Drew's Mortgage News

Mortgage Rates Fall in the Fall

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Mon, 23 Nov 2009 13:04:28 -0600

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.

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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.

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

Creative Way to Tap Home Buyer Tax Credit

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Sat, 14 Nov 2009 14:32:26 -0600

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.

# # #

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

Bank of America - Loans & Lies, but no Real Modifications

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Sun, 08 Nov 2009 12:33:47 -0600

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?

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

Extension & Expansion of Homebuyer Tax Credit

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Sun, 01 Nov 2009 14:14:53 -0600

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.

# # #

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

Heads Banks Win, Tails Homeowners/Taxpayers Lose

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Sat, 24 Oct 2009 11:07:29 -0500

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.

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

No Rhyme, No Reason, FNMA/FHLMC & FHA Play Politics

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Mon, 19 Oct 2009 05:38:26 -0500

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.

# # #

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

Is it Time to Spank Your Bank?

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Sun, 11 Oct 2009 20:26:01 -0500

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	TARP Funds	Percent Eligible Homeowners Assisted
Bank of America	$45 Billion	11%
Chase	$25 Billion	27%
Citibank	$45 Billion	33%
GMAC	$12.5 Billion	26%
PNC (bought National City)	$7.7 Billion	9%
Wells Fargo	$25 Billion	20%

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?

# # #

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

Be Wary of Buying Condos in this Market

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Sun, 27 Sep 2009 15:07:55 -0500

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.

# # #

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

HUD Announces Major Change to Reverse Mortgages

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Thu, 24 Sep 2009 06:56:54 -0500

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.

# # #

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

Reality NOT on TV – Banks Make Money on Foreclosures

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Mon, 14 Sep 2009 21:32:30 -0500

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.

# # #

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

Foreclosure & Bankruptcy: a new Beginning, not the End

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Mon, 24 Aug 2009 06:20:15 -0500

It's not how many times you get knocked down, it's how many times you get back up. Along the way don't forget what's really important - Family, Friends & Life.

TROY, MI - With pretty much everything I do revolving around real estate & lending, I get exposed to a lot of other people's financial challenges related to the housing crisis. It's a rare day that I don't talk to someone in danger of losing their home.

Too many of these people equate losing their home to foreclosure or having to file bankruptcy with failure. For many, this feeling of being a failure can have a devastating affect on their mental well-being, health and relationships.

We all need to get a grip, swallow some pride and lose our egos. Failing at something is not the end of the world.

Remember when you were a kid learning to ride a bike? For most of us, learning meant a lot of falls and crashes, some of them nasty enough for stitches or casts. But most of us got back up, dusted ourselves off and kept at it until we succeeded.

I've got a T-shirt I picked up on a ski trip that says, "If you're not falling, you're not skiing hard enough!" There's a lot of truth to that statement. In fact to make it more accurate about life in general we could alter it a bit to, "If you're not failing, you're not trying hard enough."

I went to an entrepreneurial seminar several years ago, where the speaker was from California. He urged the audience to follow their dreams, take chances and not be afraid of failing. He pointed out that few entrepreneurs succeed with their first ventures and jokingly said, "if you haven't filed bankruptcy, then you're not trying hard enough."

Now none of this should be taken out of context and used to justify irresponsible behavior. If you try your hardest to succeed and still fail, you have nothing to be ashamed of. Especially since our current economic situation has foreclosures, personal bankruptcies and unemployment at their highest since the Great Depression.

Keep in mind also, that many successful business people failed in their first endeavors, but later went on to great success. Here's a list of some rather successful people who have filed bankruptcy:

Roland Hussey Macy
He failed at selling ribbons, provisions to miners and at a general store before going bankrupt in 1855. His next effort, Macy's became the world's largest store.

J. C. Penny
First store went bankrupt when he refused to give whiskey as a kickback for orders from a large customer. Penny went belly up and got a job in a drapery shop that he later purchased and expanded into 1100 department stores nationwide.

