MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

I recently came across an interesting chart I thought I'd share, that shows mortgage rates often trend lower at the end of the year.

The data above was culled from FHLMC's data that is published weekly.  Please note, that this data also tracks the average points charged (0.7 points in the graph). 

I've had many calls from rate shoppers so intent on finding the lowest rate, that they foolishly don't take the time to understand the whole picture, nor listen to an expert (myself) trying to explain it.  You can cure ignorance, but not stupidity.

Now, before you go planning on waiting to refinance until December 31st to get the lowest possible rate, remember that the past is not a reliable predictor of the future.  Just look at our recent economic mess for proof of that - so called Wall Street experts based a lot of their actions on past market movements and look how that worked out.

Here's a chart of Mortgage Backed Securities over the last 6 months:

In this graph, green is good and since this chart tracks PRICES, not rates, higher means lower rates.

As you can see, rates have been heading in a favorable direction since mid-October.  They did though, have a slide at the end of September and were flat at the beginning of October.

The more technical of you will notice that prices have moved above their 25, 50, 100 & 200 day moving averages - typically a sign of a strong rally.

How long will rates stay low?  Not much longer.  The Federal Reserve is artificially holding rates low by buying Treasuries and Mortgage Backed Securities.  They've announced their intentions to end these purchases by the end of March.

Look at the chart above.  Rates started their dramatic improvement last fall when the Fed started their buying binge.  Mortgage rates have improved by over 1% since then. 

It's not a stretch to anticipate they will increase by 1% when the Fed stops buying.

So, if you or anyone you know has a rate above 5.5%, give strong consideration to looking into refinancing now. 

Just don't make the mistake of waiting for the market to get where you want it and THEN applying for a mortgage.  Chances are, it'll take a day or two to get all the paperwork sorted so you can lock an interest in - and by then the rate could be gone.

# # #

In addition to real estate lending, consulting and investing, Drew Sygit writes & speaks about the mortgage & real estate industries.  He holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor.  He's presented, spoken and/or written for HUD, Financial Planning Association, Financial Planners Association of Michigan, Michigan Association of CPA's, Institute of Continuing Legal Education, Oakland Real Estate Investors Association, North Oakland County Board of Realtors and numerous industry publications.  For speaking engagements and questions he can be reached at dsygit@TheLendingEdge.com.

The extension of the tax credit gives buyers, sellers and industry professionals a bit more time to stabilze the housing market.

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

The First Time Home Buyer (FTHB) Tax Credit has been extended with new provisions for those that already own a home. So, I guess we need to start calling it the Home Buyer Tax Credit (HBTC).  If you have any questions on qualifying for the tax credit, be sure to read one of my earlier posts.

Combined with bargain basement house prices, this could be the best opportunity to buy a home in many of our lifetimes.

The challenge is, there are many that would like to buy a home, but don't have a down payment to do so. 

I still get calls from prospects that want to know how to use the Home Buyer Tax Credit for the down payment on the purchase of a home.  In Michigan, there's no way to get the credit at the closing table to use for the down payment.  So, buyers have to get the down payment in other ways and then AFTER closing, file for the tax credit with the IRS.

Now, let's look at some ideas to get around the issue of the down payment so a greater number of people can take advantage of the tax credit for buying a home.  By the way, I'm going to make you wait until the end of this post to go over a very CREATIVE (but 100% legal) way to buy a home using the HBTC.

First off, let's dispel some rumors & myths about zero-down programs.  There are really only two mortgage programs left that require no down payment:

• VA Guaranteed Loans - these are from the Veteran's Administration and you must have served in one of the nation's branches of the military to be eligible.  The VA mortgage program is a great way to finance a home if you're a veteran.
• Rural Housing Development Authority Loans (RDA) - these loans are for properties in rural areas only, but are another great way to finance a home.

 The lowest down payment available to most home buyers is the department of Housing Urban Development's FHA program.  FHA requires only a 3.5% down payment, so we're going to focus on meeting that requirement to buy a home. 

Where can a potential home buyer find the down payment funds for an FHA mortgage?

• GIFT - FHA allows the down payment, and all funds to buy a home, to be from any blood relative or someone that has a vested interest in the buyer's well-being.  "Vested interest" is a pretty vague statement, so check with a lender to confirm someone you may have in mind that's not a blood relative.  What's interesting about gift funds is that there's really nothing to stop a relative from borrowing the gift funds from a credit card or getting a loan.  Again, check with a mortgage expert before acting on this, because lenders can have different interpretations of this.
• BONUS - An employer can choose to give a valued employee a bonus and that bonus can then be used for the down payment.  A bonus can also be given sooner than normal so that a buyer can purchase a home.
• RETIREMENT PLAN LOAN - most 401(k), 403(b), IRA, etc retirement programs, allow a loan to be taken out for the purpose of buying a home.  A loan is often a better way to go then taking a hardship withdraw that incurs a tax penalty.
• GRANT - there are many organizations that will give a home buyer a grant to buy a home.  Check with friends & family for the availability of these programs.
• LOAN AGAINST AN ASSET - just as one can use a loan from a retirement asset for a down payment, so can you also use the proceeds from a loan against any asset you own.  Just make sure the asset's ownership & value is documented and that you don't get the loan from a relative or interested party.
• - SALE OF ASSET - you can sell a motorcycle, boat, car or just about anything and use the funds for a down payment.  Just make sure the asset's ownership & value is documented, you'll also need a bill of sale and a copy of the check from the buyer of the asset.
• LIFE INSURANCE POLICY - many life insurance policies allow for borrowing against their built up cash value and these funds can be used for a down payment.  There are also organizations out there that will buy your policy off you, but you'll want to check with an attorney or financial planner before any such sale.
• HOME EQUITY LINES OF CREDIT - if you currently own a home and are looking to buy your next one, you can tap into the equity in your current home for the down payment on the next one.  Just be sure to check with a mortgage expert before acting on this to be sure you meet all qualification requirements for the new mortgage.

