Home buyers that take out home loans insured by the government will soon learn that their loan officer or Realtor cannot have anything to do with the ordering or choosing of an appraiser. The change comes months after already making the change to Fannie Mae and most conventional loan programs. The reason for the change is the belief that over the last few years appraisers were pressured into giving a loan officer or Realtor a value they needed to make a deal work. With all of the loan fraud and pressure on overvaluing homes the industry feels this is the root of one of the problems that needs to be corrected.

Moving forward Realtors & loan officers will no longer have the power to order appraisals for FHA-insured loans. What does this mean for the typically consumer? It’s hard to say. One thing is for sure. Appraisers are going to have a hard time being aggressive on their appraisal value. It’s going to be their name and their license on the appraisal and since they have no contact with the Realtor or loan officer they won’t feel the pressure to come in with a certain value.

Here is a brief explanation of what would happen in the past.

Loan officer or Realtor need a value of $300,000 to make a purchase or refinance deal work.

If the appraiser comes in at $300,000, everyone is happy but if the appraiser comes in at a value of $290,000 that throws a BIG WRENCH in the deal! Why would this be an issue?

On a purchase deal it means the seller is only going to sell their home for $290,000 which is $10K less and that means less money in their pocket. The seller may just cancel the deal and wait for another offer to come along at $300,000. Hopefully this appraiser is pushed to come in at this value. Perhaps the agents provide listings of recent sales to help support their sales price of $300,000. Believe me, agents, buyers, seller’s and loan officer’s PUSHED appraisers as much as they could to come in at a value they needed. If a commission was on the line, great lengths were taken to close that deal.

What about a refinance? You have similar things to deal with. Cash out refinance means it’s less money going to the home owner and less money for them to take a trip, buy a boat or just blow in Vegas!

The thing that makes this difficult and why I would imagine appraisers would support this change is that the appraisers who were inflating home values were being rewarded by MORE BUSINESS. (More Likely To Get Repeat Business) It made it difficult for a good appraiser to continue to work when the Realtor or loan officer controlled who they ordered the appraisal from. Do you think a loan officer or Realtor would order another appraisal from an appraiser that prevented them from closing their last deal? Probably not, this was a major problem in the real estate industry.

This would mean that consumer home appraisals are going to reflect the value of a home much more closely since brokers that would usually profit from approved loans won’t be choosing appraisers that could declare higher values.

However, there are certain organizations that state that changes and other attempts to reform the industry of appraisal hurts both appraisers and consumers because the new rules will result in home values that are extremely low since the appraisers are not familiar or experienced with the local markets. If you have appraisers coming from miles and miles away to perform an appraisal they may not be familiar with the area like a local appraiser.

The changes started last year when a code was adopted and made to divide loan officers from ordering appraisals. Although the entire process has been changed, it still remains to be seen whether it was a smart move and only time will tell.

If you are looking to complete a purchase or sale of a home, you shall no longer be kept in the dark when it comes to its closing expenses, thanks to the changes made in the RESPA this year. Loan originators seem to be opposed but it should help even the playing field and help buyers avoid the all too familiar bait and switch policy!

These changes require lenders to completely disclose every single closing expense, including expenses related to getting loans and any estimated expense for settlement, title insurance and the like.

Closing process forms have also gone through changes to make things easier for consumers to fully understand these costs and to compare them with the final closing expenses. This has encouraged consumers to shop around and compare costs from different lenders prior to making a mortgage choice.

Unfortunately, these offered estimates are usually only binding for ten days, so buyers only get several weeks to complete necessary tasks like keeping settlement services and reviewing title reports prior to closing. It would therefore be a necessity to act fast and meet deadlines within contracts of sale.

Because of this, every home buyer should work closely with an expert in real estate to come up with the best strategies in finding the ideal closing service vendor in no time.

Several Tips You Should Follow:

1. Since local customs and laws tend to differ, your agent might strongly recommend you to get optional services like home warranties and inspections. Ask and make sure it makes sense for your purchase.

