf of the borrowers or otherwise bring the existing loan current to make it eligible for FHA insurance
• The existing loan to be refinanced may not have been brought current by the existing first lien holder, except through an acceptable permanent loan modification
• If borrowers have gone through a modification where the payment wasn’t brought current by the existing lien holder they can be eligible for this program if (1) the modification was made under the terms of the Making Home Affordable Modification Program (HAMP), the loan may close the month following the date the modification was permanent or (2) the modification was a non-HAMP modification, the borrower must have made three monthly payments on time and the modified mortgage must be current for the month due

While it may seem unintuitive, this can actually be a good thing for your lender. It requires their consent and when asked, they will evaluate the pros and cons. They’ll consider if having a loan that’s hopelessly upside down on their books is a good thing, how much they could lose in a short sale, how much they could lose in a deed in lieu and how much they would lose in foreclosure. Of these options, often the least expensive to the lender is the short refinance which is why these are considered more and more often these days. Sometimes, they’ll ask that a HAMP modification be considered first and there’s nothing wrong with that. It will likely result in a good outcome in the form of a modification or move the short refi option forward after a delay.

The loan process for putting these together is similar to other FHA transactions except it’s pre-underwritten on the hypothetical basis of a reduced payoff. After the loan application, signed lending disclosures, income documentation, asset documentation and appraisal are in the loan file, it’s sent to the existing mortgage companies for their consideration. Due to the lengthy process of coordinating with existing lenders, these loans can take up to 90 days whereas normal refinances take less than a month.

Short refi’s, HARP loans, HAMP modifications and buying after a short sale are all key products to tackling negative equity. The FHA products are the least known and least explored but assuming good credit, should always be explored.

Charles Dailey – iLoan – NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

The term seller paid closing costs is really a misnomer though. A more appropriate name would be buyer financed closing costs. This is because despite the fact that it can appear that the seller is paying for them, this isn’t the case. The buyer always pays for closing costs but the question is how. Will the buyer have them rolled into the purchase price or pay for them with cash out of pocket or a combination of the two? These are the choices. No matter what choice is made, they are still technically paid for by the buyer. If this weren’t the case and the seller actually paid for them, why is it that the IRS lets the buyer write off a portion of these costs on their tax return instead of the seller writing them off? It’s because no matter how you slice it, the buyer pays them.

There are many benefits to a buyer when structuring their purchase agreement such that the seller pays closing costs. It can lower the cash required to close, extend the purchase price a buyer is able to offer, lower the eventual rate that the buyer gets, buy out mortgage insurance and many more. These various benefits should be weighed by a homebuyer prior to putting in an offer so they know that the offer structure they’re submitting is the most intelligent structure to meet their objectives.

When contemplating the structure of an offer, a homebuyer should remember the limits that certain loan types have for seller contributions. Here’s an outline:

1. Conventional (loans backed by Fannie Mae and Freddie Mac)
   1. Over 90% LTV: maximum “seller paids” = 3% of the purchase price
   2. >75% LTV & < 90% LTV = 6% of the purchase price
   3. <75% LTV = 9% of the purchase price
   4. Investment properties at any LTV are capped at 2% of the purchase price
2. FHA (loans insured by the Federal Housing Administration)
   1. All FHA loans are capped at 6% of the purchase price
3. VA (loans insured by the Veteran’s Administration)
   1. All VA loans are capped at 4% of the purchase price
4. RD (rural development loans)
   1. Rural Development loans are strange in that they don’t have a cap but most investors force a cap of 6% of the purchase price

Constraints on seller concessions for loan programs are not the only consideration. If a homebuyer is looking at foreclosures, they need to know that most bank owned properties where the property is owned by Fannie Mae or Freddie Mac (which is a lot of them) will only allow 3% of the purchase price in seller paid closing costs. Therefore, even if a homebuyer is planning on a FHA loan with 6% in seller paid closing costs, should they encounter one of these properties with a lower purchase price, they could be facing the decision of choosing between a higher interest rate or a higher down payment.

