Preventing Wire Fraud

Thanks to our friends at McManamy, McLeod, and Heller for the following information regarding wire fraud and how to spot/prevent it in real estate transactions!

In the last year since the real estate market has taking a turn for the better, real estate professionals have been targeted in wire scams that typically involve hacking an e-mail address. Hackers will access an e-mail account associated with a real estate agent, the buyer, the seller, and even the closing attorney in order to obtain information about an upcoming real estate transaction. After monitoring the account to determine the timing of the closing, hackers will often impersonate the e-mail account holder and send fraudulent wire instructions to the closing attorney or other parties to the real estate transaction. Sellers are targeted when proceeds from the sale are redirected to the hacker's bank account; buyers are targeted by sending the buyer fraudulent instructions regarding the wire of transaction-related funds to the closing attorney. 

Once the hacker starts monitoring the exchange of e-mails in the hacked account, the fraudulent communication usually includes detailed and accurate information pertaining to the transaction, such as file numbers, key dates, names, and addresses. It is important to note that the e-mails may come from a legitimate e-mail address because the thief is actually sending the e-mail from a truly legitimate, although hacked, account. In other instances, the e-mail is sent from a similar looking e-mail address, but not the actual same address as a party to the transaction. Pay special attention to e-mail addresses when you see changes such as these! 

Real estate agents can take precautions to prevent wire fraud from affecting their clients and their transactions. Educate your clients on wire fraud and make sure that prior to wiring any funds, the wirer contacts the intended recipient via a verified telephone number or in person to confirm the wiring instructions. In that telephone or in-person conversation, the correct account number information should be repeated verbally before taking any steps to have the funds transferred.

5 Housing Trends That Will Dominate 2016

This year may have marked the best for housing since 2007, but the market will likely get even rosier in 2016, according to a recent real estate forecast by realtor.com®. One of the main drivers behind the brighter 2016 is the projection that employment will continue to grow, which will add to consumers’ wallets and allow them to purchase their first home or upgrade to a new one. Realtor.com® highlights the following housing predictions for 2016: 

1. ‘Normal’ is coming. Expect a healthy growth in home sales and prices – at a slower pace than in 2015. “This slowdown is not an indication of a problem—it’s just a return to normalcy,” writes Jonathan Smoke, realtor.com®’s chief economist. “We’ve lived through 15 years of truly abnormal trends, and after working off the devastating effects of the housing bust, we’re finally seeing signs of more normal conditions.” New construction and distressed sales are expected to return to more historical levels, and home prices are expected to follow at “more normal rates consistent with a more balanced market.”  

2. Generational buying trends shape up. Young adults’ presence on the housing market has been largely predicted for years, but 2016 may finally be the year they make a move in a larger way. Millennials represented nearly 2 billion sales in 2015 – one-third of home buyers. They are expected to continue to be a major buying pool in 2016 with the majority of buyers between ages 25 and 34 expected to be first-time home buyers next year. But two other generations will also have a big presence in 2016: financially recovering GenXers and older baby boomers who are entering retirement, realtor.com® notes. “Since most of these people are already homeowners, they’ll play a double role, boosting the market as both sellers and buyers,” Smoke notes. “Gen Xers are in their prime earning years and thus able to relocate to better neighborhoods for their families. Older boomers are approaching (or already in) retirement and seeking to downsize and lock in a lower cost of living.”  

3. New-home construction focuses more on affordability. Builders have been faced with higher land costs, limited labor, and concerns about the demand of the entry-level market. As such, they have shifted to constructing more higher-priced homes, which has caused new-home prices to rise significantly faster than existing-home prices. In 2016, they likely will shift to more affordable product to cater to the entry-level buyers. “We are already seeing a decline in new-home prices for new contracts signed this fall,” notes Smoke. “In addition, credit access is improving enough to make the first-time buyer segment more attractive to builders.”  

4. Higher mortgage rates. Mortgage rates will likely be volatile in 2016. But the recent move by the Federal Reserve to guide interest rates higher should push mortgage rates higher in the new year than the historical lows they have been at for years. The 30-year fixed-rate mortgage will likely end 2016 about 60 basis points higher than today’s level. “That level of increase is manageable, as consumers will have multiple tactics to mitigate some of that increase,” Smoke says. “However, higher rates will drive monthly payments higher, and, along with that, debt-to-income ratios will also go higher.” The markets with the highest home prices will see the effects from the higher rates the most.  

5. Rents to go up even higher. Rental costs are skyrocketing, and the costs are likely to only go up in the new year. More than 85 percent of the nation’s markets have rents that exceed 30 percent of the income of renting households. “Rents are accelerating at a more rapid pace than home prices, which are moderating,” Smoke says. “Because of this, it is more affordable to buy in more than three-quarters of the U.S. However, for the majority of renting households, buying is not a near-term option due to poor household credit scores, limited savings, and lack of documentable stable income of the kind necessary to qualify for a mortgage today.”

