Mortgage assistance for the unemployed?

Ought to be interesting to see if this program proves any more effective (or realistic) than the loan modification or HARP programs.  As a mortgage originator who has seen first-hand the effects of the current economy on hard-working, honest people, there are certainly people hurting through no fault of their own.  So, I’m all for creative programs to help borrowers in the interim.

However, as a tax-payer, I do stress over how the program will be funded and when “the bill” will come full circle and hit our pocketbooks.   I also can’t help wondering if the people who design these programs have ever worked for a bank (since banks are being required to write-off at least 10% of the debt in order for their customers to meet eligibility requirements) or if they’ve ever originated a loan?  I can’t help but think that there must be a “happy medium” solution.

Rural Development (USDA) Program – Funding Questionable

Towards the end of past funding cycles, USDA has typically issued conditional commitments pending a new cycle of funding.  It’s looking like the “new cycle of funding” is more questionable than usual this time around, so no conditional commitments will be forthcoming when current funds are exhausted.

Hopefully, this is just USDA preparing for the worst-case scenario and additional funding will, indeed, come through.  But regardless – when coupled with efforts to increase the minimum down payment for FHA purchases to help keep FHA viable – it is definitely not good news for borrowers seeking 100% financing to purchase a home.

Do emotions play a role in financial decisions?

With the crazy rollercoaster ride we’ve all been on for the past couple of years (courtesy of the economy), have the factors that drive our savings, investment and spending decisions changed?  Does “emotion” play a role?  A recent report entitled “Market Cycle of Emotions” provides some interesting insight.  The report was published by Edward Jones and provided to me by Jack Meece, an Investment Advisor with Edward Jones and a valued business partner of mine.  My sincere thanks to him for allowing me to share it here.

Disclaimer:  Always consult your trusted tax, investment, legal, real estate, and/or mortgage advisor to discuss your specific situation, as every individual’s scenario is unique.  Excerpts from this blog are for general informational purposes only and should not be construed as specific advice.

Help for credit card users?

Important information for all consumers, especially those with credit challenges.

FHA announces increase to up-front mortgage insurance premium

Important info for any potential FHA borrowers still on the fence. Up-front mortgage insurance cost goes up 1/2% (currently 1.75%, will be 2.25%) for case numbers assigned on or after April 5th! This is BEFORE the contract expiration of the first-time home buyers’ tax credit.

Pre-qualification versus pre-approval

So, you’re interested in buying a house and want to get an idea of what you can afford.  You visit with your mortgage professional, armed with identification,  pay stubs, W2s, bank statements, tax returns and the like.  You hope to leave with a “green light” that gives you both an idea of your house shopping budget and added credibility to any purchase offers you might make.  So it boils down to this:  Is there a difference between a pre-qualification  and a pre-approval?

The short answer is that both pre-qualifications and pre-approvals are utilized during the home shopping process.  The long answer (which I’ll get to in a moment) is that the document that carries the most weight is the commitment letter, which is issued after an offer has been made on a home and the actual loan is in process.  But, for definition purposes, let’s start with the pre-qualification and pre-approval.

In general, a pre-qualification is the mortgage professional’s estimate of whether you are likely to qualify and, if so, for what amount and program.  This estimate is based first and foremost on the professional’s depth of understanding of various lenders and their loan programs.  He or she will then likely order a credit report, analyze your income, and determine your debt ratios.  A discussion about down payment amounts and sources of funds will help the professional narrow down program possibilities for you.  Finally, he or she will issue a pre-qualification letter establishing the  purchase price and/or loan amount (and sometimes program) for which you will likely qualify, based upon the information you have provided.

A pre-approval, on the other hand, generally undergoes the above “human” analysis, along with software decisioning called “desktop originating” or “desktop underwriting.”  Mortgage brokers – who have access to numerous lending sources – generally utilize Freddie Mac’s, Fannie Mae’s (etc.) decisioning software directly, while mortgage professionals employed directly by a bank usually have the software built in to their customized loan application programs.

Even with a pre-qualification or a pre-approval, situations can arise that can flip you from an “approved” to “declined” or “referred” (for futher review) status.  For example, if you were approved for an FHA loan and decide to purchase a condominium that is not FHA approved, the loan might need to go a conventional route instead of FHA, requiring a larger down payment and higher credit score, which you might or might not have.  There are numerous factors like this that can throw a wrench in the works mid-stream.  Some of these factors might be foreseeable, but others might not (especially in light of the rapidly and constantly changing government and credit guidelines the industry is currently experiencing).

The best measure of whether your particular loan will ultimately go through is upon receipt of a “commitment letter” from the lender.  Unfortunately, the commitment letter is only issued after the full loan application package and sales contract have been submitted to underwriting and reviewed against lender and investor standards.  Creditworthiness is documented, income and sources of funds are verified, the property is approved, and it is determined that there have been no material changes in the borrower’s financial or credit profiles since the time of application.  This letter “commits” the lender to funding your loan, assuming certain conditions (outlined in the letter) are met before, during and after closing.  The commitment letter, then, is the document that ultimately gives the borrower the final stamp of approval for the loan, assuming all conditions outlined within it are met.