Managing the role that seller paid/buyer financed closing costs will play in a transaction is important and not to be left to the moment one is making an offer before consideration is given. Parties to a transaction shouldn’t get confused about who’s really paying them and make ill-informed decisions accordingly. It’s also important to ensure that a homebuyer’s loan officer and Realtor work well together to ensure that the offer structure is of maximum benefit to the buyer.

Charles Dailey – iLoan – NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

CAPACITY

Homebuyers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to take advantage of declining market conditions, and purchase, at a reduced price, a similar or superior property within a reasonable commuting distance. To comply with this provision, one must take a step down in housing, relocate or buy a wholly dissimilar property (i.e. going from a single family residence to a townhome). In non-relocation situations, which is by far the majority of them, people are taking a dramatic step down in housing expense; thus improving their debt to income ratio. Because borrowers are only considered eligible for a new FHA-insured mortgage if they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property and their new payment will likely be much less, it’s only reasonable to assume that their capacity to repay the loan is enhanced from what is previously was when their loan was already current.

CREDIT

Different lenders report short sales to the credit bureau in different ways. I’ve seen them report as charge offs, paid collections and mortgages with the comment, “creditor settled for less than the amount due.” The last of these is the most common and the most damaging. While nobody but Fair Isaac can claim to know the algorithms for credit scoring, I’ve seen score drops ranging from 43 points to 89 points and it seems to depend largely on the depth of the borrower’s credit report (if it were truly treated like a foreclosure, Fair Issac claims it can be as many as 150 points). Needless to say, for someone to have a qualifying FHA credit score for a mortgage after a credit hit like this, it is a compliment to the borrower’s payment performance and credit management. The fact that this credit score is maintained through a financial hardship that was recognized and affirmed by their previous mortgage lender only further fortifies this compliment.

CHARACTER

As mentioned, a completed short sale involves a financial hardship on the part of the seller that was recognized and affirmed by their lender but they also take a long time. In my market, it currently takes 215 days on the market before a sale. This means that not only is this homeowner likely under stress for a period of months prior to listing the property but, under hardship they need to wait another 7 plus months before they’re in the clear. All the while, they manage to remain current on their mortgage and installment debts (we assume this because we’re talking specifically about people who would be eligible to buy a home right away after a short sale).

The other component of this is what I call the Equator SNAFU. This isn’t the case with all loan servicers but often times when a short sale package is registered in the Equator system, a loan servicer puts a code on the loan. This code can trigger a series of events but one of them can be that the lender stops accepting payments in the usual ways. I often hear horror stories where homeowners in a short sale have to call every month and spend 20 minutes on the phone forcing the lender to take their payment.

In any event, when a homeowner goes through this prolonged period of financial hardship and still manages to pay their mortgage and other installment debts on time and see that they get posted on time speaks volume of their character as it shows how much they care about the quality of their credit rating and shows good faith to the lender under circumstances where many others, and some would say most, do not.

COLLATERAL

Because in most cases (barring relocation) one must take a step down in housing or buy a wholly dissimilar property in order to qualify for a FHA insured mortgage without a waiting period after a short sale, an additional step must be taken with the appraisal of the new property. In addition to the analysis that goes into every FHA transaction, the details of the new property must be carefully compared to the home previously sold short. This by itself does not ensure that collateral/home secured by the new loan is more secure per se. What it does do is force those involved in approving the loan to more carefully scrutinize the details of the appraisal. Only good things can come from spending more time analyzing an appraisal (why do I hear some of you Realtors and Loan Officers reading this snickeringJ).

CONCLUSION

While the four C’s of underwriting are applied to nearly every loan, there are situations that are unique to the buyer who is eligible for purchasing after a short sale without a waiting period using FHA insured financing that present a picture of that borrower in a light we don’t normally see. I would argue that for the reasons outlined above, it should be assumed that they should be looked at through a preferential light since it is inherent that, according to the principles we make loan decisions by, the borrower has already more than simply passed the test. The only justifiable questions to consider are whether the agreement between the borrower and their previous lender served as satisfaction in full and whether or not the new property meets the “step down or dissimilar test.” But, neither one of those questions speak to the borrower’s Credit, Capacity or Character. Those are inherently not in question.