Lending regulations for condos

Thinking about buying (or selling) a condo in 2016? Here are some guidelines to determine if you will be able to secure financing (Fannie/Freddie only, for FHA the entire complex must be FHA approved) compliments of one my favorite lenders, The Moore Team.

1.  We will need a completed condo questionnaire from the HOA or management company VERY soon after going under contract. Please be sure we have a contact for that. This usually takes 2-3 weeks to get back from when we order!

2.  The project must be Established. This means 90% of the units are sold to individual purchasers, the project is 100% completed and is not subject to additional expansion or phases & control of the HOA has been turned over to unit owners.

3.  There is no current litigation in which the HOA or developer is named as a party to the litigation. (This would not include instances where the HOA or developer is solely the plaintiff in a foreclosure or for delinquent HOA dues)

4.  The project is not an “ineligible” type for conventional financing. (I.E. condo hotels, 

timeshares, houseboat, multi-family dwelling unit, legal (but non-conforming) use of land, common interest apartment or community apartment project)

5.  Commercial (non-residential) space cannot be greater than 25% of the project.

6.  At least 51% of the total units must be already sold and closed as primary residences or second homes. Foreclosure units that are currently for sale can be counted as owner occupied primary residences.

7.  No more than 15% of the unit owners are currently more than 30 days delinquent on their HOA dues.

8.  No single entity owns more than 10% of the total units in the project.

9.  HOA budget must have a line item for “replacement reserves” that equals no less than 10% of the total budget. (It is nearly impossible to approve a complex that does not have this!)

10. There are no restrictions which would limit the free transferability of title such as right of first refusal, other deed/income restrictions.

11. Having proper insurance coverage to meet Fannie/Freddie Guidelines

Fed Authorizes First Rate Hike in 9 Years

Earlier this month, the Federal Reserve raised interest rates for the first time in nine years, ending a historic era of nearly 0% interest rates that began seven years ago today. As expected, the outcome of the Federal Open Market Committee's two-day meeting was an increase in the target range of the federal-funds rate by 25 basis points, to 0.25% to 0.50%. So what does this mean?

• The Fed’s recent .25% rate increase directly affects the Prime Rate, which is now up to 3.5%. Virtually all Home Equity Lines of Credit are tied to Prime, meaning HELOC payments will be higher in January.
• On a positive note, the Fed’s rate increase is pushing savings rates up. However, expect credit card rates to push up, too.

This change comes in the wake of months of rising house prices, an unemployment rate that has now fallen to pre-recession levels, and the strongest housing market we have seen in years. Even with the rate hike, interest rates are still historically low.

• According to Zillow Real Estate research, the breakeven point when buying a home becomes financially better than renting a home after only 1.9 years.
• Also, according to Zillow, the average income needed to support a rent payment is at the highest level ever, whereas the income needed to purchase a home is near an all-time low.

The FOMC forecast that the appropriate rate at the end of 2016 would be 1.375%, implying at least four rate hikes next year.

It anticipates that the economy would evolve in a way that warrants gradual rate hikes. Now that the Fed has made the first move, the pace of future rate hikes would become the focus of markets going forward.

TRID changes

All of my new buyers will receive a copy of this flyer in their Buyer packet (compliments of the wonderful Moore Team at Shelter Lending), but I thought it was worth sharing this very helpful information about the upcoming TRID changes and how it will impact the purchasing process.  

Perhaps the piece we are all the most worried about are the new timing requirements, which have the potential to delay closings (a major problem if there are back-to-back closings involved!). The biggest change is that the loan can’t close until the Lender has sent the Borrower the final Closing Disclosure (CD), confirmed the Borrower has received the CD, AND then waited for the 3-day waiting period to pass.

Example: If closing is on a Friday, the Buyer’s “confirmation of receipt” must be received by 11:59pm on the prior Tuesday. If the CD changes, the 3-day clock may have to be restarted. This will cause many closings to be delayed.

Due to these increased timelines, my lenders are recommending an appraisal contingency of 25 days, financing contingency of 35 days, and closing at least 45 days out.

Key action items for the Buyer are:

• Submit a pre-approval application before making an offer to minimize mortgage processing delays
• Give the Sales Contract to the lender as soon as it is available
• Use e-mail to electronically sign the loan disclosures, including the LE, to expedite the process
• Give the Lender your “Intent to Proceed” as soon as possible after receiving the LE
• Pull together and deliver your requested loan docs to the lender during the first week of the process
• Confirm receipt of the CD immediately after receiving it to start the clock ticking on the 3-day waiting period

For more information about how these changes might affect your home purchase, please call or email me today!