Henry John Heinz
Started his first company in 1869 selling horseradish, pickles, sauerkraut and vinegar. In 1875 the company filed for bankruptcy due to an unexpected bumper harvest which the company could not keep up with and could not meet its payroll obligations. He immediately started a new company and introduced a new condiment, tomato ketchup to the market. This company was, and continues to be, very prosperous.

Milton Snavely Hershey
Started four candy companies that failed and filed bankruptcy before starting what is now Hershey's Foods Corporation. Mr. Hershey had only a 4th grade education, but was certain he could make a good product that the public would want to purchase. His fifth attempt was clearly successful.

Conrad Hilton
Lost all his hotels when he could not pay his bank during the Great Depression. Later, he bought them all back and built a few more. Things worked out pretty good in the end. Just ask Paris.

Frank Lloyd Wright
Famous architect lost his home, Taliesin in Wisconsin and was thrown on the street when business dried up in 1922. During the following decade, he designed some of his most famous projects.

Henry Ford
First two automobile manufacturing companies failed. The first company filed for bankruptcy and the second ended because of a disagreement with his business partner. In June 1903, at the age of 40, he created a third company, the Ford Motor Company with a cash investment of $28,000.00. By July of 1903 the bank balance had dwindled to $223.65, but then Ford sold its first car, and as they say the rest is history

Harry Truman
Opened a shop in Missouri after the First World War only to have it fail miserably. He was further humbled by having to move in with his mother-in-law. Truman later settled his debt for pennies on the dollar when the bank at which the underlying not was written actually went bankrupt itself. He is said to have learned a lot from the misadventure. And it all turned out OK in the in end. You may have heard, he eventually got a good job, in Washington, DC.

Walt Disney
His name is synonymous with Mickey Mouse and the "happiest place on earth," Disneyland. However, Disney's career wasn't always a moneymaking venture. In 1921, he began a company called the Laugh-O-Gram Corporation in Kansas City, Missouri but was forced to file for bankruptcy two years later because his financial backers pulled out. It must have been fate because Disney then headed to Hollywood and became one of the highest paid animators in history.

Sam Walton
His first store was a Ben Franklin discount shop that he made among the most profitable and successful in the chain. Walton's problem was a short lease. When it expired, the building's owner canceled his lease and took over the store himself. Walton was broke had to start over from scratch. You may have heard, however, that things turned out pretty good in the end. After these early financial difficulties were behind him, he later created the largest company in the world and became a billionaire.

Larry King
Filed for bankruptcy in 1978. He later went on to have a pretty decent career as a talk show host and best selling author.

If you think these people are too far in the past or too big for a relative comparison to the everyday person , look at these people:

David Anderson - http://www.famousdaves.com/about-daves/daves-biography/
Started first company in 1971 at age of 18 which failed. Promptly starts another, wholesaling plants to Chicago area florists and within two years has Sears account and all major florists in the area. Goes bankrupt 5 years later in 1979. Becomes sales manger for Fortune 500 company. Original investor in Rainforest Café in 1994. He also opens first Famous Dave's BBQ that year and the rest is history.

Eva Sun - http://images.businessweek.com/mz/08/70/pp_fu1.jpg
In 1997 she was forced to take the reins of her 10+ year-old company after poor management by her husband, while she was raising their kids. In 2004, she was forced into bankruptcy despite her best efforts. The company though survived and today is more profitable than ever.

Jeffrey Yarbrough - http://money.cnn.com/2008/09/15/smallbusiness/back_from_the_brink.fsb/index.htm
Told his story to Fortune Small Business of filing bankruptcy after his three Dallas-based restaurants failed. Started PR firm Big Ink that now has $400k in sales and 4 employees with zero debt.

All these people failed initially and had to file bankruptcy, but they didn't give up and eventually succeeded. Was it easy? I'm sure it wasn't as they probably had to deal with their own feelings of failure and embarrassment. They got back up though and focused on their long-term goals of success and eventually achieved them.

There are also thousands more stories of every day people who lost their homes to foreclosure or were forced to file bankruptcy due to medical bills, lawsuits or job loss that persevered by getting back up after being knocked down. They put their lives back together by reaching out to family and friends for support.

# # #

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

GNMA President to Step Down - A Sign of coming Trouble?