THE MORAL COMPONENT FOR LENDERS

Aggressively taking steps to make these loans available is important for homebuyers and lenders alike. It gives lenders the change to justifiably write down loans that their bank examiners hate (without foreclosing), the lenders get a chance to write new quality loans and gives homeowners the chance to deleverage without leaving homeownership. All of these things are good for the housing market and the economy as a whole.

The housing market won’t make a meaningful recovery until the job market does. The job market won’t recover until consumer spending picks up. Consumer spending won’t meaningfully pick up until the negative equity problem is tackled.

A similar crisis happened after the revolutionary war when our country was in debt up to its eyeballs and couldn’t figure out why the economy wouldn’t jump start. The difference in this case was the solution. They noticed that all of their entrepreneurs were holding onto bars and staring through the window of debtor prisons so there was no dynamism in the marketplace. In 1800 . . . enter the bankruptcy code. This was a contributing factor to a major economic expansion of the time. Short sales are the modern day version of the introduction of the bankruptcy code. Only this time, barring a nationwide ban on 1^st lien deficiency judgments, the government can’t help.

Just think about it, . . . What percentage of homeowners in your area are upside down on their home, suffering a hardship and current on their mortgage and installment debt? The numbers are staggering. How many of them would contemplate a short sale if they knew they could remain in homeownership? Many are postponing the inevitable simply for the hope of holding onto the dream of homeownership that 9 out of 10 still hold dear.

Educated homeowners are on board . . . Realtors are on board . . . it’s time that lenders got in the game.

Related Posts:

• Buying a Home after a Short Sale – Don’t Believe the Naysayers
• Short Sales DO NOT Require a Delinquent Mortgage – “Imminent Danger of Default”
• Waiting Periods on Bankruptcy, Foreclosure and Short Sales for Mortgages

Charles Dailey – iLoan – NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

Posted September 18, 2000, Revised January 29, 2004, Revised November 18, 2004, November 16, 2006, March 26, 2011, August 1, 2011

Borrowers in distress often contact many lenders hoping to find one who will approve them. For this reason, multiple inquiries can have a negative impact on a consumer’s credit score. But multiple inquiries can also result from loan applicants shopping for the best deal. The challenge to the scoring system is to distinguish borrowers in shopping mode from borrowers in distress mode.

Hard Inquiries Versus Soft Inquiries

Self-inquiries, such as ordering a credit report for your own use, don’t affect the credit score. Neither do inquiries from your existing creditors, potential employers, or businesses considering whether or not to solicit you. These are sometimes called “soft inquiries”. The inquiries that may affect your credit score are those by new credit grantors to whom you have given your social security number along with explicit authorization to check your credit. These are “hard inquiries”.

Distinguishing Borrowers in Shopping Mode From Those in Distress: The Ignore Rule

Two credit scoring rules developed by Fair-Isaac, which pioneered the development of credit-scoring models, are designed to protect the scores of borrowers who shop multiple lenders for the best deal. The quotes below are from www.FICO.com.

The “ignore rule” is that “the score ignores mortgage, auto, and student loan inquiries made in the 30 days prior to scoring.”

The 30 days includes the day of the score, which is not evident from the wording. It is a good rule but borrowers are not warned about other types of credit that are not ignored. A very important one is credit cards. Because I happened to need a new business card while researching this article, I decided to see what impact my card shopping would have on my score. I had a mortgage lender friend make a credit inquiry to obtain my score, then I shopped two card issuers and had my friend inquire again. My score had dropped 13 points. All credit card inquiries are treated as indicators of distress.

Mortgage borrowers today face the hazard that the 30-day period can expire while their loan is still being processed. If the lender decides to recheck the borrower’s credit, which some do as a standard practice, the mortgage inquiries that had previously been ignored, will then hit the score.