Big lending changes coming

The new TRID changes are set to go live October 3rd and we are anticipating potential issues industry-wide due to the new requirements and 3-day waiting period if there are any changes to the settlement statement prior to closing. It is even more important to make sure you are working with an experienced lender who understands these new changes and how to work within the parameter.  Below is an excerpt from Realtor.com regarding the upcoming changes. You can read the full article here. 

Mortgage lenders and real-estate agents are bracing for the Oct. 3 implementation of a five-year-old law that has forced them to overhaul the way they process sales.

The changes, prompted by the 2010 Dodd-Frank financial law, are meant to help consumers better understand the terms of their mortgages before they sign the dotted line.

But some in the real-estate industry worry that the rest of the year could be marked by delayed closings, frustrated borrowers and confused real-estate professionals as they adjust to the new rules.

At heart, the changes simplify forms long required by the federal government that disclose loan terms, such as a mortgage’s interest rate and prepayment penalties. The rules also require that consumers see the final terms at least three business days before closing, a change meant to ensure they have time to understand what they’re agreeing to.

The reform is meant to prevent what occurred during the housing boom, when some borrowers agreed to loan terms they later found they didn’t understand, such as low initial interest rates known as teasers, loan balances that could increase over time and balloon payments due after a certain number of years.

8 Avoidable Mistakes 1st Time Buyers Make

Some good tips in this HousingWire article! In particular, I see first time buyers make mistake #5 quite a bit, which is why I always stress Location, Location, Location! It is a cliche for a reason: location is the ONLY thing you cannot change about a home after your purchase it, and it has the longest and most significant impact on both value AND consumer happiness down the road.

The last thing a first-time homebuyer wants to do is mess up the entire homebuying process by doing one of these common mistakes. 

Yet, they continue to make them.   

Listen, buying a home is one of the biggest financial decisions a person will make,  and all it takes is one bad or misinformed decision to mess up the entire process. 

So, stop. 

Movoto complied a list of 10 common mistakes first-time homebuyers make.
After perusing the list, HousingWire condensed the mistakes into 8 things that could ruin the homebuying process: 

1. They don’t watch their finances before buying a home
This would include watching your credit, taking on too much debt right beforehand or making a big purchase right before closing. 

Debt-to-income ratio is a huge deciding factor on credit scores and it’s one of the first things that lenders look at when putting your mortgage together. Lenders want to know how much debt borrowers have already accumulated against their income. The more debt the borrower has, the less of a loan they will be able to get. 

Many people don’t realize that lenders look at all financial information again before closing occurs to make sure that nothing has changed. And that debt-to-income ratio that they used to create your mortgage in the first place is one of the first things they’re going back to check. So, hold off on any plans to buy a new car to park in that new driveway or furniture to fill the house. 

2. They don’t take the time to get pre-approved before house hunting
It’s easy for homebuyers to assume what they can afford and to just start looking without taking the steps through the lender first, but it’s not the smart move. Most real estate agents won’t show potential homes without a prequalification letter to in hand. And some won’t do anything without the pre-approval. 

3. They take on more than they can handle financially
Many first-time homebuyers make the mistake of assuming that just because they can afford the house that means that they can afford to live there. That’s not always the case. There are many extra costs associated with homeownership that often get overlooked by someone who is new to the game. 

4. They get into a fixer upper they don’t have time or money to fix
Fixer uppers can often seem like a great savings. Home renovation shows can do that to anyone. The problem is, though, that most people don’t have a production company budget and a huge crew behind them working around the clock to get the jobs done. Without money and time, fixer uppers stay fixer uppers. Not only can the novelty wear off fast, but what seemed like a huge savings quickly starts to look like a giant money pit. 

5. They prioritize the home over the neighborhood
When people start looking for that dream home in their dream neighborhood, many realize just how far outside their budgets dream homes can be, especially in big cities and affluent suburbs. It’s tempting to continue to look for that same dream home, just in a neighborhood that might not be as good. 

6. They put all their eggs in the online basket
The Internet has become an invaluable tool for home buyers. Searching through homes, researching neighborhoods, getting your credit score, and finding out what lenders are prepared to give has never been so easy. However, it’s still not as good as getting a reputable team of professionals who can physically meet with or at least speak with you in your corner. 

7. They spend all their money on the down payment
Putting down a 20% down payment on a home is often mandatory these days unless you’re interested in paying mortgage insurance. Many people save and scrape every last dollar they can get together for years in order to meet that 20 percent down payment figure and then as soon as they reach it, they go through the home buying process. Many people empty out their savings in order to meet the down payment, leaving themselves with nothing left over. 