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Mon, 17 Aug 2009 09:24:20 -0500

Troy, MI - Bloomberg reported late last week that Joseph Murin was stepping down after only 13 months on the job.

GNMA (Government National Mortgage Association) mainly securitizes FHA and VA mortgages and has seen its business almost double in the last 2 years.

Why would an executive walk away from a business seeing such explosive growth?

FHA loans have only become popular because so many other mortgage options have dried up. The low credit score & down payment requirements for FHA loans have many mortgage experts predicting significant future defaults.

David Moffet resigned as FHLMC CEO this past March and Herb Allison recently left FNMA.

Makes on wonder why all these executives are leaving these mortgage related organizations.

It does not bode well for the future of these organizations. More trouble is coming, which means more governmment bailouts.

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

HUD finally allows Loan Modifications on FHA Mortgages

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Sun, 16 Aug 2009 14:42:42 -0500

Better late than never - four months after Obama announces FNMA/FHLMC loan modification plan, HUD makes FHA loans eligible.

TROY, MI - On July 30, HUD published Mortgagee Letter 2009-23, that detailed their long awaited loan modification program for homeowners with FHA mortgages.

What took so long? President Obama announced the "Making Home Affordable Program" (MHA) for FNMA & FHLMC mortgages back on March 4^th of this year.

We should all be glad HUD's modification program is finally available, but HUD is supposed to be a homeowner advocate and watchdog. Some watchdog! HUD's response time on this means if they were guarding your house, the crooks would have already been back several times and stolen everything but the kitchen sink before they sounded an alarm.

This latest piece of legislation does show the Obama administration fully believes the best way to solve the housing crisis and stem the tide of foreclosures is to make home payments affordable.

This was sorely lacking with FHA's other modification options. Most homeowners with FHA mortgages were forced into forbearance programs that usually increased their monthly payments.

HUD's forbearance program was actually designed for different economic times when a job loss or other economic hardship was typically temporary. Worse-case in those days, a homeowner could usually sell their home to pay off the mortgage they were having difficulty paying. The current Great Recession and percentage of upside homes no longer makes forbearance a very realistic and viable option.

The new guideline kicks in August 15, 2009 for homeowners with FHA mortgages.

Who's Eligible

The FHA mortgage to be modified must be at least 12 months old and the homeowner must have made at least 4 full monthly payments.

The FHA mortgage must be less than 12 months behind on payments, but surprisingly, it s required that the mortgage be at least 30 days behind. This is a major difference from the MHA program where no delinquency is required.

The homeowner must still live in the property with the FHA mortgage being modified, so rental properties with FHA mortgages are not eligible.

The homeowner cannot have deliberately defaulted on their FHA mortgage payments. I'd like to know how HUD and the mortgage servicers intend to determine this. My guess is that they won't - except in obvious cases where a homeowner has a lot of liquid reserve funds in non-retirement accounts.

The homeowner must first try to qualify for other loss mitigation home retention options - FHA Special Forbearance, Loan Modification and Partial Claim. This is a silly requirement that could lead to confusion, unnecessary delays and ultimately foreclosures instead of the intended modifications. FNMA & FHLMC modifications have no such requirement.

The Modification Process

A homeowner will have to submit detailed financial information to whoever is servicing their FHA mortgage and sign a hardship affidavit attesting to their financial difficulties. This information may be provided either in writing or verbally over the phone.

Similar to the FNMA/FHLMC modification process, the goal of the FHA modification is to lower the Principal, Interest, Taxes & Insurance (PITI) payment to 31% of the homeowner's gross monthly income. HUD calls this a Front End Ratio.

Unlike the FNMA/FHLMC modification program though, the FHA version also has a Back End Ratio requirement where total debt payments including PITI, cannot exceed 55% of gross monthly income. Any second mortgages must also be included in the Back End Ratio.

The last calculation is the toughest to understand - up to 30% of the current mortgage balance, less payments in arrears (up to 12 months) and allowable foreclosure costs, may be deferred along with the corresponding payment amount. The amount deferred is also limited to that which will bring the PITI payment down to 31% of the homeowner's gross monthly income.