Ok, so that's the traditional sources to come up with a down payment for a home purchase, using FHA financing.  Just be sure the seller has owned the property for a minimum of 90 days, as this is an FHA requirement with zero flexibility.

Now let's discuss a very creative way to use the Home Buyer Tax Credit to buy a home. 

Ever heard of a land contract?  It's a contract between a buyer and a seller to buy the seller's property - basically, the seller acts as their own bank and more or less gives the buyer a loan.

Well guess what, land contracts qualify for the HBTC!  That allows for a very interesting way to buy a home with little money out of pocket.  An example will be worth a thousand words:

• Seller has a house that they're having a hard time selling as they can't compete with foreclosure sale prices.  So, the seller offers up land contract terms to potential buyers.
• An interested buyer makes a land contract offer on the property. 
• After agreeing on a price, interest rate & monthly payment, the seller takes whatever down payment the buyer has (could be very small), has the buyer pre-approved by a trusted mortgage expert (very important) and executes the land contract transaction. 
• A clause in the land contract gives the buyer only 90 days to come up with an additional $8,000 deposit.  This money will come from the Home Buyer Tax Credit.  If the buyer files for it right away, that's all the time it should take to receive it. 
• Once the Home Buyer Tax Credit monies are received by the seller, the buyer can then apply for a mortgage to pay off the land contract.
• With FHA financing, the seller can even give a credit for up to 6% of the sales price towards the buyer's closing costs, prepaids & escrows.
• Buyer effectively can purchase the property with almost zero out of pocket!

Was that idea worth waiting until the end of this post to read?  Maybe. 

There'll be a lot of people and industry professionals that will write this land contract concept off as too tough to deal with.  Well, we're in a tough market and the more ideas the better. 

Is this a perfect solution?  No, but show me a better one.  Some of the issues with this land contract concept:

• The buyer doesn't get the tax credit because of an outstanding tax lien.
•  The buyer gets the tax credit, but doesn't deliver it to the seller.
• The only interested buyer could have credit issues.
• The seller has a mortgage on their property with a Due-on-Sale clause.
• The seller could be upside down in their home and need a short sale.
• The seller could stop making their mortgage payments and let the property go to foreclosure, leaving the buyer in the lurch.

I have solutions for all the above issues.  Anyone interested though, will have to contact me to discuss.

There are issues that no one has any control over:

• Buyer could lose their job after land contract closing and not be able to qualify for the mortgage.
• Lender won't approve the short sale needed to make the deal work.
• Property values continue to drop and property won't appraise for needed amount.
• The world ends on 12-21-2012.

No real estate transaction is a sure thing anymore.  We all just do the best we can. 

# # #

In addition to real estate lending, consulting and investing, Drew Sygit writes & speaks about the mortgage & real estate industries.  He holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor.  He's presented, spoken and/or written for HUD, Financial Planning Association, Financial Planners Association of Michigan, Michigan Association of CPA's, Institute of Continuing Legal Education, Oakland Real Estate Investors Association, North Oakland County Board of Realtors and numerous industry publications.  For speaking engagements and questions he can be reached at dsygit@TheLendingEdge.com.  He also publishes his own blog:  http://drewsmortgagenews.blogspot.com.

In July the federal government pressured banks to modify 500,000 mortgages by November 1st.  Bank of America is lying to do its part.

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

Take a close look at the document image below:

This is a copy of an actual letter sent to one of my clients who requested a loan modification. 

Note that in several places it alludes to the fact that this IS NOT an approval for a loan modification.  In fact it says, "If for some reason you are not eligible for the Home Affordable Modification Program once you've started the trial period, we will contact you and review other options."

How many tens of thousands of struggling homeowners got letters like this and now think their home is safe from foreclosure? 

My client did - until I pointed out the above sentence. 

I've run their numbers and I know they qualify for a loan modification.  With BOA's track record of incompetency though, I'm very worried they won't really be approved. 

So, I've recommended they send everything that BOA asks for via certified mail or Fed-Ex and keep copies of all cancelled checks to BOA.  It won't guarantee they'll be approved for a loan modification or that their home will be protected, but it may help them in a lawsuit against BOA if they get screwed.

I find the wording in the letter, "review other options" particularly frustrating.  Why?  Because it's more deception.  There are only two other options - short sale (where BOA has a terrible record) or foreclosure. 

