The Phoenix Area Foreclosure Experts

Can you get an advance on your FHA $8,000 tax credit for 2009?

by Craig
The latest buzz is that the first time homebuyer tax credit can maybe now be accessed in advance of you filing your taxes rather than wait till after you buy the home and then filing your taxes for the credit.  Sort of like getting an advance from your employer on your next paycheck.

So what happened was a letter was published that went to every lender in the country and was put on the HUD website for public viewing saying YES WE WILL ALLOW THIS (advance) ON YOUR FUTURE TAX CREDIT. This is the equivalent of the government saying we are going to MARS -- but we have not built the rocket yet to get us there.

Here was the exact wording that started the stir…

 “We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a down payment. So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to "monetize" the tax credit through short-term bridge loans. We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit. FHA will be publishing the details shortly.”

Lending "Warehouse Lines" change acceptable debt ratio

by Craig

Yea, yea I know…. If you read every email about lending changes you would never get any real work done…

You should know about these changes.

You know banks are tightening up on everything. You may also know that MI (mortgage insurance) companies have tightened up on everything and they have their own rules to meet in addition to the banks rules. 

You may not know much about Warehouse lines. That is where we get the money to fund the loans.  Our company last month April closed 65 MILLION dollars of loans. Our warehouse lines funded them and then they are sold to the investor:Chase, Wells, Citi, B of A, etc… and the 65 million comes back on the lines in the next few weeks and we do it all over again.

Even though they may only have their money out 2 weeks -- and the loan gets bought by Chase or some other bank -- they are making their own rules. So the "warehouse line" is now telling us that in order for us to use “their” money lines we can not have loans over a certain debt ratio… they have many other rules as well.

What if FHA will ensure a loan and Countrywide will buy it - - - too bad.  The "warehouse line" says no.

So new ratios for all FHA loans are 45% - don’t bother writing that down as it will change in a few weeks.  So if we run a loan through the FHA automated system and it has a 46% debt ratio and it meets all of FHA’s guidelines and gets approved - that does not mean that we can fund it. We have to get past the warehouse line, the MI company, FHA, and the investor who buys the loan. All 4 have their own rules. And they keep changing frequently.

If the borrower was approved prior to 5-1-09 then we can still close a loan with a higher debt ratio but that should phase out soon. Way more hoops to jump through than even a few months ago -- and we thought that was crazy.

Fannie mae changes affecting investors and condos -- March 2009

Effective March 1st,  Fannie Mae banned mortgages in new condo developments where fewer than 70 percent of the units have been pre-sold. The previous cutoff point was 51 percent.

Also Fannie no longer will finance units in projects where more than 15 percent of unit owners are behind on their payment of condo dues, or where more than 10 percent of the units are owned by a single investor, individual or company.

On top of that, Fannie now declines to finance units in buildings where more than 49 percent of all units are owned by investors. Forget most resort area rental condos. Forget condo hotels.

Private mortgage insurers have joined the condo-avoidance bandwagon by either refusing to insure low-downpayment loans in any of dozens of local markets deemed to be "declining," or by charging exorbitant premiums on units in healthier markets.

Even Freddie Mac may soon be following Fannie in restricting condos sharply. It recently raised the minimum downpayment on condo unit loans to 25 percent, and added a three quarter point penalty on top of its regular fees for condos. Fannie also hits all condos with a three quarter point add on.

Financial Stability Plan

by Craig

The country voted for CHANGE and nobody can say that we didn't get it!

Everything in the financing world is changing, and I will try to not get political on what I think about these changes because we don't want this blog to be about politics. You would get overwhelmed if I told you about every change in the industry, so we only go for the ones that seem major -- this one is.

Many investors are moving to a 620 FICO score minimum on purchases and refi's.  This is strange as FHA might approve a loan for a borrower at 600 scores,  but the bank says "we just don't want to have those scores in our portfolios any more because as we bundle the loans together and sell them we can't find investors willing to buy them. So... let's just not originate them."

Our company has been talking about this for a few weeks to prepare us for it, and just today March 6, 2009 sent out a memo stating that today is the last day to register a loan in our system with a mid score at 619 or below.