8. They skip the home inspection
Skipping the home inspection might seem like a quick and easy way to save money for some people. The novelty and excitement of a new home make some people feel like there’s nothing that would possibly change their minds about wanting to buy it. That is until you’re moved in and realize that there are major and very costly maintenance issues such as mold, termites, a leaking roof, electrical issues or foundation problems

Title Insurance

Great article about the importance of owner's title insurance from the Washington Post! Here are a few key excerpts, but please read through the entire article here.

A frequent refrain we hear from our clients is “Why do I need title insurance when you have already done a title search?”  Not only does title insurance cover mistakes made during a title search, it also covers a gamut of issues that even the best title search cannot reveal.  For example, a title search cannot detect a forged document, or definitively identify a faulty legal description, or account for the indexing mistakes and tardy record-keeping at the government clerk’s office.

Title insurance claim rates are approximately 5 percent, relatively low when compared to other forms of insurance, which often invites skepticism among prospective homebuyers.

However, missing from this statistic, are the title snags we encounter that do not result in direct claims by an insured home seller. In many cases, the seller is not even aware of the behind-the-scenes curative work that has been done for the seller to convey insurable title to their buyer. 

Without an owner’s title insurance policy, the legal costs to hash out a title claim would be in the tens of thousands of dollars paid directly out of your pocket. Not to mention you could lose the money you’ve invested in your property such as your down payment and any improvements you’ve made. 

Personally I can attest to the fact that my closing attorney puts in a ton of overtime clearing titles in all but the cleanest of closings.  This hard work usually happens without my client ever knowing, and it is just another aspect of what makes my "team" so great - I can trust my closing staff to do a great job, quickly and professionally.  But there are instances when even the most diligent amount of digging does not reveal a decades-old title issue, and that is exactly what title insurance is for: to protect one of the biggest financial investments you will ever make. 

WAIT TIMES TO PURCHASE AFTER A FORECLOSURE, SHORT-SALE, AND BANKRUPTCY

In the ever-changing lending landscape, it is hard to keep up with what the ramifications are of a short sale or foreclosure on your future purchasing options.  In general, you must wait 7 years after a foreclosure, 4 years after a short sale, and 2-4 years after a bankruptcy in order to purchase a new home. However, there are more nuances to the process than that depending on what loan product you are using, which is explained in these charts.

There are also tax ramifications of both a foreclosure and short-sale, which is why it is critical to speak with an attorney and CPA well versed in Georgia law before considering either option. 

The IRS views unpaid debt -- including mortgages -- as income. Foreclosures are treated as the sale of property for federal tax purposes. Homeowners going through a foreclosure will need to calculate their gain or loss for tax purposes, as well as consider any income tax that might be due on the forgiveness or cancellation of debt. These are two separate issues: gain on the sale of the property and imputed income from any debt forgiveness. In official tax parlance, it's known as "cancellation of indebtedness income."  The Internal Revenue Service has a special section on its website for people who have lost their homes through foreclosure. The IRS also reminds homeowners that although mortgage workouts and foreclosures can have tax consequences, special relief provisions may reduce or eliminate the tax burdens for borrowers who lose their homes. This information is available at: http://www.irs.gov/  

Similarly, with a short-sale, after closing a homeowner will probably receive a 1099 in the mail from the sale of the home.  Regardless if the homeowner is fully released from the debt or not, the IRS considers this unpaid debt as extra income to the homeowner. Georgia law allows mortgage companies to pursue homeowners in court for a deficiency for unpaid debt.  So even if a homeowner completes a short sale, there is the possibility of legal action in the future for the mortgage company to try for more money, if the “demand letter” includes such verbiage.  HOWEVER - if the mortgage company sends a 1099 to the homeowner after closing, they have given up the right to sue for a deficiency.  The mortgage company either goes for recovery of the balance through a judgment or writes off the debt and sends a 1099.

Property Taxes

It's tax time in the Atlanta metro area.  Here are some details about how this part of the purchase process and home ownership works:

1.  All taxes are based on a fiscal year. The bill covers January 1 through December 31.
2. Once the tax bill is posted by the municipality it is a lien against the property and must be paid at or before closing.
3. The taxes are prorated on the closing statement.  The closing statement is proof for IRS purposes of the amount paid by each party.
4. When a lender sends a 1099 at the end of the year showing taxes paid, this amount usually does not include amounts paid at closing but only amounts paid out of the escrow account to the tax commissioner.  Buyers and sellers need to consider how taxes were handled at closing when filing taxes.
5. If the taxes are under appeal at the time of closing a “lesser” tax bill is issued. another bill may be mailed much later when the appeal is settled; it must be paid or it will be a lien on the property.  New owners should pay and then contact the Sellers for their share.
6.  The GAR Purchase & Sale Agreement contractually binds the parties to assist in re prorating taxes after closing. 

If you have any further questions about this, please don't hesitate to contact me!