2.  Buyers who are smart can save tons of money just by finding personal providers of closing expenses to retain quality at a lower cost but this can lead to delays and make it difficult to close on time.

3. Overall, it comes down to the old rule that you just need to read and understand everything you are signing. The item that really concerns me is lenders will have to offer buyers a good faith estimate and it has to remain the same all the way through to the end of the loan. Any unexpected expense will require the loan to go back in to underwriting and cause additional delays.

Make sure you do your homework and find a great mortgage company to work with! Please view the RESPA website for additional information.

A sweeping change in the FHA condominium approval process will drastically affect the availability of financing for condominium projects. On November 2nd of this year, FHA will remove all condominium projects from its approved list that have not been approved within the last two years. To be eligible for FHA financing, condo projects will have to go through a re-approval process. Spot loan approvals will no longer be possible as the entire project must now be approved. The immediate effect of this is that there will be very few condos available for FHA financing until the projects begin to find their way back onto the approved list. Many formerly approved projects, however, may not qualify for re-approval. This will not only impact the availability of FHA financing but VA as well. Although VA maintains its own list of approved condos, it also accepts any project listed on the FHA approved list. The FHA list has always been more extensive than VA’s.

There will be two ways that a Condominium project can be added back to the approved list. Lenders can approve projects through their DE underwriters or the projects can apply directly with FHA for approval. I have yet to speak with a lender who has said they will be re-approving projects. This means, most likely, that the projects and their HOA’s will have to work directly with FHA. The question is, “How many will do so?”.

The Conventional loan market for condos is also getting very restrictive. Several of the major Private Mortgage Insurance companies have pulled out of the condo market altogether. Typically these companies would insure the lender against loss for loans in excess of 80% loan to value making it possible for buyers to buy with less down payment. Even though there are a couple of companies still willing to insure high balance condo loans, their underwriting requirements are severe……a minimum Fico score of 760 and maximum debt ratio of 41%. The project has to be stellar in all aspects as well (owner occupancy, cash reserves, no special assessments or litigation, etc.).

So therein lays the conundrum. How do you buy a condominium in today’s market? The options are narrowing. You can still purchase properties on the current FHA approved list until November 2nd, but the escrow must close by November 30th. Spot approvals are also available but must be expedited to close by the deadline. If you intend to purchase a condo with conventional financing, be prepared for at least a 20% down payment. As for FHA, I have heard rumors that they may postpone the November 2nd deadline once again, but, if not, we will just have to wait and see how long it takes for the condo projects to find their way back to the approved list.

Please pass this article about The Condo Conundrum on to others.

UPDATE: Please read my updated comment below. I received a very good question from one of our readers.

UPDATE: FHA has extended this to December 7th, 2009. Once we get a little closer we may see another extension or possibly a change in policy.

Rick Harrell
Tri Star Mortgage, Inc.
Phone: (619) 200-9775
1081 Camino del Rio So. #128
San Diego, CA 92108
Rick@TriStarMortgageInc.com
www.TriStarMortgageInc.com

I find myself writing a lot about this subject because it pisses me off and totally ruins my day. It seems like everyday I hear of another scumbag taking advantage of someone trying to modify their home loan.

Loan modification scams happen left and right everywhere, even at the local level right here in San Diego. If you are looking for someone who can help with a loan modification, don’t take for granted the fact that there are a lot of people who take advantage of your need for their own benefit. It is therefore a necessity to know what the signs of loan modification scams are so you can guard yourself against them.

Homeowners trying to get their mortgage payment lowered or fixed are usually having a difficult time meeting their monthly payments. They often find it a problem to ask for help and advice from other people. This makes them extremely vulnerable to these loan modification scumbags. These scumbags can approach you easily through misleading marketing efforts and many other means. After all, lenders publish notices at the 90 day delinquency period which is public information. This gives the scumbags their very own hit list. So what should you watch out for to determine if you are being scammed?