Sort of like if the hostess invites you to a party and you are "eligible" to get in but the restaurant manager says that you are not dressed in a coat and tie and they have a dress code -- so you don't get in. You're on the list! You have an invitation! But, you don't meet the dress code requirement for that particular restaurant. Problem is all the restaurants (the banks) are starting to all have the same guideline. They all are falling in line.

People who have fallen behind in payments on their homes will not have the credit scores needed so they are all out of luck... "NO SOUP FOR YOU"

What about borrowers who are not behind but are upside down on the value - isn't the government going to save all the home owners in the country through this financial stability plan?  The rumors are great and the facts are few in this new deal.

Borrowers who want to refinance loans under the Financial Stability Plan received some facts about the plan this week. The program is designed to assist homeowners whose loans are owned or guaranteed by Fannie Mae or Freddie Mac. Here is a catch: it's only for people who are currently paid up or on time with their payments, and where the loan amount is no more than 105% of the value of the home. Example--- your home is appraised today for $100,000  and your current loan is no MORE than $105,000. If your loan is $106,000 then you don't qualify. The bummer is that today's current values are so much lower than a year or two or three ago that very, very FEW people will have loan amounts that are 105% of their current value.

A website www.financialstability.gov provides guidance on how to determine if a particular loan is owned or guaranteed by Fannie or Freddie and whether the borrower may qualify under this program. They have a bunch of links that you can click on to see what the guidelines are. Some of the documents on that site were posted just in the last 24 - 48 hours.

More details on the program are expected in the next few months.

Higher credit score requirement

by Craig

This will be short . . . Here is an example of one investor, "Suntrust," who made an announcement a day or two ago (effective today) saying they no longer want to accept loans from people with less than a certain credit score.

You see how investors make accross the board changes like this to raise the bar for buyers and lower the risk for the banks. The higher the credit scores the less the default ratio goes.

"Effective for locks on or after Tuesday, February 10, 2009, the minimum credit score requirement for ALL loan products is 640"

Angela Madren
SunTrust Mortgage, Inc.
Correspondent Resource Analyst
1001 Semmes Ave
Richmond, VA

Common loan modification myths

 Federal Loan Modification Law Center spokesman,  Ralph Roberts, recently talked about the top myths concerning loan modification. He said many people  have  heard rumors which, sometimes, are perpetuated by passing them on to other people.   Here are the five myths he addresses:

1. "The bank wants me out of my house" -- Instead, banks make more money when you make monthly payments.  Going through the foreclosure process costs them lots of money to include: losing  the homeowners payments, attorney expenses, rehabbing the home, and selling expenses.
2.  "My credit score is so bad I won't qualify" --  Instead,  this is not a refinance.  Credit scores are not much of a factor in loan modifications.  The major factor in a loan modification  is your ability to make the payment.

3. "I am not late on my mortgage payments so I won't qualify" -- Instead, many lenders are now working out loan modifications with borrowers who are up-to-date on their payments.  This was true in the early days of loan modifications.  Some lenders required you to be at least 61 days delinquent.    However, lenders have had to change requirements to adapt to the market.

4. "I would be better off walking away or declaring bankruptcy then modifying my loan" -- Instead, you are better off to save your credit and  retain the chance to borrow money in the future.

5. " It's too late.  I have  already received a foreclosure notice" --  Instead, as long as you still reside in the home you may have time to work out a loan modification.  The sooner you take action, the more options you may have available.  Contacting the lender demonstrates a good-faith effort.

Buy and Bail Protection

by Craig

One of the best ways to buy a foreclosure in this market is of course with no money down. think about it,  you put no money down and buy a home for let's say 100,000 that was selling for 200,000 a year and a half ago  - that's not just a good deal it's an amazing deal. USDA has 100% financing or "rural" areas. Yes that means you people who want to live in the city can not get this!  But they are even coming around to the buy and bail protection that Fannie and Freddie and FHA have already put into place.

So everybody seems to be falling into line on this policy - here is the exact wording from USDA...  

An increasing number of homeowners are attempting to purchase new homes but cannot sell their existing principal dwellings because of prevailing market conditions. Some homeowners are attempting to retain and rent out their existing principal residence, while at the same time trying to purchase a new principal residence. The homeowners attempting to rent out their existing properties are producing newly signed leases as evidence of income to offset the costs of maintaining the old residence and continue making payments on it. Increasingly, income from the new leases never materializes and the old principal residence goes into foreclosure.