New Guidelines for Purchasing a Home After a Foreclosure

Fannie Mae released new guidelines for the waiting period for purchasing a home after a short sale, foreclosure, and bankruptcy.  In general, it appears that in an effort to streamline the process, they have made all waiting periods 4 years, which in some cases is an improvement and in others is a diminishment.

Fannie Mae announced that on August 16, 2014, they will be changing the waiting period associated with the purchase of a new home after a short sale or a deed in lieu of foreclosure, from a minimum of two years, to four years.

Right now, there is a staggered waiting period that allows a homeowner to purchase a new home with a Fannie Mae conventional loan two years after the finalization of a short sale or deed in lieu of foreclosure. In order to that, the buyer must provide a 20% down payment on the purchase of the new home and have had clean credit since the event.

However, on August 16, 2014, the waiting period for a homeowner to purchase a new home after a foreclosure becomes four years. The good news though is that new home buyers will be allowed to follow standard Fannie Mae guidelines and put as little as a 5% down payment down on the purchase of a home after a short sale.

In addition, if a homeowner can prove that the short sale was due to an extenuating circumstance (loss of job and/or wages), then the waiting period may still be reduced to two years. However, unless a buyer has strong documentation of this, the two year exception cannot be counted on.

In addition, they changed the guidelines with regards to foreclosure after bankruptcy:

Fannie Mae Waives Waiting Period on Foreclosure after Bankruptcy...

Old Rule:

Foreclosure – 7 years waiting period in most cases.

New Rule:

If you filed Bankruptcy and included your home in the Bankruptcy - the new waiting period is just 4 years from the date of Bankruptcy discharge. Not only is this an improvement from the previous 7 year standard, in addition home buyers are no longer penalized for the bank’s delay in getting the title transferred to a new owner.

Effective immediately.

5 Ways Credit Cards Can Impact Your Credit Score

Clark Howard (one of my faves!) recently wrote a great article about how credit cards can impact your credit score.  The whole article is great, but the bones of it are as follows:

Here are 5 ways credit cards can improve your credit score

Having multiple credit accounts in good standing. A low amount of credit accounts equates to a lack of credit history, so owning multiple credit cards helps. However, remember not to open too many at once, as it signals you’re in urgent need for a large sum of money at one time.

Maintaining a low debt-to-credit ratio. Remember, your credit score is not only affected by the debt-to-credit ratio for each individual card, but also the total ratio of all your loans. Make sure it stays under 50%, but aim for less than 30%.

If a high ratio is of concern, try asking for a credit-line increase and/or strategically split the balance between two cards. And don't close credit cards you don’t think you need anymore or don’t use often. These cards keep your available credit on the higher side, and removing one will instantly increase your debt-to-credit ratio.

Making regular payments. Keep your credit cards active, but don’t overuse them. And don’t leave them completely unused either. Use your credit cards with regularity, as it demonstrates to lenders that you can responsibly manage your credit.

If you have cards that are close to maxing out, pay those first. Pay monthly, even if it’s just the minimum payment to start. Make it your goal to never carry a balance. Also, if you find yourself in a situation where you need to pay down balances on multiple cards, focus paying more on the cards with which you’ve had the longest history of consistent payments.

Opening a secured credit card. If you have very poor credit and no pre-existing unsecured credit cards, consider applying for a secured card. A secured credit card is issued after you make a deposit, which is typically the same amount as the credit line. This credit line is then reported to the credit bureaus, which is why paying it off regularly for as little as 6-12 months will make a drastic difference.

Make sure the secured card you apply for reports to all three credit bureaus— Equifax, Experian, and TransUnion—and make sure you absolutely do not miss any payments and keep your balance at zero; otherwise, you will negate the point of owning a secured card to improve your credit score.

Applying for credit cards you actually need and will use. Invest some time researching what cards you’ll likely quality for and benefit from most. For example, avoid retail-store credit cards offers that incentivize you to open an account just to initially save 25% on your shopping.

On the other hand, applying for a great balance transfer card with a low introductory interest rate can build your creditworthiness by helping you decrease your debt-to-credit ratio and pay off your balance, for example. Just remember credit inquiries (i.e. when you turn in a credit card application) are added to your credit report, which can slightly lower your score if you apply numerous times in a short amount of time. This is because attempting to apply for new credit on multiple occasions indicates to lenders that you’re in financial trouble.

New Lending Changes Coming in 2014

1. If you don't know what "QM" and "ATR" stand for yet, now is a good time to learn because you are sure to hear a lot about them in the months ahead. QM stands for "Qualified Mortgage" and ATR stands for "Ability-to-Repay." They need to be on your radar screen because they are the center-piece of a new set of mortgage rules set to roll out on January 10, 2014 that are a requirement of the seemingly never-ending Dodd-Frank Wall Street Reform and Consumer Protection Act. Attached is a thorough overview of the rules but below is a briefer summary of the key things you need to know.