Distinguishing Borrowers in Shopping Mode From Those in Distress: The Consolidation Rule

The “consolidation rule” is that “the score looks on your credit report for mortgage, auto, and student loan inquiries older than 30 days. If it finds some, it counts those inquiries that fall in a typical shopping period as just one inquiry when determining your score.”

The consolidation rule is expressed in such a way that most readers interpret it to mean that mortgage, auto and student loans are consolidated together. That is how I read it originally. In fact, what it means is that all mortgage loans are consolidated, all auto loans are consolidated, and all student loans are consolidated. If you shop for one of each type, they constitute 3 inquiries.

The shopping period during which inquiries are consolidated is 15 days in one version of the scoring model and 45 days in another. Since borrowers don’t know which model is being used by their credit grantor, they should assume the period is 15 days. But the most serious concern about the consolidation rule is whether or not the scorers can accurately associate inquiries with the correct loan type – especially in the case of mortgages.

Does Consolidation Always Work?

One of the motivations for this article was a claim made to me by Jack Pritchard, a long-term mortgage veteran, that mortgage inquiries were not always consolidated because the reporting system did not always identify them accurately. I posed this issue to Fair Isaac and was told that “the credit reporting system is a voluntary one and.… lenders report what they choose to report to the bureaus, and each bureau represents that information a little differently on its credit reports.” While this reply confirmed that proper identification could be an issue, Fair Isaac claims that their systems work around this problem by giving the borrower the benefit of any doubt. If the system is not sure, it consolidates.

But this leaves open the possibility that the system has no doubt but is wrong. Pritchard pointed to mortgage inquiries from credit unions and finance companies as particularly prone to misclassification because other types of loans are originated out of the same offices. At his suggestion, I asked Fair Isaac what would happen if a mortgage shopper generated an inquiry from a credit union and a finance company?

The reply was that “the credit inquiries would in all likelihood be de-duplicated by the FICO scoring algorithm. Inquiries from both credit unions and finance companies are eligible for de-duplication.” The italics are mine, and clearly suggest that there is no assurance that “de-duplication” (Fair-Isaac-speak for consolidation) will occur.

Bottom Line For Now

A case can be made that loan inquiries should be added to the list of borrower characteristics, such as sex, race and ethnicity that, as a matter of public policy, can’t be used in developing credit scores. The information could continue to be compiled and provided to lenders, but could not be used by the credit scoring algorithm.

Meanwhile, borrowers shopping for credit should minimize the number of hard inquiries by ordering their own score, which does not count as an inquiry, providing that score to all the vendors they shop. You tell them that they can check your credit when you are ready to authorize it. This will reduce the number of hard inquiries to one, from the vendor you finally select. And do not seek new credit cards during the period you are shopping for a loan.

The writer is Professor Jack M. Guttentag
of Finance Emeritus at the Wharton School of the University of Pennsylvania.  Comments and questions can be left at
http://www.mtgprofessor.com

Have you heard of the Home Valuation Code of Conduct (HVCC)?  If you are a lender or Realtor, of course you have.  What I wanted to do with this post is breakdown Fannie Mae’s policy now that HVCC has expired.  Basically the Code lives on and has been slightly rewritten from the original.  Unlike HVCC, Fannie’s policy has the force of law behind it. This new policy is clearly illustrated in Fannie Mae’s Appraiser Independence Requirements, Fannie, Freddie Mac, the Federal Housing Finance Agency and others developed this specifically to replace HVCC.

So whether you are a homeowner trying to refinance into a lower rate or Realtor trying to make sure your purchase transaction doesn’t fall apart due to the appraisal – You should familiarize yourself with the policy’s eight sections.

(Please Note that Fannie Mae’s use of “Seller” refers to the lender completing the loan and is not referring to the seller of a property in a purchase transaction)

Section 1 and 2

These sections discuss two key aspects:

1. The appraiser must be licensed or certified in the state where the property is located.
2. No one affiliated with the lender, appraisal-management company or any other partner of behalf of the seller can influence the final appraisal value in any way.