BOA is giving homeowners nothing but false hope with this letter.

I'm sure they're including all the loans they've sent these letters out to in the loan modification numbers they're reporting to the federal government. 

I expect to hear from the "Great Obama" any moment now about how his program has saved so many homes from foreclosure.  Just don't look behind the curtain or you'll catch him hiding all these letters.

By the way, BOA (and all the major banks) keep crying that despite their best efforts, they can't keep up with the flood of loan modification requests. 

Bull-puckey.

Here's a quote from BOA's third quarter report (click the hyperlink to read it yourself):

• Bank of America funded $95.7 billion in first mortgages, helping nearly 450,000 people either purchase a home or refinance their existing mortgage. This funding included $23.3 billion in mortgages made to 154,000 low- and moderate-income borrowers. Approximately 39 percent of first mortgages were for purchases.

• To help homeowners avoid foreclosure, Bank of America has provided rate relief or agreed to modifications with approximately 215,000 customers during the first nine months of 2009. In addition, approximately 98,000 Bank of America customers are already in a trial period modification under the government's Making Home Affordable program at September 30.

See any contradictions here?

How could they have the staff to "help" nearly 450,000 people purchase or refinance in the third quarter, but only modify 215,000 loans in 9 months? 

Let's see, that works out to 150,000 new loans per month, but only 27,777 loan mods per month.

BTW - anyone pointing to that 98,000 number already in a trial mod as good news, better reread this post from the top as well as realize that the number only represents 11% of BOA customers eligible for a loan mod. 

Let's remove another excuse banks use. 

They like to claim they're ramping up staff as quickly as they can, but still can't keep up with the flood of loan mod requests. 

Hmmm.  The process of evaluating a loan mod request isn't that much different than evaluating a request for a purchase or refinance mortgage.  You gather the same documents, run the same calculations and it's either a yes or no.  Loan mods are actually a lot easier to evaluate as credit is not a factor.

Need more staff?  Over one million people have been laid off from the mortgage industry.  What's more, they all know the business so they'd need very little training.

Can't afford to hire them?  Baloney.  The federal government is paying $1,000/year per loan mod for up to 3 years - a total of $3,000. 

The bottom line is the same senior banking executives that made the bad decisions that got our country into this housing crisis, have decided that they don't want to do loan mods.  They'd rather pursue foreclosures and use TARP bailout funds to cover any losses. 

Where is the heart, courage & intelligence of the "Great Obama" on this matter?

Contrary to what many have reported, it's not a done deal yet.

MORTGAGE EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

The most talked about real estate news of the past week seemed to be all about the First Time Homebuyer Tax Credit getting extended.

I've had numerous people contact me asking for the details and have had to tell all of them that nothing has passed yet. 

Given the confusion and misinformation I thought I'd give an actual update on where the extension is.

The big news is that an unofficial voice vote passed the Senate last week, and Senate Majority Leader Harry Reid announced that he's planning an official November 2nd vote on the extension in the Senate.  Discussions with his counterparts in the House lead him to believe that the House will also pass the bill in the coming week.

This could put the bill on President Obama's desk by the end of the week.

What could go wrong?  Well, the vote was held up last week by demands for votes on several other amendments, one calling for an end to the Treasury's TARP program by year end.  An extension of unemployment benefits is also rumored to be causing issues.  Popular bills like this one often have other amendments added to them that might not pass otherwise, so a lot of compromising goes on.

Some New Wrinkles

In its current form, the bill would extend the tax credit to the end of April 2010.  There are several proposed differences from the current tax credit:

• To qualify, a sales contract would have to be signed by April 30th and the transaction closed by June 30.
• Income limits would be increased from $75k for single people & $150k for couples, to $125k and $225k respectively.
• Buyers who have lived in their current home for the last 5 years would be eligible for up to a $6500 tax credit (or 10% of the purchase price).
• The maximum allowed home purchase price would be capped at $800,000.
• Military personnel, deployed overseas for a minimum of 90 days in 2008 or 2009, would have until April 30, 2011 to claim the tax credit.
• To combat fraud, a HUD-1 Settlement Statement will have to be attached to the tax return to secure the credit.

Stabilizing the Housing Market

The Homebuyers Tax Credit is probably the best program passed by the government since the financial meltdown started.  Other  measures to stabilize the economy are increasingly under fire for racking up trillions in tax payer debt, while mostly benefiting the elite on Wall Street.

More than 1.25 million taxpayers have taken advantage of the tax credit to pursue the American dream of home ownership.  This has used up approximately $8.5 billion of the $13.6 billion originally set aside for the program. 

Reports show home sales have increased and inventory is down.  Many buyers are finding it difficult to locate a home, being outbid and outhustled.

Concerns

Even this program has its problems and detractors though.  Recently, the Treasury's Inspector General for Tax Administration, J. Russell George, told Congress that at least 19,000 filing for the credit hadn't bought a house when they filed.  Another 74,000 appear to have owned a home in the last 3 years, making them ineligible for the program.  500 plus filers for the tax credit are under 18 years old! 