Newly signed leases:

A newly signed lease has no historical basis to conclude that the income is likely to continue. Applicants who wish to purchase a new principal residence and retain or rent a residence must qualify with all mortgage liability payments. Income from newly signed leases cannot be used in debt ratio calculations. The exclusion of rental income will ensure the applicant has sufficient monthly income to meet all mortgage and liability payments. This applies to manual and automated underwritten loan files.

So basically if you want to buy a screaming deal out there right now but have not sold your home first - NO PROBLEM -  just make sure that your payment on your current home that is for sale and the new home mortgage payments added together are still something you can qualify for with your current income. IF not, sell your home first then find the screaming deal... if the deal is gone just stop close your eyes and listen  - I promise you that you will hear another deal screaming very close by.

INSANITY - PART 2

by Craig

Well if you read part one then you know how insane banks can be. Here is yet another example of a tragically insane policy from a bank.

In a small city called Maricopa that is about 30 – 45 mins outside of Phoenix- a small community became a big one in a couple years.  The town quadrupled in home counts when there was no industry or jobs to speak of -- just cheap land that builders figured they could build on and sell since we were in a boom. Just build it and they will come.

Well you know the story… so now every builder has pulled out and subdivisions are left incomplete. Home owners are seeing their values sink because, without sustainable industry, why would anybody drive 30-45 mins outside the metropolitan area to live when they can now find extremely low priced homes in the Phoenix market on every block.

So one home owner decides to sell his home on a short sale – (short sale meaning that the home is sold for less or short than the amount needed to pay off the loan)  All you need is a willing buyer and seller and bank approval. The home owner had two loans on the home. 

To make numbers easy lets say the first mortgage was 225,000 and the second was 50,000.  Total = 275,000. Every home in that city is upside down. They found a buyer to pay 200,000.  So the buyer and seller agreed and sent it to the bank for approval.  The first mortgage holder said OK we agree to the price and we will pay the second mortgage holder 4,000 dollars from the 200K that we get.  Both the first and second lenders agreed so everybody seemed happy.
 
So here is where the insanity comes in  - the verbal approvals were given and all parties continued on to the closing. But the written approval from the second lien holder took a few weeks to arrive and when it did there was a very strange sentence.  It went something like this…”This approval is based on the seller being liable for the remainder of the loan amount”  Say what?

Let’s examine this…

• The second mortgage company is owed 50,000. They agree to accept 4,000.
• The first mortgage agrees in writing to give the second 4,000.
• The buyer and seller are willing to close at 200,000.
• So far everybody is happy and moving towards a closing. . .

• The buyer signed the docs and their lender funded the loan which means they wired the 200K!
• The seller can not sign unless he agrees to be liable for the remaining 46,000. 
• If the seller signs this he will owe 46,000.
• If the bank forecloses he will not owe the 46,000. What would you do?
• The second said they would not remove the wording and would accept the 4,000 only if the seller agrees to pay them back the remaining 46,000 as well and if not - - - then they will foreclose… (music cue / dun dun dun)

How insane is this – if the second mortgage company forecloses on this home and they are in SECOND lien position the home will be sold at auction or re listed and the money from the sale will go to …. The FIRST mortgage company!

That’s right if they sell it for 175 then the first mortgage company gets 175!  How much does the second mortgage get at that point – zilch – nada – zip – zero – nuttin' honey! 

So when a bank can take the 4,000 and move on, but instead threatens to either be paid ALL OR ELSE, they will foreclose.  If they foreclose they get nothing! That in my opinion is insane!

Our country needs liquidity right now – isn’t that the reason we had a 700 billion dollar bail out plan pass to give the banks liquidity? So here was 200,000 in the title company’s possession and within hours the first mortgage company would have been gotten 196K and the second would have gotten 4K – as of today they have nothing AND they are still sitting with non performing loans which costs them money every month on their books. ISN’T THAT A LIQUIDITY PROBLEM? 