(more…)

For those that have found themselves upside down on their mortgage, meaning they currently have a mortgage for more than their home is worth, the government is throwing them a lifeline of sorts. As reported by Bob Tedeschi of the New York Times, “This month, the Federal Housing Finance Agency unveiled a new version of its Home Affordable Refinance Program, whereby lenders can offer new mortgages to borrowers even if their home’s value exceeds the mortgage amount by as much as 25 percent-as long as the borrower hasn’t missed loan payments in the past year.” This is quite a step up from what the original program offered.

“Under the initial plan announced in February, lenders could refinance a loan only if the borrower’s mortgage was no more than 5 percent greater than the home’s value” according to Tedeschi. “With property values in many areas down sharply from their peak levels, 5 percent wasn’t enough to help many borrowers.” Well alright, this sounds like something that could really help some borrowers who might otherwise would have tried to do a short sale or even face foreclosure. So what, you may ask, is the catch? Of course there is a catch, but in this case, it is actually not too bad.

(more…)

Since its inception, Chula Vista’s Anti-Blight ordinance has done exactly what it set out to do: Keep the neighborhoods of Chula Vista safe. However, heavy fines imposed by the ordinance have left banks and loan servicers lobbying for modifications. And some even feel that such a stringent ordinance will deter banks from doing business or lending to homebuyers in Chula Vista. I think that is hogwash, but nonetheless, a proposal for modifications to Chula Vista’s Anti-Blight Ordinance is expected to reach the City Council by the end of July according to the Union Tribune.

When the foreclosures began, few places in the country were hit as hard as Chula Vista, California. As more and more homes were left vacant, overwhelmed banks were taking too long to secure and maintain their newly repossessed properties. As a result, squatting, crimes, algae ridden pools, and deteriorating aesthetics became prevalent in Chula Vista’s neighborhoods. To stand up to this growing problem, the city of Chula Vista developed an anti-blight ordinance that fines banks and loan servicers if they fail to secure and maintain their properties even if ownership hasn’t formally been transferred to them through foreclosure.

According to Emmet Pierce of the Union Tribune, “Chula Vista has levied fines totaling more than $1.3 million and collected about $752,000.”  Pierce adds that “initially, some lenders expressed shock at the fines that on occasion can exceed $10,000. Officials say the large penalties were necessary to force a change in lender behavior.” Damn right. Before the ordinance, the banks would take their sweet sweet time before attending to their vacant properties and that wasn’t fair to the neighbors who had to deal with the consequences of an un-maintained property.

In my opinion the banks have a lot of gall to complain about this ordinance. The fines are too high? Give me a break! Then don’t let yourself get fined. Those enforcing the ordinance stress that they aren’t placing undue pressure on the lenders to comply with the abandoned-home measure, according to Pierce. “Emily Novak, a senior code enforcement officer, said her department gives lenders 30 days to secure abandoned homes and make any necessary repairs. Out of about 3000 cases in which repairs were needed, fewer than 150 properties have been fined she added.”  So what’s the big deal? How hard is it to drain a pool, board up some windows, or trim down some bushes?

(more…)

The $8000 First Time Home Buyer Tax Credit offer is due to expire on December 1, 2009 and to qualify, your home purchase must close on or before November 30^th.  So if you are a first time home buyer, GET ON THIS ASAP. If, however, you absolutely positively, will not be ready to buy a home by November, then there is still hope out there. There are currently five, count em FIVE, bills on the table in Washington that propose to extend and tweak the current tax credit bill.

The most publicized proposal, has been introduced by Johnny Isakson (R-GA) who is responsible for getting the current tax credit bill passed. This new bill, The Home Buyer Tax Credit Act of 2009, proposes a non-refundable tax credit up to $15,000 for ALL primary residence purchases-not just by first time home buyers. The bill would also remove income limits that had prevented individuals making more than $75,000 a year from claiming the credit. This bill would expire one year after it was enacted.