Section two states that a seller can’t order or obtain a second appraisal for a mortgage-financing transaction unless there is strong reason to believe the original appraisal is flawed or tainted, or unless the second opinion is a pre-established review or quality control process.

Section 3

This section states that borrowers must receive their appraisal at least three days prior to closing.  This section also makes it clear that borrowers can waive the three-day requirement but only if their waiver is received at least three days prior to closing.

In addition, at closing, sellers must provide the borrower any appraisal revisions and information about why the changes were made.  The revisions, however, can’t impact the value determination.

Section 4

In the fourth section of Fannie’s policy, it deals with appraiser-engagement rules.  It declares that lenders – or a thirst party specifically authorized by a lender – are responsible for choosing qualified appraisers and for delivering payment to those appraisers.

The lenders’ sales or mortgage-production personnel must be separated from the personnel in charge of appraisal functions.  This section also states clearly that no one related to sales and mortgage production can have any substantive communication with appraisers relating to or having an impact on value.

Section 5 and 6

In Section five, it clarifies the use of appraisal reports by in-house appraisers or affiliated appraisers are allowed as long as lenders comply with the appraiser-independence requirements and provisions.

Section six discusses appraisal-transfer rules.  It states that a lender may deliver a mortgage with an appraisal created by an appraiser that was chosen by another lender as long as that appraisal was prepared in compliance with the appraiser-independence requirements.

Sections 7 and 8

Section 7 discusses the requirements for appraisal-misconduct reporting.  The final section defines a requirement for lenders to implement this policy by creating written policies, procedures and training for their employees.

In closing, Fannie’s policy from Fannie’s perspective is designed to enable appraisers to be free of coercion and influence, while promoting better transactions for everyone who relies on their value judgments.
Check out this News Video on what some are doing to get the home value they feel it is worth

Michael Dietrich – NMLS ID 334183 – 651.206.3377

The million dollar question, should I stay, and continue renting, or should I go, and become a homeowner?    Sometimes, I think first time homebuyers are looking at this question as a million dollar question, and really, it is not.

Are we at the bottom of the declining market, or still dropping?  There are “experts” all over the internet in both camps telling us we are at the bottom, and others saying more to come.   This is making it a more difficult decision for the first time homebuyer than what is needed.

The real question that needs to be answered, am I ready to become a homeowner?  If you can answer yes, then move forward and do not be paralyzed by fear of the market dropping more.

Talk to an agent to figure out what type of home you would like,  and talk to a loan officer and figure out what type of financing  is available for you situation.    Those are the questions that you should be asking, as the answers to those questions give you your buying power.

Your real estate agent is going to help prepare and answer your questions on what type of home do you want, and, where do you want to live.   The agent can help you determine, do I need a
move in ready house, or, am I ok with a few improvements that will be needed.   And, how do I determine what to offer the seller.  The real estate agent has all the keys to all the homes, and will get you out looking.

Your loan officer is going to help prepare and answer your questions on what type of financing do you want, and what is going to meet your mortgage goals.  The loan officer can help you determine, do I need to work on saving for down payment, or credit repair, or am I ready to go out and make an offer today.  The loan officer will be able to work up the numbers for you on cost and payment, so there are no surprises when you find your dream home.

So, for a quick example, to prove it is not a million dollar question…If you had a loan amount of $150,000 in today’s market, with an interest rate of 4.5% (just an example, as rates can and do change on a daily basis) your principal and interest payment would be $760.03 per month.  If you wait a year, and the same property decreased, and now has a loan amount of $140,000, but interest rates are now
5.5% (just an example, if I knew what rates were going to do, I would call it in from the beaches of the world) your principal and interest payment would be $794.90 per month!

Shouldn’t you go with what is known today… instead of being afraid of the unknown?  Should I stay or should I go now, is not really your question.

Are you ready to be a homeowner?

