We just finished training for the 2010 versions of the Good Faith Estimate (GFE) and HUD1 or closing statement. It is going to be choppy getting accustomed to the new forms. And it means we will need to do things differently moving forward.
I just completed my first estimate using the new form. There are times when I scratch my head and wonder if the King is really naked, this is one of those times. The two questions home buyers have asked on every application I have ever prepared are not answered on this new form:
1) How much will my total payment be?
2) How much money will I need at closing?
Those figures are shown in the application but not on the GFE. Is that not strange?
A couple of other very odd changes include no disclosure of seller paid contributions (again it is in the application but not GFE) and inclusion of fees paid outside of closing such as pest control, home inspection and realtor administration fees. Heads up realtors, if your company charges the buyer an admin fee it needs to be on the GFE. There will not be any adding of fees at the closing to the borrower’s side of the HUD1!
Something else I found very odd, the transfer tax is going to be on the GFE. In our area that is assumed to be a seller expense but it must be shown on the buyer’s GFE. Wonder why that particular item is carved out of the seller’s list and not others like deed prep? Strangest of all, the closing cost are not itemized on the new GFE, one lump sum figure. How bazaar.
All of this is going to slow down the process, closings can not occur until 10 days after the disclosures. Some changes will require a new disclosure and that can delay a closing for another 10 days. A loan approved today will no longer be able to close today, a situation I had last week. The new process that goes on behind the curtains is multiple signatures that everything is in compliance. In the past this step was limited to only one person prior-to-close, will now be three or four people and could take up to 48 hours to complete! All of this could be very inconvenient for scheduling moving trucks and utilities.
We will not be able to issue a GFE before we pull credit, this is a huge change. It makes sense because credit scores can impact the fees or rate. Once a closing cost is disclosed it can not be changed so lenders will not send out an estimate until they have the six basic items needed at application. These include: Borrower’s name, SS#, property address, monthly income, valuation of the property and proposed loan amount. Many homebuyers are not going to like this at all. Can’t you give me an estimate? Nope! Basically not until you give up all of your information.
Here is the good, the bad and the ugly; it really is going to help the consumer by eliminating the bait and switch tactics used by many lenders - which has always been one of my pet peeves with the industry. It is going to be bad for mortgage brokers because they are required to disclose information mortgage bankers like us are not. If I understand the math correctly it is going to make their fees look much higher which is going to be confusing to the consumer and as a result bankrupt many brokers.
Wednesday, December 30, 2009
Tuesday, December 22, 2009
2010 Is Upon Us
Few people in the real estate or mortgage industries are sad to see 2009 slip in to the history books. Our company actually had a record volume year but there was nothing easy about it. The changes that took place this year were a challenge to say the least.
Next year is going to have some major adjustments right out of the chute, a new Good Faith format and corresponding booklet kick off January 1st. The new GF is supposed to be simpler for the consumer, so much for that. The old version was one page and the new one is four pages. The information I received from HUD explaining this simplified version of the Good Faith Estimate is 85 pages long! But guess what, I actually like the new version. It is going to make it difficult for loan officers to bait-and-switch which has been my biggest pet peeve with the industry. Hopefully, that is going to change next year because of this form.
HUD’s Settlement Cost Booklet has grown up as well, the old version is 20 pages and the new one is 49 pages. I am not a conspiracy buff, but the paper industry sure looks guilty.
Here is some really good news; FNMA is predicting stable rates throughout the year. They predict the 30 year fixed will remain about where it is now for the first half of the year and then trend up very slightly the last half. Click Here to see the entire chart.
I expect the low rates, extension and expansion of the tax credit to have a very positive impact on the first quarter. The sharp spike we saw in September and October should continue until April.
In another report they state:
The mortgage market should turn into more of a purchase market next year. With projected increases in home sales and more moderate declines expected in home prices, purchase mortgage originations are expected to increase about 12 percent in 2010.
Click Here to read the full report.
Next year is going to have some major adjustments right out of the chute, a new Good Faith format and corresponding booklet kick off January 1st. The new GF is supposed to be simpler for the consumer, so much for that. The old version was one page and the new one is four pages. The information I received from HUD explaining this simplified version of the Good Faith Estimate is 85 pages long! But guess what, I actually like the new version. It is going to make it difficult for loan officers to bait-and-switch which has been my biggest pet peeve with the industry. Hopefully, that is going to change next year because of this form.