The IRS is pursuing criminal cases against at least a 100 offenders and is reportedly trying to audit every return where the credit is claimed this year.  They'll also be auditing themselves as Mr. George is also on record stating that they are investigating at least 53 cases of IRS employees filing illegal or inappropriate claims for the tax credit.

Many detractors are claiming that the tax credit is subsidizing housing values and just pulling forward sales that would have happened anyways. 

One potential problem that the media hasn't focused on yet, is that the tax credit may be encouraging banks to sit on foreclosed homes.  Many real estate experts have pointed out that the number of foreclosures has been outpacing the number of units entering the market for some time now.  Instead of putting these homes on the market to be sold, banks could be sitting on them to drive down inventory and push up prices - using bailout funds to support this endeavor.  Not a lot that can be done at the "street level" about this, but surely something for our representatives to look into

Don't Procrastinate

Hopefully, the extension of the tax credit won't turn more buyers into procrastinators who wait until the last minute to buy.  Buyers should keep in mind that finding a home isn't like shopping for Christmas items or even a car - where their are multiple copies of the desired item.

Homes are much more unique, rarely are even two homes remotely alike.  Start your search now, as it could take awhile to find what you want.  When you do find it, jump on it or someone else usually will.

# # #

 In addition to real estate lending, consulting and investing, Drew Sygit writes & speaks about the mortgage & real estate industries.  He holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor.  He's presented, spoken and/or written for HUD, Financial Planning Association, Financial Planners Association of Michigan, Michigan Association of CPA's, Institute of Continuing Legal Education, Oakland Real Estate Investors Association, North Oakland County Board of Realtors and numerous industry publications.  For speaking engagements and questions he can be reached at dsygit@TheLendingEdge.com.  He also publishes his own blog:  http://drewsmortgagenews.blogspot.com. 

Too big to fail banks have it all - bailout funds, loss coverage, huge bonuses, no accountability, etc.  No wonder they have no compassion for struggling homeowners!

MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN

Despite all the political rah, rah and posturing, banks seem to be running the government these days - and we're letting them.

Before we get into all that though, I was flattered to be invited to lunch with Senator John Pappageorge (R-MI) on Monday in Troy.  He's concerned about issues in the housing & mortgage markets (who isn't), but his frankness about his ignorance on the topics was a pleasant surprise.  No political B.S., just a man admitting he can't know everything.  We discussed several challenges facing homeowners, he asked some great questions and took notes, and I ended up with an "assignment" to write some briefs for him to possibly present to a joint committee in January.

Annual Checkups

On Thursday I had my annual physical.  My doctor and CPA I  seem to see only once a year and so far, that's a good thing!  While my doctor was putting me through his procedures, I asked him and his nurse when they'd last had an annual mortgage checkup.  I could tell they were both uncomfortable with the subject, even though I was the one half-naked.  The question is, why were they uncomfortable? 

Our patterns of expectations can be pretty silly and sometimes outright illogical.  We are told and so have come to accept, that we should see doctors, dentists, CPA's, financial planners, estate planners, and more on a regular basis.  We're also supposed to have our cars, home heating & cooling systems and numerous other things inspected regularly.

These are all intrusive, take up time and aren't a lot of fun, but we do them anyways because we understand the danger of ignoring them .  So why do people avoid annual mortgage checkups and look for the nearest exit when I bring them up?

When's the last time YOU had a mortgage checkup?  Contact me if you'd like to know more.

Big Banks, Big Trouble

After numerous banks failed during the Great Depression, the government stepped up its regulation of banks and banned banks from getting involved in insurance and risky ventures.

Ever since that time, banks have lobbied to dissolve those rules, all in the pursuit of greater profits.  Slowly, over time, bank lobbyists convinced (bribed) politicians and government officials to relax these rules and allow banks greater freedom. 

Looking over the wreckage of our economy, how do you think that worked out for taxpayers and homeowners?

 There's an old story told of how to cook a frog in a pot of boiling water.  If you toss a frog into boiling water, it'll just jump out to save itself.  But, if you put the frog in the water and then bring it to boil, the frog will react too late to the rising water temperature - the heat sapping its strength so it can't hop out.

That's what the system of collusion between the banking industry and the government has done to the American taxpayer on a consistent basis.

If a politician had told you before you voted for them that they would be part of approving the biggest federal bailout of all time AND allow bank executives to pay themselves bonuses with that bailout money - would you have voted for them?

The government knows exactly how to play you though.  It starts with campaign promises you want to hear, but they never seem to deliver on.  It continues once you've put them in office with posturing and propaganda all designed to placate and appease you.  But what really gets done, what do they really follow through on?

What's a politician's number one concern?  How about a government official?  If you think it's protecting the American people or doing what's right for our country, then you haven't watched the selfishness on most reality TV programs.  The majority of politicians and government officials are concerned with one thing and only one thing - keeping their jobs. 

By the way, these just aren't any jobs and it's rarely about the money.  It's more about the perks and power.  Back in the early 1990's, GM, Ford & Chrysler all cracked down on vendors and suppliers taking their employees out to lunch, dinner and events.  Why?  Because the employees were making too many decisions based on what was in the employee's best interest (through perks) and not in their employer's best interests.