So, the bottom line is this:  Since the commitment letter is not issued until well into the loan process, both a pre-approval letter from a knowledgeable mortgage professional and a pre-qualification letter generated from decisioning software, serve to meet the needs of establishing basic credit worthiness and offering buyer credibility in the “shopping” stage.  Until the commitment letter stage, it really boils down to the knowledge and resources of the mortgage professional with whom you choose to work.

Contact Allison Sousa via her website.

Disclaimer:  Always consult your trusted tax, investment, legal, real estate, and/or mortgage advisor to discuss your specific situation, as every individual’s scenario is unique.  Excerpts from this blog are for general informational purposes only and should not be construed as specific advice.

NEW HOMEBUYERS CREDIT LAW PASSED WITH UNEMPLOYMENT BENEFIT EXTENSION

Guest Contributor:  Terry Baily, Owner of Liberty Tax Services in Lenoir City, Tennessee

On November 6, President Obama signed into law H.R. 3548, the “Worker, Homeownership, and Business Assistance Act of  2009.” The major relief provisions are designed to further prop up the U.S. housing market and address unemployment and
business losses. These tax breaks are paid for by an increase in the required estimated tax payments by corporations and by higher penalties for partnerships and S Corporations who fail to file tax returns. The Act also extends the surtax on the federal unemployment tax (FUTA) to help pay for an extension of unemployment benefits.

The legislation extends the $8,000 first-time homebuyer credit through April 30, 2010, allowing homebuyers under a binding contract an additional 60 days to close after that date. (The credit was set to expire on December 1, 2009.) If homebuyers enter into a contract to buy a home before May 1, 2010, then they have until July 1, 2010 to close on the purchase and still claim the credit.

A new credit to allow howeowners to step up to a larger residence was added by the legislation.  A $6500 credit will now be available to new buyers who have lived in their current residence for at least five consecutive years during the eight-year period before the purchase of the new residence. (These credits are equal to 10% of the purchase price of the home up to either the $8000 or the $6500 limit.)

The Act also makes these credits available to higher-income taxpayers. Previously, the credit would phase out for single taxpayers with between $75,000 and $95,000 in income and married taxpayers with between $150,000 and $170,000 in
income.  The new law increases the income limits to between $125,000 and $145,000 for single taxpayers and between $225,000 and $245,000 for married taxpayers filing a joint return. As under the previous law, taxpayers will have to repay the credit if they do not live in the house for at least 36 months.

For the first time, there will be a dollar cap on qualifying residences. The credit is available only for principal residences with a purchase price of $800,000 or less. If the new home costs more than this amount, the entire credit is lost. The Act also contains
anti-fraud provisions to ensure that ineligible taxpayers do not claim the credit. Those measures include:

1.  The taxpayer or the taxpayer’s spouse must be 18 years old to claim the credit.

2.  Taxpayers cannot claim the credit if they are claimed as a dependent on someone else’s tax return.

3.  The taxpayer must attach a copy of the settlement statement to the return on which the credit is claimed.

4.  Purchases do not qualify if the taxpayer buys the home from a related person.

Service members have more liberalized rules for claiming the homebuyers credit. They are not subject to the same recapture rules, and they get additional time to qualify for the credit if they serve outside of the United States for at least 90 days in 2009 or 2010. Also, military personnel who receive payments under the Defense Housing Assistance Program (HAP) to assist them in selling a home that has declined in value do not have to report the payments as income.

Despite the fact that this credit is estimated to cost $10.8 billion over 10 years, Congress was persuaded by statistics from the National Association of Realtors whoreported in October that existing home sales rose 9.2 percent in September compared with sales in the same month in 2008 due to the homebuyer credit.

Disclaimer:  Always consult your trusted tax, investment, legal, real estate, and/or mortgage advisor to discuss your specific situation, as every individual’s scenario is unique.  Excerpts from this blog are for general informational purposes only and should not be construed as specific advice.

Working with a mortgage broker and how to make a “good hire”

As a qualifier, I have been on both sides of the mortgage-provider fence.  Working as a mortgage originator for a bank, there were definitely some benefits.  Perhaps the biggest one was a greater sense of security.  Also, the cumulative knowledge of my peers was extremely helpful, in that we were all learning and implementing the same products.  In my particular situation, I also had the benefit of an outstanding mentor to whom I will always be grateful and who, to this day, I hold in the highest regard.

The product and guideline consistency and standardization was certainly a benefit of working on the retail side (directly for a bank) as well, but since the “mortgage meltdown,” much of that consistency has gone away, even for the banks.  Rules are changing daily, and whether a mortgage originator working for a bank or a broker, we’re all in the same boat where the rapidity of change is concerned.