HUD’s Settlement Cost Booklet has grown up as well, the old version is 20 pages and the new one is 49 pages. I am not a conspiracy buff, but the paper industry sure looks guilty.
Here is some really good news; FNMA is predicting stable rates throughout the year. They predict the 30 year fixed will remain about where it is now for the first half of the year and then trend up very slightly the last half. Click Here to see the entire chart.
I expect the low rates, extension and expansion of the tax credit to have a very positive impact on the first quarter. The sharp spike we saw in September and October should continue until April.
In another report they state:
The mortgage market should turn into more of a purchase market next year. With projected increases in home sales and more moderate declines expected in home prices, purchase mortgage originations are expected to increase about 12 percent in 2010.
Click Here to read the full report.
Monday, December 21, 2009
Credit Repair Fraud
Okay that last entry was a like poking a hornet’s nest. Allow me to clarify, there is absolutely nothing wrong with deleting erroneous information from your credit file/credit report. And that process is fairly simple; few people need to pay hundreds of dollars to achieve correcting a minor mistake. All that is required is to simultaneously send a cover letter to all three repositories and a copy of the proof that clearly shows the mistake. Information on how to do this will be included in my new blog on credit issues and it is free for the taking!
Here is the part from the last entry that created the stir:
All of the credit repair companies that have approached me over the past three years instruct their clients to dispute accurate information on their credit report. Knowingly disputing accurate information on the credit report is intentionally conveying false information with the intent to alter the content of the report in order to be approved for a mortgage.
Those are my words and no one else.
Hey everyone, this is not a rumor, I am sharing what the representatives from credit repair companies have said directly to my face. They instruct their clients to dispute everything including information that is accurate but negative in nature. Everyone should know by now that credit scores are an integral part of the mortgage underwriting process. They can also impact the interest rate the borrower receives. Anyone that knowingly lies to or deceives the credit bureaus to improve their credit rating in order to get a loan or a better interest rate is guilty even if the deception is only an omission of accurate information.
If there were a deduction on your pay stub for payment of a judgment, would it be wrong to white-out the information and provide the altered document in order to get a loan? Of course it would be wrong. This is the same as having the credit bureau remove negative information that you know is correct. Both are omissions of facts.
Here is my stance on this subject, there is absolutely nothing wrong with managing your credit file and therefore your credit report. However, there is nothing right about manipulating or causing false information to be delivered to a lender considering a loan application.
But do not take my word for it, you can find the following information on the FDIC’s web site:
§ 1344. Bank fraud.
Whoever knowingly executes, or attempts to execute, a scheme or artifice--
(1) to defraud a financial institution; or
(2) to obtain any of the moneys, funds, credits, assets, securities or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;
shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.
[Codified to 18 U.S.C. 1344]
[Source: Section 1344 added by section 1108(a) of title II of the Act of October 12, 1984 (Pub. L. No. 98--473, 98 Stat. 2147), effective October 12, 1984, as amended by section 961(k) of title IX of the Act of August 9, 1989 (Pub. L. No. 101--73; 103 Stat. 500), effective August 9, 1989; section 2504(j) of title XXV of the Act of November 29, 1990 (Pub. L. No. 101--647; 104 Stat. 4861), effective November 29, 1990]
Here is the part from the last entry that created the stir:
All of the credit repair companies that have approached me over the past three years instruct their clients to dispute accurate information on their credit report. Knowingly disputing accurate information on the credit report is intentionally conveying false information with the intent to alter the content of the report in order to be approved for a mortgage.
Those are my words and no one else.
Hey everyone, this is not a rumor, I am sharing what the representatives from credit repair companies have said directly to my face. They instruct their clients to dispute everything including information that is accurate but negative in nature. Everyone should know by now that credit scores are an integral part of the mortgage underwriting process. They can also impact the interest rate the borrower receives. Anyone that knowingly lies to or deceives the credit bureaus to improve their credit rating in order to get a loan or a better interest rate is guilty even if the deception is only an omission of accurate information.
If there were a deduction on your pay stub for payment of a judgment, would it be wrong to white-out the information and provide the altered document in order to get a loan? Of course it would be wrong. This is the same as having the credit bureau remove negative information that you know is correct. Both are omissions of facts.
Here is my stance on this subject, there is absolutely nothing wrong with managing your credit file and therefore your credit report. However, there is nothing right about manipulating or causing false information to be delivered to a lender considering a loan application.
But do not take my word for it, you can find the following information on the FDIC’s web site:
§ 1344. Bank fraud.