Now think about Washington D.C., the center of the nation that happens to be the world power.  The free lunches, dinners, sporting events and more, pale in comparison to the intoxication of being at the "center of the world".  For some I'm sure it's more addictive than crack cocaine - and most of us have seen the extremes of what a crack addict will do for their next high.  Why do you think so many politicians are against term limits?

It takes money to stay in Washington D.C. or power.  If you're a politician you need money to win your next election.  If you're a government official, you need power over the politicians that appoint you or can force you to resign.

Big banks supply both.  Wall Street firms too.  I'm really not too  sure of the differences anymore between banks, insurance companies, investment companies, hedge funds and the lot.  They've successfully managed to be allowed to effectively blur the lines.

Call up a big bank today and ask what they offer.  You can open accounts for checking, saving, money markets, mutual funds, etc.  Want to invest in stocks?  We'll have that department call you.  The same goes for insurance, annuities, estate & financial planning, commercial loans, credit cards and even risky investing in derivatives and such.  One stop shopping!

Jack of all trades, master of none.  Bank executives thought they had all the angles covered - but they were juggling so many balls and stuffing their pockets with so many bonuses, that they got blindsided by an economic meltdown.  How are you entitled to a bonus when you didn't see that coming?

Think about all this at election time.  Nothing's going to change if YOU don't take the time to vote and make your vote count.  Incumbents should be held accountable for this mess. 

Vote with your wallet also.  What bank do you keep your money at?

The Week Ahead

The Halloween parties already started this weekend.  My wife  Rose and I may be going to one tonight at the Oakland County Boat Club on Sylvan Lake, Michigan's oldest boat club.  She's not feeling well as I write this, but I hope she can rally so we can go.

Tuesday is the monthly meeting of the Birmingham-Bloomfield Public Policy committee.  Wednesday I head down to Detroit for a planning meeting for the Mariner's Inn annual River Rhythm event on November 6th at the Roostertail.  They're still looking for silent auction donations and tickets are still available.  Click here for more info.

Friday night I'll be in Detroit again for Angel's Night with Motor City Blight Busters.  With 65,000 expected volunteers patrolling across the city, it's one of the safest nights in any city anywhere.  A far cry from the 1980's when the rest of the country tuned into Detroit to see how much of it was burning on Devil's Night.  John George deserves so much credit for making this happen, but they're struggling financially due to all the cutbacks in corporate and government donations.  You can help  out by making a donation here.

Both organizations are also in desperate need of volunteers to help with marketing.  Contact me if you're interested.

On Saturday morning I'll be in Troy for the "Michigan Money Summit" at the MSU Education Center.  It's open to the public, so maybe I'll see you there.

Make everyday count and remember to refer me to family & friends looking to refinance or buy a home.

Mortgage programs that make a lot of sense are rendered basically useless by unpublished and unofficial modifications.

MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN

A quick update on my recent "Spank Your Bank" post, which has been one of my most commented posts ever.  In no way did I mean to imply that the average worker at large banks should be held accountable for the cowardly/greedy actions of those in top management. 

Also, most smaller regional and community banks weren't meant to be implied targets.  They are actually alternatives to the "too big to fail" elitist banks.

Nonprofits in Dire Need of Help

Before I get into the post I wanted to introduce my audience to two wonderful Detroit based nonprofits that could use your help.  Before you go hiding your wallet, Mariners Inn and Blight Busters are not asking for money (although they could always use more).  They're both looking for donations of supplies and volunteers.

Mariners Inn is looking for auction items for its 21st annual River Rhythm fundraising event at the Roostertail on November 6.

Blight Busters needs office equipment and supplies.  They could also use volunteers to help redesign their website and build a social media presence.

Check them out, they're both struggling to do great things in Detroit in the face of reduced government and corporate funding.

Of Politicians and Programs

By now, thousands of homeowners should be benefiting from refinances that allow them to lower their payments.  Lower payments mean fewer foreclosures, which supposedly is the goal of the Obama administration and many state governments.

This is one of the reasons that FNMA/FHLMC now offers programs that allow a homeowner to refinance even if they owe more than their home is worth.

FNMA/FHLMC already holds the mortgage and the corresponding inherent risk of any default by the homeowner, so why not lower that risk by allowing the homeowner to refinance to a lower payment?  Makes too much sense not to do!

HUD's allowed that option on FHA loans for over 20 years with its Streamline Refinance program that didn't require an appraisal or proof of income.

All that's changing now.

HUD recently announced changes to its Streamline Refinance program effective November 18th, that will require homeowners to pay their closing costs or get an appraisal.  Also, a lender must certify employment and income, which means lenders will verify it.

FNMA/FHLMC's first upside down refinance program worked pretty well.  It allowed a homeowner to refinance up to 105% of their property's value with only a slight bump in the going interest rate.

They later rolled out a program allowing refinances on homes up to 125% upside down.  This program has a dismal track record though, as FNMA/FHLMC requires such a high risk premium (higher interest rate) that for most homeowners, the program doesn't make sense. 