In general, borrower costs are similar regardless of whether an originator is bank or broker-based.  Both broker originators and bank originators are primarily paid by the bank that funds the loan.  For brokers, this is typically reflected as “yield spread premium” or “YSP”  on the settlement statement (by law).  On the other hand, banks generally pay their originators (or employees) a portion of the profit on a loan, which, by law, is not required to be disclosed on the settlement statement.

From a borrower’s perspective, the primary benefit of working with a broker is DIVERSITY OF CHOICE.  Rather than having access to products A, B and C as offered by Bank #1, brokers have access to products A, B and C as offered by Banks #1, 2, 3, 4….250 (in cases like mine).  For the borrower, this means the likelihood of a better match of product to their specific situation.  It can also mean expanded options for the non-traditional borrower or borrowers with unique circumstances.  The menu of rate, term and structure options is also enormous when that many lenders are competing for brokers’ business.

Of course this means more homework and research for the broker, so borrowers need to be sure they are working with one who is disciplined and committed to ongoing, self-initiated education.  Effective brokers will also surround themselves with other qualified professionals, including other originators, real estate agents, attorneys, CPAs or tax professionals, investment advisors, insurance providers, community bankers, and other key contacts that can be leveraged to assist the borrower if needed.

Mortgage originators – whether bank or broker-based – have been in the news quite a bit as a late.  Much of the coverage has painted all of us in a less than positive light.  In many cases, that reputation has been earned.  The good news is that because of the tighter lending restrictions and the difficult market that has evolved over the past couple of years, many of the “bad eggs” are no longer in the business.  I like to think that those of us who remain are here precisely because we did things right.  And we still do.

But as a borrower, it is wise for you to be prudent.  First and foremost, make sure your broker is licensed with your state.  Secondly, check with the Better Business Bureau to see if any complaints have been filed and, if so, if they were satisfactorily resolved.  Finding out if the broker belongs to any professional organizations or associations, or if they participate in any community/charitable organizations, will also give you an idea of his/her level of involvement and general character.

Get a feel for how responsive your broker will be.  Does he/she return your phone calls or emails promptly?  Explain the process?  Set proper expectations?  If you prefer email communication but your broker insists on working by phone (or vice-versa), perhaps it is not a good match.  Your broker should be flexible enough to communicate in your preferred method(s), assuming that it is appropriate for the information being shared.

While sought after brokers will likely be dealing with numerous loans at once, those who believe in the importance of communication will keep their borrowers in the loop and hopefully, ahead of the curve.  That’s not to say that surprises will not arise, as they are inevitable in today’s market.  However, the more thorough your broker is on the front-end, the better the likelihood that the loan process will go as smoothly as possible.  The key is not necessarily the quantity of communication, but rather the quality and responsiveness.

Finally, your broker should be willing and able to provide you with references.  Because of the confidential nature of the mortgage business, these will likely be in the form of testimonials or surveys.  For example, I post and rotate testimonials on my website (with my clients’ permissions, of course) and others are kept on file, along with surveys, at my office.  Included are comments from not only customers, but also real estate professionals.  Some brokers may choose to keep a “brag book” or make testimonials available upon request.  There is no right or wrong way, really.  But asking for and reviewing third-party input will give you a feel for your broker’s strengths, and in some cases, even their weaknesses so that you know how best to work with him or her.  Of course, the review might also imply that you should choose to pass on the opportunity of working with a particular broker and investigate what others have to offer.

The bottom line is to treat choosing your broker like you would any other service provider you are “hiring” to do a job.  Do your homework, participate in a two-way exchange of expectations, stay engaged throughout the process and expect no less from your broker.

Disclaimer:  Always consult your trusted tax, investment, legal, real estate, and/or mortgage advisor to discuss your specific situation, as every individual’s scenario is unique.  Excerpts from this blog are for general informational purposes only and should not be construed as specific advice.

New Feature Offered for Buyer’s

Today I was out with a nice couple looking at properties. We saw 10 houses, or was it 9? It is hard to remember. After awhile they all start to blend together. There was one they really liked that was in Farragut, or was it Lenoir City. Wow, it is hard to believe how hard it is to keep up with these houses. If it is that hard for me, imagine how hard it must be for my clients.

Now that was a silly story to illustrate the fact that it is hard to keep up with all the houses my clients see in an afternoon. If you have ever looked for a new home you know how easy it is to get overwhelmed. This is where my new feature comes into the picture.I have added a new tool to my realtor’s iPhone toolkit. It is called TourNarrator. As we preview a property I take pictures of things of interest and make notes, either typed or audio. I can give the home a rating of 1 through 5 stars. When we are done, I hit publish. The home is then either emailed to the client, sent to a webpage, or sent to myself to be printed as the PDF. Click this link to see an example of what it would be like.

I believe this tool will make looking at homes less confusing, less frustrating, and more fun. What do you think? Does this sound like something that would interest you if you were looking to buy a home?

Chris Brown is a REALTOR® with Keller Williams Realty in Knoxville, TN. His information can be accessed by visiting his webpage at http://www.chrisbrownrealty.com.

Obama just signed it…

See WSJ report on bill including extension/expansion of tax credit here.