Whoever knowingly executes, or attempts to execute, a scheme or artifice--
(1) to defraud a financial institution; or
(2) to obtain any of the moneys, funds, credits, assets, securities or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;
shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.
[Codified to 18 U.S.C. 1344]
[Source: Section 1344 added by section 1108(a) of title II of the Act of October 12, 1984 (Pub. L. No. 98--473, 98 Stat. 2147), effective October 12, 1984, as amended by section 961(k) of title IX of the Act of August 9, 1989 (Pub. L. No. 101--73; 103 Stat. 500), effective August 9, 1989; section 2504(j) of title XXV of the Act of November 29, 1990 (Pub. L. No. 101--647; 104 Stat. 4861), effective November 29, 1990]
Friday, December 18, 2009
Credit Issues and Credit Repair
This is NOT an announcement about a Credit Repair Service.
Beginning in January, I will offer a free service to anyone that has issues on their credit report or has a desire to improve their credit rating. The service will begin with a new web site linked to this one and a newsletter that contains valuable methods and suggestions for building a strong credit report.
This is not a traditional credit repair service (dispute everything) that is offered by many companies today. Those techniques are illegal and could cost you and your clients up to $1,000,000 in fines (each) and up to 30 years in prison or both, that’s strong!
All of the credit repair companies that have approached me over the past three years instruct their clients to dispute accurate information on their credit report. Knowingly disputing accurate information on the credit report is intentionally conveying false information with the intent to alter the content of the report in order to be approved for a mortgage. Folks, this is FRAUD. And anyone involved sticks their head in the noose if the lender is injured by the scheme, including but not limited to realtor, loan officer, processor or anyone else that refers the borrower to the credit repair company. Especially anyone that stands to gain from transaction!
I am aware the law places the burden of proof on the company that reported the negative information to a credit bureau. However, disputing an entry requires challenging it, in other words, stating that it is wrong. The soft spot on the underbelly of the system is profit. There is no immediate financial incentive for a company to research a dispute on information they supplied to the credit bureau sometime in the past. This is a weakness that is exploited by the credit repair companies. They know that if their clients dispute every negative entry that a certain percentage of disputes will go unanswered and therefore must be removed from the credit file. But think about it, this requires a written statement that there is something wrong with the entry, and in my example that is a lie.
Not only is it a lie, in almost every case it will be easy to prove it was a lie. Guess where checks and money orders clear. Guess who has a copy of the transaction, including deposits and withdrawals. The government that audits banks is the same government that prosecutes bank fraud and audits mortgage transactions, connect the dots here. There is a paper trail, and worse, in section 9 of the loan application the borrower acknowledges that any misrepresentation could result in civil and criminal penalties.
When the borrower applies for a loan and again at the closing they must acknowledge that they are aware of these penalties for supplying false or inaccurate information in order to get a loan. It takes a special kind of person to put this in writing and then allow the lender to rely on an inaccurate credit report due to omissions.
Keep in mind the government is pursuing loan fraud like a pack of rabid dogs!
There is no safe short cut to overcome accurate negative entries on a credit report. However, there are many actions most people can legally perform on their own behalf that will have a positive impact and doesn't cost an arm and a leg.
This new service is a huge undertaking and I will need help. If you are willing to contribute information on the subject please use the sign up form on the left or the one at the very bottom of the page.
Beginning in January, I will offer a free service to anyone that has issues on their credit report or has a desire to improve their credit rating. The service will begin with a new web site linked to this one and a newsletter that contains valuable methods and suggestions for building a strong credit report.
This is not a traditional credit repair service (dispute everything) that is offered by many companies today. Those techniques are illegal and could cost you and your clients up to $1,000,000 in fines (each) and up to 30 years in prison or both, that’s strong!
All of the credit repair companies that have approached me over the past three years instruct their clients to dispute accurate information on their credit report. Knowingly disputing accurate information on the credit report is intentionally conveying false information with the intent to alter the content of the report in order to be approved for a mortgage. Folks, this is FRAUD. And anyone involved sticks their head in the noose if the lender is injured by the scheme, including but not limited to realtor, loan officer, processor or anyone else that refers the borrower to the credit repair company. Especially anyone that stands to gain from transaction!