Confused yet? I'd like to know why HUD made this so complicated. It's bound to cause major confusion in the customer service ranks. HUD did provide an example to illustrate the process:

Homeowner had a reduction of income and is delinquent 3 full mortgage payments. The unpaid principal balance on the mortgage on the date of default is $150,000 and the monthly payment is $1,220 (consisting of P&I of $920 and escrows, including MIP, of $300). The financial analysis reveals that the homeowner's gross monthly income is $3,500 and the total monthly other recurring debt payments are $800.

In order to fulfill the 31% Front End Ratio requirement, the homeowner's total monthly mortgage payment would have to be reduced to $1,085 ($3,500 x 31%). Therefore, P&I would have to be reduced to $785 ($1,085 total monthly mortgage payment less $300 escrow and MIP). Assuming that the loan modification will have an interest rate of 6% and a P&I of $785, the new mortgage amount would have to be $130,931, resulting in a principal reduction of $19,069 ($150,000 unpaid principal balance less $130,931). In this example, the homeowner's Back End ratio is 53.9% ($1,885/$3,500), which satisfies the 55% Back End Ratio limitation.

In this example, the maximum principal deferment is $41,340 (30% of $150,000, less the $3,660 delinquency, or $45,000 - $3,660). However, based on their gross income, the homeowner is eligible only for a principal deferment of $19,069 plus $3,660 arrearages (which would include any foreclosure costs incurred to that point, in accord with Mortgagee Letter 2008-21) for the total deferment of $22,729.

Once a modified payment is calculated, a homeowner must undergo a trial modification period and make three consecutive trial monthly mortgage payments on time. Failure to do so will result in foreclosure.

The good news is that no payments will be due and no interest charged on the amount deferred until the rest of the mortgage is paid off. HUD is NOT forgiving part of the mortgage balance. Effectively, HUD is lowering the current payment by extending the term of the mortgage.

Other Issues

A lender may not charge a homeowner any fees for doing an FHA loan modification and all late fees must be waived.

No appraisal is required, but a lender may perform an inspection of the property to confirm it's in livable condition.

The interest rate may be lowered to 2% above the monthly average yield on U.S. Treasury Securities, adjusted to a constant maturity of 10 years.

A modified mortgage must result in a lower payment for the homeowner.

By the way, lenders will be paid up to $1250 for each FHA mortgage they modify. Hopefully, lenders use that money to hire a few extra bodies to handle the increased workload and don't just use the funds to pad their profits.

Click here to read more HUD issued guidelines on modifications.

Overall, it's about time HUD caught up with FNMA & FHLMC in regards to more aggressive loan modification guidelines. It didn't make sense to force FHA lenders to only offer an antiquated forbearance option to homeowners experiencing economic hardships.

It's interesting that there's still no official loan modification program to lower payments on VA mortgages.

I'd like to know how many homeowners with FHA mortgages lost their homes to foreclosure while waiting for these new modification guidelines from HUD. Many of them could probably have avoided foreclosure with this new modification plan. Congress should call the organization to task for this delay.

If anyone you know has any questions on modifying their FHA mortgage please forward them this article. Although we don't handle loan modifications, if they need further assistance have them contact me, but please warn them there may be a consulting fee for my time.

# # #

Drew Sygit writes and 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.

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

The Misconduct of the Home Valuation Code of Conduct (HVCC) - Detroit

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Sun, 26 Jul 2009 12:29:39 -0500

HVCC, as currently written, will be kicking a housing market that's already on its knees.

DETROIT, MI - Despite the efforts of the real estate and lending industries, the Home Valuation Code of Conduct went into effect May 1, 2009, bringing a dramatic change to the home financing process.

HVCC is the result of a 2007 lawsuit brought against an appraisal division of First American Corp. by the New York Attorney General, Andrew Cuomo, for allegedly inflating appraisal values on an estimated 260,000 WAMU mortgages.

So now, in typical government fashion, we go from one extreme to the other - unmonitored appraisal inflation replaced with bureaucratic appraisal deflation.

The intent of HVCC is to prevent loan originators from having undue influence over appraisers on the valuation of homes and prevent inflated appraisals.