Deb Muelken – deb@iloanhomemortgage.com – (651) 353-8531

Doesn’t the Seller Pay for All of Our Closing Costs?

We all have to remind buyers that they are responsible to pay the required down payment percentage (3.5% for FHA or 3-10% etc for Conventional) AND their closing costs/pre-paids too.  Even if you stipulate that the sellers contribute towards “closing costs and pre-paids”
in the purchase agreement it may not cover ALL of those fees.

If you want a smooth purchase transaction make sure that you ask your favorite mortgage guy if there is a NEED to try to get all/most of the closing costs/pre-paids included with the offer.  It could be the one little detail that causes the deal to fall apart if the buyer is short of CASH.

Here’s a quick general reminder:

Conventional:

• Over 90% LTV:    maximum “seller paids” = 3%
• >75% & < 90% =  6%
• <75% =  9%
  (small purchases OR for a permanent rate buydown if value is there)
• For INVESTMENT PROPERTIES at any LTV = 2%

FHA:

• FHA guidelines state 6% is allowable

VA:

• VA guidelines allow qualifying Veterans to have
  the sellers contribute up to 4% of
  the sales price.  For a couple different
  reasons… I highly recommend the buyers agents I work with to include at least
  3% to the 4% maximum to give our Veterans the best possible loan program with
  the lowest “out of pocket” expense.

USDA Rural
Development:

• This is a tricky one because there really is NOT
  a cap on this but some investors may limit the contributions to the 6% limit.

Even though these program types have their maximum allowable seller paid closing cost guidelines, don’t be surprised when you’re negotiating if you learn that the seller won’t allow more than 3% in seller paid closing costs.  This is particularly common on
bank owned properties where the asset is owned by Fannie Mae or Freddie Mae.

To conclude… the relationship between the borrower, the agent and the “mortgage guy” needs to be open and active BEFORE an offer is submitted.   A wise man once told me that
“RELATIONSHIPS (both personal and business) FAIL when there is a BREAK DOWN in COMMUNICATION”.

Steve Brand – NMLS # ID 261849 – 612.386.5306

Should you have any questions about any of the elements of the loan process, don’t hesitate to contact us!

Charles Dailey – iLoan – NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

InspectaHomes

An inspector will check the roof, basement, heating system, water heater, air-conditioning system, structure, plumbing, electrical, and many other aspects of buildings looking for improper building practices, those items that require extensive repairs, items that are general maintenance issues, as well as some fire and safety issues. However, it should also be noted that a home inspection is not technically exhaustive and does not imply that every defect will be discovered. A general list of exclusions include but are not limited to: code or zoning violations, permit research, property measurements or surveys, boundaries, easements or right of way, conditions of title, proximity to environmental hazards, noise interference, soil or geological conditions, well water systems or water quality, underground sewer lines and/or waste disposal systems, buried piping, cisterns, underground water tanks and sprinkler systems to name a few. A complete list of standards and procedures for home inspections can be found at the NAHI, ASHI or InterNACHI websites.

A home inspector is sometimes confused with a real estate appraiser. A home inspector determines the condition of a structure, whereas an appraiser determines the value of a property. Although not all states or municipalities in the U.S. regulate home inspectors, there are some professional associations for home inspectors that provide education, training, and networking opportunities.

Call your Realtor for recommendations on the best home inspectors of your areas of interest. Your Realtor will be the one in the know! I hope this is helpful and, as always, happy house hunting and let me know if you need any financing questions addressed.

Charles Dailey – iLoan – NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

In 2004, the MN legislature enacted MS 507.03 PURHCASE-MONEY MORTGAGE; NONJOINDER OF SPOUSE. Amongst other things, it established the following:

“When a married individual purchases real property during marriage and mortgages the real property to secure the payment of the purchase price or any portion of it, the other spouse shall not be entitled to any inchoate, contingent, or marital property right or interest in the real property as against the mortgagee or those claiming under the mortgagee even though the other spouse did not join in the mortgage. A statement in the mortgage to the effect that the mortgage is a purchase money mortgage constitutes prima facie evidence of that fact.”