According to Luke Mullins of USNews.com, Isakson argues that the current tax incentive is insufficient because it misses a second set of buyers who are essential to a housing recovery. “We don’t have a recession in first time home-buyers,” a statement from the senator said. “We have a recession in the move-up market.” The legislation aims to convince these “move-up” buyers that, despite falling real estate prices and mounting job losses, now is the time to buy that larger house.

The second bill floating around the capital, introduced by one Kenny Marchant (R-TX) proposes to extend the existing $8000 tax credit to June 2010 and expand it to all primary resident home buyers. It also adds provisions for a tax credit of up to $3,000 for homeowners who refinance.

The other three bills are all virtually identical to each other, each one proposing an extension of the $8000 tax credit to June 2010 and expanding it to all primary resident homebuyers. I suppose that in Washington, it’s just a matter of getting your name on a bill and trying to be the one that gets the bill actually pushed through.

Isakson’s bill is easily the most aggressive of the lot, and it is not going to be easy to get a bill like that passed. But as Mark Zandi, Chief Economist at Moody’s Economy.com says, “My guess is that if the economy does continue to struggle…if these rates stay higher and the scenario that the recession will end this year is wrong, then there will be another stimulus package early next year, and [the expanded tax credit] could be a part of it.”

So we shall see what happens. But whatever  you do, don’t sit back and wait for one of these bills to get passed. Like I said, if you have the means to qualify now for the $8000 tax credit, do so.

By Andrew Brentan

Wooohooo! The first time home buyer tax credit has been passed. And what, you might ask, does that mean for you? Well, let’s go through some of the basic guidelines for what is required to qualify for this tax credit (from www.realtor.org):

Who Qualifies?

First-time home buyers who purchase homes between January 1, 2009 and December 1, 2009. To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

Which Properties Are Eligible?

The 2009 First-Time Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.

How Much Will the Credit Be?

The maximum allowable credit for home buyers is $8,000. Each home buyer’s tax credit is determined by two factors:The price of the home-the credit is equal to 10% of the purchase price of the home, up to $8,000.  The buyer’s income-single buyers with incomes up to $75,000 and married couples with incomes up to $150,000-may receive the maximum tax credit.

If the Buyer(s)’ Income Exceeds These Limits, Can He/She Still Get a Credit?

Yes, some buyers may still be eligible for the credit.
The credit decreases for buyers who earn between $75,000 and $95,000 for single buyers and between $150,000 and $170,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income-over $95,000 for singles and over $170,000 for couples are not eligible for the credit.

Will the Tax Credit Need to Be Repaid?

No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during the three-year period, the credit will be recouped

With banks owning more and more properties as foreclosures continue to grow, renovation loans have become a great option for buyers and are helping the banks lighten their books.  What, you may be asking, is a renovation loan? Well I’m glad you asked because I was about to tell you.

A lot of the bank owned properties on the market were left in shambles by their former owners. Fixer-uppers is usually the term used, and investors or prospectors are often the ones who buy them, put some money into “fixing them up” and then sell them, hopefully for a profit. Renovation loans enable non-investors to enter into the picture as prospective buyers who want to purchase a home for cheap but might not have the money to fix it up. John Sway, National Renovation Manager for Wells Fargo Home Mortgage told Diane Eastabrook on a PBS Nightly Reports that, “what we’re dong is we’re increasing the pool of buyers, so we’re getting more buyers to look at a property, so we may end up selling it for a couple percentage points higher than we would to an investor.”

With traditional loans, the lender typically requires improvements/renovations on a home to be finished before a long-term mortgage is made. After all, loan security generally comes from good condition and value of the property and lenders of course want to minimize risk. With renovation loans however, the loan is based on after-repair value and includes an escrow account to complete the repairs needed to bring the house to a condition that lenders prefer. This makes buying properties in need of repairs much more feasible and eliminates the need for people to run up their credit cards and/or take out additional lines of credit.