2. Effective with the new set of rules, lenders will only be able to offer "Qualified Mortgages" that meet "Ability-to-Repay" standards. The intent is to eliminate many of the risky mortgage programs that caused the mortgage collapse five years ago.  Obviously, there are many politicians clueless to the fact that the industry has already naturally reacted and even over-corrected. Nevertheless, expect even more underwriting scrutiny moving forward as there is more at stake than ever for lenders to substantiate and document a borrower's income, debt, credit, and assets. Needless to say, there will only be "full doc" loans offered in the future.
3. Outlawed loan types moving forward include negative amortization, interest-only, balloons, and amortization periods over 30 years. No major losses on this list.
4. The most threatening new rule is a cap of 43% on the debt ratio. You are certain to hear a lot about this new cap but be aware that for the next seven years this cap does not apply to any Conforming, FHA, VA, or Rural Housing loans that get an automated approval. Fortunately, this is most of the loans made in 2013! Not sure what the significance of seven years is but unless this is overturned, the number of loans lenders can make is going to drop a lot in 2021 because a large percentage of loans made today do have debt ratios over 43%. For now, the greatest impact with this cap will be on Jumbo loans > $417,000.
5. A few other rules worth mentioning:

• There will be a cap on the points and fees that lenders can charge of 3% of the loan amount for loans > $100,000. Up to two additional discount points that are used to buy down rate will be allowed. There is ongoing discussion about which fees are part of the 3%. In its current state, this rule will give the consumer fewer mortgage options which is not a good thing. For example, programs that allow the borrower to pay for the PMI in advance rather than monthly might no longer be allowed.

• ARM loans must be underwritten at whatever the maximum possible loan rate is over the first five years of the loan.

• Another victim of this law is the Conventional 3% down loan. The minimum down for all Conventional loans moving forward will be 5%.

6. One of the key components of the new rules is the fact that borrowers who have been foreclosed on will actually have the ability to sue lenders claiming that they did not have ability to repay. Lenders have a "safe harbor" from such lawsuits, however, if they properly document loans and keep the interest rate on the loan within 1.5% of the "Average Prime Offered Rate" (APOR). You can bet that lenders will be going to a lot of trouble to only offer loans that meet the safe harbor requirements.  

Thanks to my buddy Mark Moore with Shelter Mortgage for this info!

How the Government Shutdown is affecting real estate transations

The government shutdown has long-reaching impacts, particularly on the lending side.  Here are some of the highlights:

Internal Revenue Service (IRS)The IRS is closed and has suspended the processing of all forms, including requests for tax return transcripts (Form 4506T). While FHA and VA do not require these transcripts, they are required by many lenders for many kinds of loans, including FHA and VA, so delays can be expected if the shutdown is protracted. We have received indications that many loan originators are adopting revised policies during the shutdown, such as allowing for processing and closings with income verification to follow, as long as the borrower has signed a Form 4506T requesting IRS tax transcripts. On loans requiring a Form 4506T Fannie Mae and Freddie Mac have also adopted relaxed provisions allowing closings but subject to tax transcript verification before the GSE’s purchase the loans. 

Social Security Administration (SSA)The Social Security Administration is closed and has suspended most customer service functions. According to the SSA Contingency Plan, verifying Social Security numbers through the Consent Based SSN Verification Service will also be suspended during the shutdown, a further complication for mortgage processing. As with IRS income verification, policies vary among lenders, with many choosing to exercise forbearance during the shutdown period subject to subsequent verification. Fannie Mae and Freddie Mac have also adopted policies to allow for closing subject to subsequent verification and before GSE purchase of the loan.
Federal Housing AdministrationHUD’s Contingency Plan states that FHA will endorse new loans in the Single Family Mortgage Loan Program, but it will not make new commitments in the Multi-family Program during the shutdown. FHA will maintain operational activities including paying claims and collecting premiums. Management & Marketing (M&M) Contractors managing the REO portfolio can continue to operate. You can expect some delays with FHA processing. 

VA Loan Guaranty ProgramLenders will continue to process and guaranty mortgages through the Loan Guaranty program in the event of a government shutdown. Expect some delays during the shutdown.  

Flood InsuranceThe Federal Emergency Management Agency (FEMA) confirmed that the National Flood Insurance Program (NFIP) will not be impacted by a government shutdown, since NFIP is funded by premiums and not tax dollars. Changes to the flood insurance program scheduled to take effect on Oct. 1 will be implemented as scheduled. 