So, we've got potentially great programs that President Obama and many politicians point to as evidence they're doing all the can to help struggling homeowners, when in reality the programs are set up for failure behind the scenes. 

I doubt anyone on Obama's team has ever taken the time to do the math and analyze how these programs  work.  If they did, they'd quickly see how useless they were.

The most glaring example of this undercover manipulation of the lending system is FHA and credit scores.  Search all you want at HUD.gov, you won't find anything in writing about the requirements of credit scores to be eligible for an FHA mortgage.

As I write this post though, most lenders now require a minimum credit score of 620 to qualify for an FHA mortgage.  Several have recently bumped that requirement up to 640.

What gives?

HUD is passing on it's dirty work to lenders to avoid political backlash that's what.  If HUD came out and publicly stated they were now requiring minimum credit scores, the political response would cost several HUD officials their jobs.  But, these same officials are also being grilled by politicians and Wall Street about HUD's increasing mortgage delinquencies.  Fear is growing that the FHA program may need a federal bailout.  That won't sit well with anyone, but leaves HUD officials between a rock and a hard place.  The only way to slow delinquencies and avert a bailout of the program is to do less riskier lending - but, that's unpopular too. 

Politicians want votes, they don't want to understand problems like this and have to make a decision that could hurt their career.

So, politicians are indirectly forcing HUD officials into a solution that "unofficially" puts pressure on lenders for doing loans with credit scores under 620. 

Since there's no official announcement, no one has to take the blame for an unpopular course of action.  No one's held accountable either. 

Avoiding accountability seems to be a popular survival strategy these days.  Unfortunately, it just leads to mediocrity or worse.

My Week Ahead

Tomorrow, barring a last minute cancellation, I'm supposed to have lunch with Senator John Pappageorge to discuss the housing crisis in Michigan and my thoughts on possible solutions.  I was quite surprised when his office called me about this.

Tuesday I'll be having lunch with Jeff Ivory, a financial planner who's made several recent appearances on CNBC's Squawk Box.  Later I'm also getting together with a Leon Labrecque, a CPA and planner.

Thursday I hope to pop into LBN's Fall Mixer and then head over to the Troy Chamber of Commerce's Golden Anniversary event.

Friday morning I hope to attend Gerry Weinberg's President's Club.

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In addition to real estate lending, consulting and investing, Drew Sygit writes & speaks about the mortgage & real estate industries.  He holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor.  He's presented, spoken and/or written for HUD, Financial Planning Association, Financial Planners Association of Michigan, Michigan Association of CPA's, Institute of Continuing Legal Education, Oakland Real Estate Investors Association, North Oakland County Board of Realtors and numerous industry publications.  For speaking engagements and questions he can be reached at dsygit@TheLendingEdge.com.  He also publishes his own blog:  http://drewsmortgagenews.blogspot.com. 

Banks bailed out of bankruptcy by the federal government, refuse to help out homeowners - so why do homeowners keep their accounts at these same banks?

EXPERT, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY, MICHIGAN

A recent federal report card through September on the results of the Making Home Affordable Program, shows real dismal progress.

Despite 85% of eligible 60-day plus delinquent mortgages being covered by the 63 servicers pledged to participate in the federal government's loan modification program, only 16% of eligible homeowners have been offered help.

Now that is an improvement over July's 9% and August's 12% numbers, but at this rate it'll be almost another year before banks are helping half of the eligible homeowners. Most will be foreclosed on by that time.

What's really interesting is comparing how much banks received in federal TARP bailout funds and how they're "rewarding" the taxpayers that fronted the funds with loan modifications.

Bank of America is thumbing its nose at taxpayers the worst with a low 11% rate of assistance - all the more troubling as it's the nation's largest bank and still hasn't paid back its borrowed TARP funds yet.

The numbers above have greatly improved since July, but notice they only cover mortgages that are behind by 60 days or more?

Obama's wonderful promise to homeowners was that you DIDN'T have to be behind on your mortgage to qualify for a loan modification! I'm sure the numbers would look a lot worse if mortgages behind 30 days were added to the figures, much worse if every homeowner with a mortgage payments more than 31% of their gross income was added to the stats.  By the way, that 31% number is what's supposed to qualify a homeowner for Obama's Making Home Affordable program.

Now here's the big question - know anyone with a mortgage at one of the above firms who's trying to get a loan modification?

If you do, ask that person how it's going. Chances are they'll tell you horror stories about paperwork getting lost multiple times, phone calls unanswered, conflicting advice and more.

Do you think these banks really care about homeowners - that also happen to be taxpayers?

As evidenced by their terrible track record with loan modifications, some banks don't care one bit. We're all less than pawns as far as their concerned.

Now ask yourself, where do you have your checking and savings accounts?

Why are you giving your business to these banks that show so little concern for Americans needing a break, when we the taxpayers gave them a break with our bailout tax dollars? Where's the trickle down fairness? The, "do unto others as you'd have them do unto you?"

If the banks wanted to play hardball with homeowners and tell them, "too bad about your financial difficulties, we're foreclosing anyways", then they shouldn't have come begging for our tax dollars as TARP funds. We should have shown them as much mercy as they're showing homeowners. We should have let tese banks fail.  What goes around comes around guys!