Appraisals for mortgages on 1-4 family homes to be sold to FNMA or FHLMC, will no longer allowed to be directly ordered by loan originators. They must be ordered through Appraisal Management Companies (AMC) that act as middlemen between appraisers and loan originators. (Currently HUD's FHA loans are not subject to HVCC. Loan originators can still order their own appraisals from trusted appraisers for FHA loans.)

Sounds great in theory, but the reality is far from perfect.

I had lunch with several of my mortgage competitors this past week. The main topic ended up being the HVCC and what it'll mean to the process of financing a home. The consensus was that there are going to be a lot of unhappy people - homeowners, homebuyers, sellers, real estate agents, loan originators and more.

Was there a problem with inflated appraisals?

Yes, but HVCC in its current version, creates more problems than it solves. Underwriting departments at most lenders were already using advanced computer programs to address the problem of inflated appraisals. Appraisers found to be providing questionable values and work, were banned by that lender.

Why is the industry so up in arms over HVCC? Well, let's look at how the system is supposed to work:

Loan originator orders appraisal from AMC (usually via internet)

Payment must be made when the order is placed to avoid appraisers being forced to bring in a specific value in order to get paid.

AMC randomly assigns the appraisal order to one of the appraisers on its list of approved appraisers

Appraiser is typically required to complete & deliver the appraisal within an acceptable amount of time.

Sound easy doesn't it! So what's the problem?

There are no requirements concerning the proximity of an appraiser to a property or their knowledge of an area. On a recent transaction, an appraiser came from 145 miles away to appraise a home. Not surprisingly, the value came in significantly under what local real estate agents estimated it to be.

The cost of appraisals has gone up. Our appraisers typically charged $300-$350, now the AMC's charge $450 or more. Instead of an appraiser getting their full $300, AMC's only pay them $175-$250 of the $450 charged. So, appraisers will have to do more appraisals to earn the same amount they have in the past. This will lead to shoddy work.

The AMC doesn't care if data for the appraisal is difficult to find and would normally take longer to provide an accurate value. They want them ALL back in 48 hours, failure to do so could exclude the appraiser from their list. Again, this will lead to shoddy work. Many high end homes sold in the past recorded the sales price as $1 in the MLS. Also, many builders sold houses outside the MLS. Normally, an appraiser would go to county records to research these sales and prices if needed. The 48 hour turn time requirement will now lead to appraisers just ignoring these sales, which could negatively impact appraisal accuracy and value.

There is very little anyone can do to challenge a low valuation at this time. Oh sure, there are forms you can fill out to do so, but the real chances of an override occurring are slim. The only option then is changing lenders and paying for another appraisal, while still hoping for a better value. This will all have to be paid by borrowers and mean longer application timelines.

Each lender has their own approved AMC. There is nothing in HVCC requiring lenders to honor each other's appraisals, so switching lenders could mean paying for another appraisal.

I haven't seen anything in writing about how AMC's will monitor and rate appraisers for the quality of their work. Will it be any surprise that appraisers will just use the first three comparables that pop up on their computer searches? What incentive do they have to put more time into making sure an appraisal reflects the best and most accurate value possible?

HVCC has no ethics, screening or performance requirements for AMC's or their owners. Several AMC's have been started by retreads from the subprime debacle.
These are not the type of challenges you want to hear when real estate values are dropping, especially for those trying to refinance.

Should we blame the appraisers when their valuations start affecting transactions? I don't think we should. None of the appraisers I know have anything good to say about HVCC. Many of them have spent years building their businesses by establishing relationships through providing great service. Now those relationships are all being taken away from them. They're also not happy about the time constraints the AMC's are placing on them. HVCC and the AMC's treat appraisers like they're a commodity and 100% the same. It'll create a race to the bottom and reward appraisers who work the cheapest & fastest at the expense of accuracy & quality.

I'm going on record here advising real estate agents to pull their own comparables and hand them to the appraiser when you meet them at a property. Maybe even go one step further and do a mini Broker Price Opinion! Otherwise you're leaving the fate of your transaction in the hands of an appraiser who really may not care if your deal closes or not. Real estate agents, by the way, are the only industry professionals involved in the transaction that are allowed to speak with appraisers under HVCC.