What if they would take 50,000 more short sales and get 196K from each one of them wouldn’t that help banks liquidity? It would also remove 50,000 non producing notes off their books.  Common sense would tell you that banks would be better off with LESS non performing loans and MORE money in their accounts right?

When they start moving the short sales through the system with more sanity, then it would ease the liquidity crisis nationwide and reduce the number of foreclosures in the nation, reduce the non performing loans in the country, keep the housing prices from further sliding downward, stabilize the markets a bit more, create less credit problems for home owners, increase the number of homes coming off the market, increase the number of realtor commissions which would decrease the number of agents leaving the industry, increase more good loans, keep more lenders and title companies working… do I need to go on or do you get the picture?

Yes, you get the picture - - but the banks don’t.

Insanity comes in many forms...

by Craig

You are going to read this and say "you've got to be kidding"

Well I'm not, so here goes. . . A home owner was wanting to do the right thing and continue to pay his mortgage even when there was not enough money coming in to pay all the bills! So he calls the lender holding his loan and says "can we talk about loan modification where we can reduce the rate or payments so as to avoid credit problems and also avoid foreclosure?"  The lender said that the loan modification dept would be able to help so he gets transfered to that dept. They tell him that they can NOT help him because he is NOT behind on his payments.  "Yes, correct" he explains and he would like to keep it that way and continue paying them on time if they could just modify the payments or rate.

NO - the loan modification dept will only work with you if you are behind in your payments. So the home owner -- after several calls -- decided that there was no help to be given in that dept unless he stopped making his payments ...which eventually happened. Two months past and he called them back.  He was "counseled" about his late payments history and was then told that the loan modification dept may be able to help him. So back with the loan modification dept. They said that they would consider him for modification if he would fill out a package of info including pay stubs, bank statements, income, and debts, credit report and (here's the insane part) he would also have to get his payments CURRENT before they could modify his loan. "you've got to be kidding"

Yes, you have to be past due in order to qualify for the loan modification (otherwise every American household would get a modification to a lower rate - that would not be fair)  then you have to be current before they will actually modify the loan.  Because if they are going to be so kind in helping you out the least you can do is get current on your loan payments. Makes perfect sense.

Is it possible that the POLICIES themselves are contributing to the downward spiral of the housing industry. Could it be that forcing people into NOT paying in order to help them  - - actually creates more foreclosures?

CitiMortgage seems to be trying to lead the pack with the possible moratorium on foreclosures along with Fannie and Freddie. However it sounds like the only people they are NOT going to foreclosure on are those who are currently NOT late but may be struggling. So much for the rest of the country who has already gone down this path. Here is a portion of a story that you can find on ABC news website at this link.

http://www.abcnews.go.com/Business/Economy/Story?id=6225660

Citi also announced that it will extend its moratorium on foreclosures on mortgages it owns. To qualify, a homeowner has to stay in the home, it has to be the principal residence, the homeowner must work in good faith with Citi and have enough income to pay a more affordable mortgage payment. Citi says it has already saved 370,000 customers from foreclosure in the past two years through this program. They believe extending the foreclosure moratorium will help an additional 50,000 families avoid foreclosure.

Citi owns nearly $200 billion in mortgages and the 500,000 homeowners it plans to contact represent about $50-55 billion.

You can google this article and do your own research and come to your own conclusions if it is good or bad etc... but let's all agree that banks who tell you to get behind in your payments so they can help you  - then tell you to get current so they can help you is ...are need of a straight jackets.

Facing Foreclosure.... there's HOPE!

by Craig

The Housing and Economic Recovery Act of 2008 amended the existing Housing Act to offer a temporary mortgage insurance program called HOPE for Homeowners. or H4H. Homeowners facing difficulty paying their mortgage may be eligible to refinance under a new FHA loan. This became effective as of October 1, 2008.

You can go to any blog in the country to hear opinions or overviews or a compressed version of whatever was on talk radio yesterday... but on this blog you get straight from the "US Department of Housing and Urban Development". This letter is from the Assistant Secretary of Housing with all the boring jargon in it. Open and print for your records - that's why you come back to this blog often to get real info from the source rather than fluffy opinions. 

It is 13 pages so you can read till you get bored or pick and choose what parts fit your situation or if you are really left brain  - digest it, highlight it and diagram it. 

Download hope_letter.pdf