Unfortunately, it's too late for that as they got their bailout funds, paid themselves bonuses for the mess they created and laughed all the way to their own bank accounts. We were suckers.

We can still get back at these banks though.

This is the official start of the "Spank the Banks" campaign.

The only way we "itty-bitty" taxpayers can show these banks that they need to treat homeowners with more respect, is to take our business away from them. Spank your bank!

I'm amazed when I find out that a homeowner trying to get a loan modification still has their accounts at the bank giving them the run around! Can you say "glutton for punishment"?  These homeowners should Spank their Bank!

How about showing some support for family & friends? If someone you care about is getting jerked around by their lender, spank that bank by making sure you close any accounts you have there.

Now, who wants to start making, "Spank the Banks" t-shirts and bumper stickers? 

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In addition to real estate lending, consulting and investing, Drew Sygit writes & speaks about the mortgage & real estate industries. He holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor. He's presented, spoken and/or written for HUD, Financial Planning Association, Financial Planners Association of Michigan, Michigan Association of CPA's, Institute of Continuing Legal Education, Oakland Real Estate Investors Association, North Oakland County Board of Realtors and numerous industry publications. For speaking engagements and questions he can be reached at dsygit@TheLendingEdge.com. He also publishes his own blog: http://drewsmortgagenews.blogspot.com.

Those great looking foreclosure deals on condos may turn out to be a trap for unsuspecting homebuyers.

- MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN

There are a lot of apparently great foreclosure deals on condominiums on the market right now, but you definitely want to do your homework before buying one.

Attached condos (those sharing at least one wall) in most areas of the country have lost a higher percentage of value than single-family houses. Worse, that trend is expected to continue, probably even get worse.

Why are condos losing value faster than stand-alone homes?

When a condo owner starts getting behind on their mortgage, they usually also stop paying their Home Owner Association (HOA) dues. If enough owners fall behind on their HOA dues, the association has to cut back on their budget, which could affect the upkeep of the common areas. As the problem gets worse, maintenance can be affected and even major projects like roof repair put off. Depending on the association's reserve funds, they may be forced to raise HOA dues for the rest of the condo owners.

All of these issues will push the value of all condos in the complex lower. Who wants to buy a condo in a crappy looking building? How great of a deal is a condo for $50,000 if the association fee is soon doubling from $150 a month to $300?

These problems will only get worse as the associations get further behind on their expenses because of owners not paying their monthly fees. In July a condo association in Florida was forced into bankruptcy due to unpaid HOA dues. Many more associations around the country are expected to soon follow. Bankruptcy won't be an easy solution though, as associations have really no hard assets to sell and no way to go after delinquent HOA dues.

One more issue will have a huge affect on condo values - when more than 15% of owners fall behind on their HOA dues, FNMA, FHLMC & FHA will no longer allow mortgages on the units in the condo complex. When that happens the only way for a condo owner to sell will be to an all cash buyer - driving prices down even further.

If you plan on owning a condo until the market turns around and can afford to absorb higher and higher association fees, then go ahead and buy a condo. Otherwise, I highly recommend doing a lot of due diligence on the condo association's budget and reserves before buying. 

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 In addition to real estate lending, consulting and investing, Drew Sygit writes & speaks about the mortgage & real estate industries.  He holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor.  He's presented, spoken and/or written for HUD, Financial Planning Association, Financial Planners Association of Michigan, Michigan Association of CPA's, Institute of Continuing Legal Education, Oakland Real Estate Investors Association, North Oakland County Board of Realtors and numerous industry publications.  For speaking engagements and questions he can be reached at dsygit@TheLendingEdge.com.  He also publishes his own blog:  http://drewsmortgagenews.blogspot.com.

To keep the program from needing a bailout in the future, HUD is acting quickly to lower the maximum principal limits by 10%.

DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN, MORTGAGE EXPERT

On September 23, 2009, the U.S. Department of Housing and Urban Development posted Mortgagee Letter 09-43, which announced a new set of principal limit factors for the Federal Housing Administration (FHA) Home Equity Conversion Mortgage (HECM) program. The changes will lower the principal limits for the HECM by 10%.

According to the ML, the new principal limit factors must be used for all HECMs where the FHA case number is assigned on or after October 1, 2009.

So, all loans that currently have a case number or where one can be obtained prior to October 1, may be processed as usual. 

What caused this sudden change?

It seems the HECM program, seemingly like everything else in this country, is in danger of needing a bailout in the future. This was brought to the attention of Congress when an estimated subsidy of $798 million appeared in President Obama's fiscal 2010 budget. This was the first time in the history of the program that any subsidy had ever been requested. Both the Senate and the House responded quickly, passing bills requiring HUD to adjust the program to avoid requiring any subsidy from the government. As of yet, the Senate and House have not reached a compromise on the differences in their bills, but HUD's surprise announcement shows they expect it to happen soon.

What caused the subsidy request? Several factors are affecting the stability of the HECM program:


 The continued drop in home prices is§ causing higher losses when HUD takes a property back after the demise of a borrower and has to sell the property to recapture the loan proceeds.