Rural Housing ProgramsFor the U.S. Department of Agriculture programs, essential personnel working during a shutdown do not include field office staff who typically issue conditional commitments, loan note guarantees, and modification approvals. Thus, lenders will not receive approvals during the shutdown. If the lender has already received a conditional commitment from the Rural Development office, then the lender may proceed to close those loans during the shutdown. A conditional commitment, which is good for 90 days, is given to a lender once a USDA Underwriter approves the loan. If a commitment was already issued, the funds were already set aside and the lender may close the loan at its leisure. If Rural Development has not issued a conditional commitment, the lender must wait until funding legislation is enacted before closing a loan.
It is important to note that the traditional definition of “rural” for qualifying communities for assistance will be continued in effect during the shutdown.  We expect that language to continue the current definition will be included in whatever funding measure is eventually enacted. 

Government Sponsored EnterprisesFannie Mae and Freddie Mac will continue operating normally, as will their regulator, the Federal Housing Finance Agency, since they are not reliant on appropriated funds. 

TreasuryThe Making Home Affordable program, including HAMP and HAFA, will not be affected as the program is funded through the Emergency Economic Stabilization Act which is mandatory spending not discretionary.

Several sources predicting a continued rise in home prices!

The past 6 months have seen a real surge in the housing market.  I know I personally have been swamped, which is fantastic!  Inventory is incredibly low and homes are selling faster and for more money than I have seen in years.  Recently several national sources have come out with studies supporting what I have personally been seeing and predictions that this great market will continue. Great news!  If you have been considering selling your home, now is the time! Most of my listings since November have sold in less than a week and for at least 98% of the list price (if not OVER list price).  I would love to help yours do the same!

Check out these articles for more information about the improved housing market we are seeing:

Fannie Mae: Confidence in Home Price Gains Reaches Record Levels

Firm Forecasts 8% Increase in Prices, Decrease in Mortgage Rates

CoreLogic: Home Prices Post 12.1% Annual Gain in April

New changes to FHA loans

There are some changes coming up in FHA that you should know about.  As you may or may not be aware, FHA has implemented numerous increases to their monthly MI and the Up Front MIP since 2009.  They are doing it again and so FHA continues to be the "loan of last resort".  Since the increases started, my lenders have been consistently avoiding FHA for borrowers who have other options, since it is more expensive.  FHA is notorious for changing this stuff at the last minute, but for now here is what we expect...

(There are some slight variations to the bullet points below for 15 year FHA loans or if clients put more than 5% down, but that is a VERY small percentage of FHA borrowers, so these are the changes most borrowers will experience)

• The monthly MI will increase to 1.35% of the loan amount (divided by 12) for most FHA loans.  So a $200,000 30 year fixed FHA loan will have monthly MI of $225.00 (about double conventional)  - This will be effective with all FHA case numbers pulled after April 1, 2013
• The Monthly MI will not be able to be dropped under any circumstances for the life of the loan. It doesn't matter if they pay the loan down or if the home doubles in value, borrowers will still have to pay monthly MI until they sell, refinance, or pay the loan off.   This will be effective for all FHA case numbers pulled after June 3rd, 2013.

The Up Front MIP will remain the same at 1.75% of the loan amount and is still non refundable for any reason.  


Information compliments of one of my favorite lenders, Mark Moore. Thanks, Mark!

Things you WISH you could say to your borrowers but, can’t:

A little bit of fun from one of my lenders.  Unfortunately it is funny because it is so often true!


10. After reviewing your tax returns...is your company hiring?

9. Unfortunately, we just cannot use the $20,000 you have stored in your gun safe to cover the cash you're short to close.
8. Listen, there’s been a red dot outbreak at my office. I’ll have to call you back tomorrow.

7. Let’s just say that if I ruled the world, I’d certainly loan you $417,000 without bothering to check your credit or verify your income!

6. Sure, take as long as you want to think about my offer of 3.5% with no points. In the meantime, I will ask the markets,(US and abroad) to suspend all trading until you decide.

5. Since you only have $6 worth of verifiable liquid assets, I will need more of an explanation regarding the four $3000 non payroll deposits. Right now, it looks like you're collecting income from the meth lab in your rented garage.

4. At what point when I was talking about the importance of NOT moving money did you decide to pay off $20,000 in student loans?

3. It’s a little hard to believe these “tax liens” and “mortgage lates” on your credit report are the “first you are hearing of this.”

2. It took you three weeks to get me your documents. I will need a little more than 5 minutes to get your docs out.

1. No, we don't really need all of your tax returns– just the random pages that you feel like sending.
~ by David Lettermen 

Conforming vs. Jumbo Loans

What Is A Conforming Mortgage "Loan Limit"?

A "conforming mortgage" is so named because its loan traits -- quite literally -- "conform" to the loan rules set forth by Fannie Mae or Freddie Mac.  Fannie's and Freddie's mortgage guidelines are dense, covering thousands of home loan traits, but there is one over-reaching rule -- neither Fannie Mae nor Freddie Mac will securitize a mortgage that's considered "too big" for its books.

