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.

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]

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.

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.

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

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.

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.

FHA Financing For Condos

The recent Mortgagee Letter from HUD is going to impact the availability of purchase money for condos. In theory the new guidelines are supposed to make the process easier. At first glance I thought it would be (see post July 30), until I read the entire publication.

The item that alarmed me the most is the Recertification Process. All of the condos on the existing approved list will be moved a new list that requires recertification every two years. This is a big change.

Consider the unlucky buyer that purchases a condo under this system and finances it using an FHA loan. Three years later they try to sell it and the project is no longer approved unless someone has recertified the entire project. This could have a huge impact on values. It is possible a homebuyer could close on a loan today and the same loan would not be available for a new buyer tomorrow. A loan on the exact same condo may require only 3.5% down payment one day and then require 10% down the next. That difference would eliminate many buyers and that impacts value.

Here is something to consider, there are 322 projects in Kentucky on the existing approved list. This means someone will need to recertify 13+ projects per month, or roughly 3 per week - and do it for FREE??? Good luck with that.