§ Defaults are rising due to unpaid property taxes and home insurance.

§ Record numbers of seniors are flocking to HECM's due to financial distress and lenders ramping up their marketing of the program. Congress suspended the cap on the number of HECM's HUD was authorized to insure back in 2006.

 Fraud§ continues to increase causing higher losses.

Industry experts estimate that if the new loan limit had been applied to current HECM's already in place, nearly 21% of seniors would not have had enough funds to cover their debts - meaning theywouldn't have been gotten their loans.

HUD's also been discussing changes in the HECM program to address the property tax and insurance issue. They may require lenders to document that seniors have the ability to pay these items. If they don't, additional proceeds may be affected to avoid these types of defaults.

So, if you know of anyone thinking of getting a reverse mortgage, tell them to apply ASAP before the new limits kick in.

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In addition to real estate lending, consulting and investing, Drew Sygit writes & speaks about the mortgage & real estate industries.  He holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor.  He's presented, spoken and/or written for HUD, Financial Planning Association, Financial Planners Association of Michigan, Michigan Association of CPA's, Institute of Continuing Legal Education, Oakland Real Estate Investors Association, North Oakland County Board of Realtors and numerous industry publications.  For speaking engagements and questions he can be reached at dsygit@TheLendingEdge.com.  He also publishes his own blog:  http://drewsmortgagenews.blogspot.com. 

Your odds are better at winning in Las Vegas than against the banking industry and the administration they control.

DETROIT, MI - Wouldn't it be fun to kidnap the CEO's of Chase, Bank of America, Citibank and Wells Fargo, hold them somewhere with just the bare living essentials and force them to negotiate loan modifications and short sales with their own customer service departments to earn their freedom?

Imagine their frustration as they have to wait on hold forever, speak with poorly trained, clueless staff who can't find the documents they've faxed or emailed for the umpteenth time and have to keep starting over.

It'd make a great movie!  We could call it, "Groundhog Accountability Day for Bank Executives".

"Sigh".  Unfortunately, that's a fantasy and reality is what we have to deal with.

Why are the big banks so difficult to deal with?  Why don't they seem to understand that they lose more money when they foreclose on properties than when they negotiate a loan modification or short sale?

Perhaps it's we who really don't understand where the money is made.

Do you  really think that banks are able to have 24/7 customer service for credit cards and other loans, but can't seem to come anywhere near that for loan mods & short sales?  Do you really think, given technology that can track a package mailed to Timbuktu online, that faxes and emails really get lost?  How hard is it really to train someone to do a loan modification or short sale?

Consider this - Chase bought WAMU in September of 2008 for all of $1.9 billion dollars.  For that they got a bank with almost $310 billion in assets, $188 billion of it bank deposits.  Now Chase will tell you that the deal wasn't that great as they had to absorb a hemorrhaging mortgage portfolio of $176 billion that they immediately wrote down by $31 billion.  That's true, but hides what really is going on.

If you ignore all the other debt and assets, Chase got $176 billion in home loans for $1.9 billion.  That's just over 1% of face value.  Assuming an average loan balance of around $300,000, that's almost 600,000 mortgages and corresponding homes.  That means they paid an average of only $3,000 for each of those loans.  Even if they foreclose on the ENTIRE portfolio, do you think they can make money by reselling houses they got for $3,000 each?

In January of 2008, Bank of America paid $4 billion for Countrywide.  Countrywide serviced about 9 million loans valued at $1.5 trillion dollars.  Do you really want me to run the numbers on this deal?

The failed IndyMac Bank was sold earlier this year to a group including George Soros and Michael Dell, under the name OneWest.  Sheila Bair, the head of the FDIC, had made IndyMac her personal guinea pig project for testing out aggressive loan modifications to slow foreclosures.  OneWest issued a press release at the sale, stating they would continue to pursue the FDIC's loan modification and short sale strategy.  How long do you think that lasted?  Try calling IndyMac now for either and see how far you get.  Better yet, call Dell computers and ask them how you can customize your loan modification online just like you can order a computer.

So what incentive do these banks really have to approve loan modifications and short sales?

Who created this financial bonanza for Wall Street?  The financial geniuses in Washington D.C.  They could have put in place restrictions and requirements tied to the purchase of these banks, but they didn't.  Is this something they could have mistakenly overlooked?  Not likely.  So, this means our wonderful administration in Washington is allowing the banks to make money off the tax payers that bailed them out.

Nice.  Now what are you going to do about it?  Probably nothing, as it's easier to just tune into the latest reality show on TV.

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In addition to real estate lending, consulting and investing, Drew Sygit writes & speaks about the mortgage & real estate industries.  He holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor.  He's presented, spoken and/or written for HUD, Financial Planning Association, Financial Planners Association of Michigan, Michigan Association of CPA's, Institute of Continuing Legal Education, Oakland Real Estate Investors Association, North Oakland County Board of Realtors and numerous industry publications.  For speaking engagements and questions he can be reached at dsygit@TheLendingEdge.com.  He also publishes his own blog:  http://drewsmortgagenews.blogspot.com.