I am aware the law places the burden of proof on the company that reported the negative information to a credit bureau. However, disputing an entry requires challenging it, in other words, stating that it is wrong. The soft spot on the underbelly of the system is profit. There is no immediate financial incentive for a company to research a dispute on information they supplied to the credit bureau sometime in the past. This is a weakness that is exploited by the credit repair companies. They know that if their clients dispute every negative entry that a certain percentage of disputes will go unanswered and therefore must be removed from the credit file. But think about it, this requires a written statement that there is something wrong with the entry, and in my example that is a lie.
Not only is it a lie, in almost every case it will be easy to prove it was a lie. Guess where checks and money orders clear. Guess who has a copy of the transaction, including deposits and withdrawals. The government that audits banks is the same government that prosecutes bank fraud and audits mortgage transactions, connect the dots here. There is a paper trail, and worse, in section 9 of the loan application the borrower acknowledges that any misrepresentation could result in civil and criminal penalties.
When the borrower applies for a loan and again at the closing they must acknowledge that they are aware of these penalties for supplying false or inaccurate information in order to get a loan. It takes a special kind of person to put this in writing and then allow the lender to rely on an inaccurate credit report due to omissions.
Keep in mind the government is pursuing loan fraud like a pack of rabid dogs!
There is no safe short cut to overcome accurate negative entries on a credit report. However, there are many actions most people can legally perform on their own behalf that will have a positive impact and doesn't cost an arm and a leg.
This new service is a huge undertaking and I will need help. If you are willing to contribute information on the subject please use the sign up form on the left or the one at the very bottom of the page.
Thursday, December 17, 2009
Fannie Mae Changes
There are a few more changes that could impact borrowers that have recently applied for mortgage financing. In the underwriting release notes mentioned in the last post I found a huge change. FNMA no longer counts trailing spouse anticipated income. This could be a very big problem for the thousands of relocation homebuyers next year.
Another change, Fannie now requires IRS Form 4506-T instead of the Form 4506. My company has been doing this for a long time. Both forms allow the lender to receive a transcript of tax returns from the IRS for documenting the borrower’s income. The difference is the 4506 is for the previous year and the 4506-T is for the previous two years. In the past, these forms were used after a loan closed and only for a fraction of the transactions. Today we order them on every loan and the transcript must be received prior to closing! This is a really big change and it is expensive. Each transcript cost $50 and thankfully can not be passed on to the borrower. It costs us an additional $100 to process every loan even if they do not close.
Another change, Fannie now requires IRS Form 4506-T instead of the Form 4506. My company has been doing this for a long time. Both forms allow the lender to receive a transcript of tax returns from the IRS for documenting the borrower’s income. The difference is the 4506 is for the previous year and the 4506-T is for the previous two years. In the past, these forms were used after a loan closed and only for a fraction of the transactions. Today we order them on every loan and the transcript must be received prior to closing! This is a really big change and it is expensive. Each transcript cost $50 and thankfully can not be passed on to the borrower. It costs us an additional $100 to process every loan even if they do not close.
Wednesday, December 16, 2009
Biweekly Mortgages On The Way Out?
My Calyx application software was updated on Monday and it looks like there were several changes. This morning I received an email regarding the changes in Desktop Underwriter®. The one that caught my eye concerns biweekly mortgages being sold to Fannie Mae. This was announced back in September in FNMA Announcement 09-29:
“Due to a lack of demand and increased operational costs, Fannie Mae is retiring the biweekly payment mortgage product, which requires the borrower to make biweekly payments in accordance with the note. Fannie Mae is also discontinuing the standard first-lien notes and riders that were used in connection with the biweekly payment mortgage.” CLICK HERE to read the entire announcement.
Lenders can still offer the option on portfolio loans, but it sounds like the largest player is out of the game on these.
“Due to a lack of demand and increased operational costs, Fannie Mae is retiring the biweekly payment mortgage product, which requires the borrower to make biweekly payments in accordance with the note. Fannie Mae is also discontinuing the standard first-lien notes and riders that were used in connection with the biweekly payment mortgage.” CLICK HERE to read the entire announcement.
Lenders can still offer the option on portfolio loans, but it sounds like the largest player is out of the game on these.
Thursday, December 3, 2009
Loan Applications Increase
WASHINGTON, D.C. (December 2, 2009) — The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending November 27, 2009, which was a shortened week due to the Thanksgiving holiday. The Market Composite Index, a measure of mortgage loan application volume, increased 2.1 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 29.3 percent compared with the previous week. The Refinance Index increased 1.7 percent from the previous week and the seasonally adjusted Purchase Index increased 4.1 percent from one week earlier. These results include an adjustment to account for the Thanksgiving holiday. The unadjusted Purchase Index decreased 30.4 percent compared with the previous week and was 34.9 percent lower than the same week one year ago.