So for example, say there is a property in need of repair, and as a result you can get it at a great price of $285,000. After further inspection, you learn that the work to fix it up will cost you $45,000. A renovation loan will allow you to buy the place for say, $340,000, and then have a “Renovation” Escrow account of $55,000 with which you must repair your home. There are, of course, contingencies in the contracts that state that you must perform specific renovations with that money, so you can’t go all Bernie Madoff on the bank and run away with their money. Any money left over after the renovations are complete go directly towards paying down your mortgage balance.

Downside to this type of loan? Well, the rates, though very competitive and reasonable for the most part, are slightly higher than a conventional type of loan. And there are usually caps placed on the amount the banks are willing to lend for renovation. As a result, there are those like Jim Wheaton, Deputy Director of Neighborhood Housing Services of Chicago, also interviewed by Eastabrook, who don’t think this type of program does that much to help. “You know, $25,000 or $30,000 sounds like a lot of money, but when you start talking about home improvements and construction, it doesn’t go very far.” Valid point. But renovation loans have helped many get into a home and fix it up in one fell swoop. My advice? Never hurts to ask your bank or lender about this type of loan. Especially if you’re in the market to scoop up a foreclosed home for cheap.

By Andrew Brentan

There was a comment to the previous article earlier this week that mentioned she and her husband were planning on waiting about a year for home prices to drop even further before considering buying a home. Not a bad plan by any means considering the fact that many areas will indeed continue to drop in home prices. But it occurred to me that there may be other things one might consider before officially putting off buying a home for a year. For example, have you seen what mortgage rates are at these days? They’re absurdly low! So I thought I’d briefly discuss some things that I have been reading up on this week regarding the issue of whether to buy now or to wait.

For starters, I want to discuss home buying as opposed to refinancing because refinancing is a slightly different beast than buying a home; Mainly because it heavily involves the equity (or lack thereof) in your property. That being said, there is a different train of thought that goes with when to refinance and when to wait.  And so, without further ado……….

James Hagerty of the Wall Street Journal reported this morning that Jay Brinkman, chief economist of the Mortgage Bankers Association, said “rates on 30-year fixed rate mortgages for borrowers with strong credit scores are likely to be in the range of roughly 4.6% to 4.75% at least through the summer.” This dip in rates came after last Wednesday’s announcement by the fed that they were committed to buying an additional $750 billion in mortgage backed securities (in addition to the 500 billion already committed). So this begs the question: How long can rates possibly stay this low? Peter Thompson of Illinois Mortgage Rates and News wrote a great, in depth article on this and he goes into the three schools of thoughts on what will happen going forward:

1. “The Fed buying will push rates steadily lower, possibly into the mid to low 4s. This is the view you hear in the media.” He goes on to say, ” This may happen, but it will take a lot more than just the Fed buying to get rates this low, and with lenders still near capacity, they are keeping more of the profit for themselves instead of passing it along to consumers.”
2. “Rates will stay low, but closer to the range we are in now. This means rates will stay affordable longer, but may not go a lot lower.”
3. The law of unintended consequences kicks in and instead of rates dropping, fear of inflation and the devaluation of the dollar drives rates higher than they were before. There are a lot of inflation hawks out there, and I agree that down the road we are going to have to deal with inflation. But that is in the future.”

For #1 to happen, banks would need to start cranking out loans at a ridiculous rate, which most likely isn’t going to happen. And #3 may be in the cards, but not in the immediate future, so I, like Peter, think that #2 is the most likely result. So that’s good news for homebuyers looking to hold off buying for a little longer.

The bad news is, low rates don’t make getting the loans any easier. Banks have yet to loosen their grip on the lending guidelines that have been tightened almost to the point of strangulation after the sub-prime mortgage disaster. Only borrowers who can make sizable down payments, have plenty of assets, a steady job, and impeccable credit, are getting the loans at these low rates.

So even if you are waiting for a certain market to bottom out or mortgage rates to dip even further, it cannot hurt to look into the matters of financing now. That way, when you do wish to buy, you will know what you qualify for before looking to find that perfect home.