Defining "too big" is an annual decision-making process based on the economy and home price data. The debate results in a "loan size limit"; the maximum amount of mortgage that Fannie and Freddie will allow, per their respective home loan guidelines.  Loan sizes up to these maximum amounts can be conforming mortgages. Loan sizes beyond the conforming loan limit are considered "jumbo".

2012 Conforming Mortgage Loan Limit : $417,000 (Or More):

2012 conforming loan limits are the same as in from 2011, 2010, 2009, 2008, 2007 and 2006.

Home prices are lower today as compared to 6 years ago, but maximum loan sizes are not; and this makes more homes eligible for Fannie Mae/Freddie Mac financing. For home buyers, this is a good thing because Fannie Mae- and Freddie Mac-backed loans are often the "cheapest" form of financing in terms of monthly mortgage payment.

Loan limits staying steady is good for existing homeowners, too, because, should conforming loan limits ever fall, scores of households would be immediately "loan-sized out" from the refinance market.

The 2012 conforming loan limits vary by property-type. With more "units" per property, conforming loan limits rise.  The classification "1-unit home" includes single-family residences of all types --  detached homes, row homes, townhomes, condos and co-ops.

• 1-unit properties : 2012 conforming loan limit of $417,000
• 2-unit properties : 2012 conforming loan limit of $533,850
• 3-unit properties : 2012 conforming loan limit of $645,300
• 4-unit properties : 2012 conforming loan limit of $801,950

Note that these limits are for conforming mortgages only. FHA loan limits -- including for the FHA Streamline Refinance -- use a different scale.

FAQ: When Can I buy again after a Bankruptcy, Short Sale, or Foreclosure?

These guidelines have changed quite a bit over the past three years (becoming more strict) and are accurate as of the date of today’s post (March 9, 2012) –

2011 FHA Waiting Guidelines

• Bankruptcy – You may apply for a FHA insured loan after your bankruptcy has been discharged for TWO (2) years with a Chapter 7 Bankruptcy. You may apply for an FHA insured loan after your bankruptcy has been discharged for ONE (1) year with a Chapter 13 Bankruptcy
• Foreclosure - You may apply for a FHA insured loan THREE (3) years after the sale/deed transfer date.
• Short Sale / Notice of Default – You may apply for a FHA insured loan THREE (3) years after the sale date of your foreclosure. FHA treats a short sale the same as a Foreclosure for now.
• Credit must be re-established with a 640 minimum credit score

2011 VA Waiting Guidelines:

• Bankruptcy - You may apply for a VA guaranteed loan TWO (2) years after a Bankruptcy
• Foreclosure - You may apply for a VA guaranteed loan TWO (2) years after a foreclosure
• Short Sale - You may apply for a VA guaranteed loan TWO (2) after a short sale, unless it was a VA loan then restrictions apply
• Credit must be re-established with a minimum 620 credit score

2011 Conventional Waiting Guidelines (Fannie Mae):

• Bankruptcy – You may apply for a Conventional, Fannie Mae loan after your bankruptcy has been discharged for FOUR (4) years.
• Foreclosure - You may apply for a Conventional, Fannie Mae loan SEVEN (7) years after the sale date of your foreclosure. Additional qualifying requirements may apply,
• Short Sale / Deed in Lieu of Foreclosure - UPDATED 12/16/11 Currently treated the same as a foreclosure with a waiting time of SEVEN (7) years before you can buy again using a Fannie Mae conventional home loan.
• TWO (2) Years up to Maximum 80% Loan to Value | 20% Down Payment
• FOUR (4) Years up to Maximum 90% Loan to Value | 10% Down Payment – Subject to Private Mortgage Insurance underwriting guidelines.
• SEVEN (7) Years above 90% Loan to Value | with less than 10% Down Payment – Subject to Private Mortgage Insurance underwriting guidelines.
• Credit must be re-established with a minimum 660 credit score.
• Fannie Mae has reduced waiting periods in cases of extenuating circumstances – The death of a primary wage earner seems to be the only one I have been able to identify up to this point.

Preparing to Buy Again after BK, Short Sale or Foreclosure:

You should begin re-establishing your credit again immediately after a bankruptcy, foreclosure, or short sale and start really looking at your credit at least six (6) months before you are ready to buy again. Quite often there are things left over on your credit report that can delay your ability to qualify.

With a little head start, you can get your credit in line, qualify for financing and buy again in the lowest priced real estate market that we have seen in years!

Thanks to one of my favorite lenders, Kim Jones with Brand Mortgage, for putting this together. Kim is one of the best in the business!

Warren Buffett says BUY HOMES NOW!

Click here to watch the video if you can't see it below.

From Frank Garay and Brian Stevens at www.TBWSDailyShow.com