So this takes care of the ownership interest issue but despite the fact that this law went into effect so long ago, the question still routinely arises in underwriting.

Laws concerning ownership interest in real property vary state by state. Often times, underwriting for mortgages is centralized in one area for multiple states. These underwriters might assume, albeit incorrectly, that a spouse must go on title for the new purchase. They might assume, albeit incorrectly, that the spouse might need to sign the mortgage note. They might assume, albeit incorrectly, that the spouse might need to sign the mortgage instrument. The spouse only needs to sign the Truth in Lending disclosure according to the MDIA amendments to the Truth in Lending Act from 2009. What’s important is working with a loan officer that knows how to navigate wrongly applied guidelines should they be applied by underwriting or even title companies.

The financing hurdles associated with buying a home prior to the execution of a divorce decree exist. Firstly, the purchaser must qualify for both mortgage payments and all other liabilities reporting to their credit report. All combined, these must meet the Debt to Income Ratio requirements of the loan. This must be so in order to satisfy FHA’s “buy and bail” rule and a similar guideline held by Fannie Mae (Fannie Mae’s Seller’s Guide B3-6-06, Qualifying Impact of Other Real Estate Owned (10/30/2009)). This guideline alone prevents a lot of purchases from happening prior to finalization of a divorce decree. The second hurdle is isolating the purchasing spouse’s income from the non-purchasing spouse’s income. If all income from the purchasing spouse is W2′d income, this is easy to do. If there is a mixture of self-employed income on the previous years’ tax returns (for instance both parties are self-employed or have a jointly owned business), it can be a rat’s nest to detangle and will take a skilled loan officer.

These transactions are not without their challenges; however, in Minnesota they can be done. Often times, they can represent the first truly big decision made independently for some time and that can be quite a liberating feeling!

Charles Dailey – iLoan – NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

Each person’s personal circumstances and long term objectives determine the type of mortgage they choose. For the past couple of years, the clear favorite has been the 30 year fixed rate mortgage because the yield curve between short term and long term bonds has been flat. When this happens, there is very little difference in the interest rates between adjustable rate mortgages (ARM’s) and fixed rate mortgages. But things are changing. That yield curve is bending and significant differences between fixed rate mortgages and ARM’s are emerging. What’s more, people are becoming more and more mobile. Consequently, they don’t need as much interest rate security as they did in the past.

First, let’s pinpoint the current average life of a mortgage loan. To do this we need to know how quickly, from a statistical standpoint, people pay off their 30 year fixed rate mortgages. While this varies depending on interest rate, we’ll focus on low rate fixed rate mortgages for the sake of illustrating a point (since higher rate mortgages are paid off even more quickly than the one we’ll use in our comparison). On page 12 of the Office of Thrift Supervision’s Selected Asset and Liability Price Tables (As of March 31, 2011), shows a WAC of 5% with a base pre-payment rate of 17% (WAC is the weighted average coupon of the underlying collateral or mortgages. To approximate the pass-through rate to the consumer, subtract 50 basis points – so these rates are in the mid to upper 4′s as far as interest rate is concerned). So you’re thinking, . . . “what’s your point nerd?” Well, if you take 100 and divide it by 17 you get 5.88 years and that’s the average life of a fixed rate mortgage in the mid to upper 4′s these days. Kinda shocking eh?

What’s more shocking is how much money is forfeited by choosing a 30 year fixed rate mortgage over an ARM. Statistically speaking, 3/1 and 5/1 ARM’s don’t offer enough rate security. The 7/1 and 10/1 ARM do the trick though. Consider this table (using the average loan amount in MN of 146,944 (224,000 * 65.6% = X):

    With potential savings in the range of $8408.13 and $9935.11, the decision between a 30 year fixed rate mortgage and a 7/1 ARM can be a very expensive one and shouldn’t be taken lightly. Personal circumstances might dictate the appropriate loan type (15 year fixed, reverse mortgage and so on, . . ) but all too often, people jump right in on shopping for rates and closing costs on a 30 year fixed rate mortgage before asking themselves if they’re paying too much for interest rate security they may not necessarily need.