The four week moving average for the seasonally adjusted Market Index is up 0.2 percent. The four week moving average is down 2.0 percent for the seasonally adjusted Purchase Index, while this average is up 1.5 percent for the Refinance Index.
The refinance share of mortgage activity increased to 72.1 percent of total applications from 71.7 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 4.8 percent from 5.3 percent of total applications from the previous week.
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.79 percent from 4.82 percent, with points decreasing to 1.00 from 1.19 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This is the lowest 30-year fixed-rate observed in the survey since the week ending May 15, 2009.
Whew, my rates just beat the average! To see my posted rates or apply online for financing Click Here
The four week moving average for the seasonally adjusted Market Index is up 0.2 percent. The four week moving average is down 2.0 percent for the seasonally adjusted Purchase Index, while this average is up 1.5 percent for the Refinance Index.
The refinance share of mortgage activity increased to 72.1 percent of total applications from 71.7 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 4.8 percent from 5.3 percent of total applications from the previous week.
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.79 percent from 4.82 percent, with points decreasing to 1.00 from 1.19 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This is the lowest 30-year fixed-rate observed in the survey since the week ending May 15, 2009.
Whew, my rates just beat the average! To see my posted rates or apply online for financing Click Here
Wednesday, December 2, 2009
Looking Back at Local Stats
The volume of real estate sold as reported by the Greater Louisville Board of Realtors over the last four years is very interesting. Comparing year-to-date dollar volume on sales reported until 11/30 of each year says a lot. The first thing I noticed is the total volume for the period was highest in 2006. Then the number decreases slightly in 2007, only a 1% decrease.
The following year, 2008, the figures dropped a whopping 23.5% compared to the same period in 2007!!! I personally felt the difference. This year versus last year is off almost exactly 6% which isn’t anything to celebrate but at least it isn’t double digit.
We compiled the report gathering monthly sales figures for the first 11 months of each year and looking at the spreadsheet it is clear that this year the direction changed in July. Prior to that the last positive month was August 2007 – two years of straight decline!
There is nothing scientific about my method and of course there are many other factors that could be considered such as a percentage of listing verses properties sold, average sale price, median sale price, etc. Or you can do what I did and look at simple monthly totals of sales figures. Last month the number was a whopping 45% increase over November 2008 and this October was 30% above last. Well now, it appears the first time homebuyer tax credit dumped about $82,000,000 (or $122M adding the average monthly loss for the rest of the year) extra into our local economy in October and November this year. Prior to October we were down $182,000,000 for the year, an average of slightly $20,000,000 per month. The last two months cut the loss almost in half.
Many thanks to Debbie Rood with RE/MAX Properties East for supplying the figures.
The following year, 2008, the figures dropped a whopping 23.5% compared to the same period in 2007!!! I personally felt the difference. This year versus last year is off almost exactly 6% which isn’t anything to celebrate but at least it isn’t double digit.
We compiled the report gathering monthly sales figures for the first 11 months of each year and looking at the spreadsheet it is clear that this year the direction changed in July. Prior to that the last positive month was August 2007 – two years of straight decline!
There is nothing scientific about my method and of course there are many other factors that could be considered such as a percentage of listing verses properties sold, average sale price, median sale price, etc. Or you can do what I did and look at simple monthly totals of sales figures. Last month the number was a whopping 45% increase over November 2008 and this October was 30% above last. Well now, it appears the first time homebuyer tax credit dumped about $82,000,000 (or $122M adding the average monthly loss for the rest of the year) extra into our local economy in October and November this year. Prior to October we were down $182,000,000 for the year, an average of slightly $20,000,000 per month. The last two months cut the loss almost in half.
Many thanks to Debbie Rood with RE/MAX Properties East for supplying the figures.
Monday, November 30, 2009
Time to Refinance ARMS
Thousands of Homeowners in our area still have Adjustable Rate Mortgages. Over the past two years I have often wondered why many people are keeping their ARM instead of refinancing to a fixed rate.
One of the reasons may be because their payments have decreased. There are many indexes but the two most common around here are the CMT and LIBOR. The math can be a little complicated but the historical figures are easy to document. The 1-year CMT index usually has a margin of 2.75 and caps of either 5 or 6 above the start rate. If your start rate was 5% then you are a happy camper because the current index of .37 plus 2.75 equals just a little over 3%. But do not forget, the maximum rate is either 10% or 11% over the life of the loan!!