VIA - http://iloanhomemortgage.com/uncategorized/the-statistical-relevancy-of-the-7-1-arm-vs-the-30-year-fixed-mortgage/ 

Charles Dailey – iLoan – NMLS ID# 79048 – CA DOC & MN DOC – 612.234.7283

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

Although we wouldn’t know it from watching the six o’clock news, mortgage underwriting guidelines and mortgage insurance underwriting guidelines have been in a pattern of loosening, not tightening. This trend started in late 2009 and continues today with such examples as lower minimum credit scores for mortgage underwriting guidelines and fewer declining markets for mortgage insurance guidelines. As this has happened, another trend has emerged. The phrase “underwriting exception” is coming back in practical contexts rather than a nostalgic reference to days gone by. These days, underwriting exceptions are more and more common where a mortgage loan file has “Compensating Factors.”

At face value, the phrase compensating factor seems to have a common sense meaning (an element of a credit application that is so strong that it offsets something weaker in the application) but it’s more complicated than that. Different mortgage types manage the consideration of compensating factors in different ways. For instance, conventional loans backed by Fannie Mae and Freddie Mac typically evaluate them using an Automated Underwriting System (a software system that determines a borrower’s loan eligibility based on a predetermined set of financial criteria and is subsequently reviewed by a human). FHA and VA mortgages are also evaluated this way but are underwritten manually too. Through all these models, the principles of Compensating Factors remain the same.

FHA’s written guidelines outline specific examples of what compensating factors may be taken into consideration:

• The borrower has successfully demonstrated the ability to pay housing expenses equal to or greater than the proposed monthly housing expense for the new mortgage over the past 12-24 months.
  
• The borrower makes a large down payment (ten percent or more) toward the purchase of the property.
  
• The borrower has demonstrated an ability to accumulate savings and a conservative attitude toward the use of credit.
  
• Previous credit history shows that the borrower has the ability to devote a greater portion of income to housing expenses.
  
• The borrower receives documented compensation or income not reflected in effective income, but directly affecting the ability to pay the mortgage, including food stamps and similar public benefits.
  
• There is only a minimal increase in the borrower’s housing expense.
  
• The borrower has substantial documented cash reserves (at least three months’ worth) after closing. In determining if an asset can be included as cash reserves or cash to close, the lender must judge whether or not the asset is liquid or readily convertible to cash and can be done so absent retirement or job termination.
  
• Funds borrowed against these accounts may be used for loan closing, but are not to be considered as cash reserves. “Assets” such as equity in other properties and the proceeds from a cash-out refinance are not to be considered as cash reserves. Similarly, funds from gifts from any source are not to be included as cash reserves.
  
• The borrower has substantial non-taxable income (if no adjustment was made previously in the debt to income ratio computations).
  
• The borrower has a potential for increased earnings, as indicated by job training or education in the borrower’s profession.
  
• The home is being purchased as a result of relocation of the primary wage-earner, and the secondary wage-earner has an established history of employment, is expected to return to work, and reasonable prospects exist for securing employment in a similar occupation in the new area. The underwriter must document the availability of such possible employment.
  

There are other examples not specifically mentioned here such as a monthly housing payment being low by comparison to the borrowers’ monthly income or a high debt to income ratio might be allowed if a house with a mortgage against it is pending sale but won’t close prior to the need for the new mortgage. Any compensating factor used to justify mortgage approval must be supported by documentation to be considered.

With lending guidelines taking a more open mind, it’s time to look to compensating factors when a situation arises where a credit score is slightly low, a debt to income ratio is high, a buyer needs to temporarily assume 2 housing payments and a number of other circumstances. Be sure not to buy into what you see on the evening news and trust that common sense in mortgage underwriting is more real than many might think. Be in the know and take advantage of it!

Charles Dailey - iLoan - NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The ONLY civilized way to search for homes!

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.