The one-year CMT index has only been below one percent 11 months out of the past 20 years!!! Another way of saying it, 95.5% of the time over the last 20 years the index has been above 1%.
Just for kicks, I averaged this index for the month of January over the last 20 years and the result is 4.34%. If we add 2.75% (the margin) to that average it is over 7%. The conventional 15 year fixed rate is currently lower than the 4.34% average index (not including the margin) for the previous 20 Januarys.
It is fun riding the rate down on an ARM, but when rates rise, so does the index and that makes it hard to switch to a fixed rate. If you have an ARM and plan on keeping your home more than another five years, there is a very high probability it will cost an arm and a leg if you do not switch now while rates are low.
One of the reasons may be because their payments have decreased. There are many indexes but the two most common around here are the CMT and LIBOR. The math can be a little complicated but the historical figures are easy to document. The 1-year CMT index usually has a margin of 2.75 and caps of either 5 or 6 above the start rate. If your start rate was 5% then you are a happy camper because the current index of .37 plus 2.75 equals just a little over 3%. But do not forget, the maximum rate is either 10% or 11% over the life of the loan!!
The one-year CMT index has only been below one percent 11 months out of the past 20 years!!! Another way of saying it, 95.5% of the time over the last 20 years the index has been above 1%.
Just for kicks, I averaged this index for the month of January over the last 20 years and the result is 4.34%. If we add 2.75% (the margin) to that average it is over 7%. The conventional 15 year fixed rate is currently lower than the 4.34% average index (not including the margin) for the previous 20 Januarys.
It is fun riding the rate down on an ARM, but when rates rise, so does the index and that makes it hard to switch to a fixed rate. If you have an ARM and plan on keeping your home more than another five years, there is a very high probability it will cost an arm and a leg if you do not switch now while rates are low.
Wednesday, November 25, 2009
Changes on FHA Streamline Refinance Transactions
There are significant changes taking place with all FHA Streamline refinance transactions. The new guideline will read, "At the time of loan application, the borrower must have made at least 6 payments on the FHA-insured mortgage being refinanced and 12 months seasoning in the subject property." This is a very minor change from the previous guideline.
HUD Mortgagee Letter 2009-48 modifies FHA’s requirements for second appraisals (as described in Mortgagee Letter 2008-09), eliminating the need for a second appraisal on high balance loans in declining markets. This policy is extended to cash-out refinances that exceed $417,000 and is secured by a property located in a declining market. This change is effective immediately and actually favors the homeowner.
FHA will retain the second appraisal policy described in Mortgagee letter 2006-14, Property Flipping Prohibition Amendment. This policy requires a second appraisal when a property is resold between 91 and 180 days following acquisition by the seller, if the resale price is 100 percent (or more) higher than the price paid by the seller when the property was acquired. CLC must obtain a second appraisal from another appraiser and the cost of the second appraisal may not be charged to the homebuyer.
For example, if a property is resold for $80,000 within six months of the seller’s acquisition of that property for $40,000, the mortgage lender must obtain a second independent appraisal supporting the $80,000 sales price. The mortgage lender may also provide documentation showing the costs and extent of rehabilitation that went into the property as support for the increased value but must still obtain the second appraisal.
HUD Mortgagee Letter 2009-48 modifies FHA’s requirements for second appraisals (as described in Mortgagee Letter 2008-09), eliminating the need for a second appraisal on high balance loans in declining markets. This policy is extended to cash-out refinances that exceed $417,000 and is secured by a property located in a declining market. This change is effective immediately and actually favors the homeowner.
FHA will retain the second appraisal policy described in Mortgagee letter 2006-14, Property Flipping Prohibition Amendment. This policy requires a second appraisal when a property is resold between 91 and 180 days following acquisition by the seller, if the resale price is 100 percent (or more) higher than the price paid by the seller when the property was acquired. CLC must obtain a second appraisal from another appraiser and the cost of the second appraisal may not be charged to the homebuyer.
For example, if a property is resold for $80,000 within six months of the seller’s acquisition of that property for $40,000, the mortgage lender must obtain a second independent appraisal supporting the $80,000 sales price. The mortgage lender may also provide documentation showing the costs and extent of rehabilitation that went into the property as support for the increased value but must still obtain the second appraisal.
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