If you're a homeowner looking to refinance, you may want to get back in contact with the real estate agent that sold you your home and have them do what I suggested for a purchase transaction in the paragraph above.

By the way, anyone thinking that going to a bank or a certain lender will avoid the problem, is seriously mistaken. Everyone in the industry will be facing the same problems. Homeowners trying to refinance won't be able to threaten to go to their banks to avoid the problem. Real estate agents won't be able to blame loan originators if a sales price is not met. It's a new reality we'll all have to learn to deal with.

A BETTER SOLUTION?
Obviously, there was a problem with inflated appraisals. HVCC is a step in the right direction to address the problem, but several logical modifications can be made to improve it.

Create a nationwide, central database where all appraisers have to register, so "bad eggs" can be identified by all. The federal government required it for loan originators due to fraud issues, so why not appraisers? The same mechanism can also be used.

Require any and all owners of AMC's to pass a background check. Currently, an appraiser, lender or real estate agent could have their license revoked, but still open an AMC.

Create a national system to randomly review the work of appraisers and address complaints. HVCC as it is, leaves this to the AMC's themselves. Self-regulation really worked in the banking industry, didn't it?

Require all lenders to use independent AMC's. Banks are currently allowed to use their own appraisal staffs and own AMC's, which makes absolutely no sense - unless you're a politician getting bribed/lobbied by the banking industry. The original version of HVCC required 100% independency, but I think the fact that most of the top U.S. banks already owned an AMC might have had a little to do with this rule miraculously changing. Now, does anyone seriously believe that an invisible wall between a bank's appraisers and all other employees will really be honored?

Standardize the AMC's appraiser approval process and require that they all accept each other's appraisals.

Create penalties for AMC's that pressure appraisers to work on unrealistic deadlines to stay on their approved lists. The 48 hours that most AMC's require is foolhardy. A week is more realistic. Pressuring appraisers to rush their work is really no different than pressuring them to inflate values.

There should be geographic proximity requirements for assigning appraisals. Is it reasonable to expect an appraiser desperate for work to turn down an order in an area they don't know?

Create a standardized system of review, so shoddy appraisal reports can be properly addressed. Since any review system takes time, which could cause a transaction to fall apart, the review system should provide a borrower the option of ordering and paying for a 2nd appraisal, but then require a full refund of the 1st appraisal if it's found to be suspect.

The improvements suggested above won't create a perfect solution as that's impossible in the real world. They could dramatically improve a seriously flawed HVCC though.

Please keep in mind that we're all in this together, both borrowers and industry professionals. We have a government that's giving out hundreds of billions in bailout relief to those at the top that caused the housing crisis - while seeming to make everything harder for the average person on the street. We all have to stick together to find our way through this new challenge.

If you'd like to protest against HVCC in its current form, please check out this electronic petition:

http://www.petitiononline.com/hvcc/petition.html.

For additional facts about HVCC watch this short video:

https://www.thinkbigworksmall.com/mypage/tbws/7789/661622

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

Homebuyers - You're Pre-Approved by Payment, not Purchase Price!

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Sun, 26 Jul 2009 12:23:25 -0500

Lenders do a terrible job of educating homebuyers that they're actually approved for a monthly payment, not a purchase price. Why don't pre-approval letters make this clear?

July 26, 2009 -- Troy, MI - A homebuyer follows instructions and jumps through the hoops (which are many today) necessary to get a pre-approval letter before looking at homes for sale. They find one they like, at a price their pre-approval letter says they're good for, make an offer, negotiate back and forth with the seller and finally agree on a price. They're elated.

Then the rug gets pulled out from under them and they're told they don't qualify for this house and all their efforts were in vain.

What's even scarier is that often the homebuyer doesn't find out they don't qualify for the property they got their hopes up for, until weeks into the formal approval process, sometimes only days before the target closing date.

Why does this happen?

The lender they were dealing with didn't do a very good job of explaining how the mortgage industry actually approves homebuyers. Even if they did, it was just one of the numerous topics discussed and the homebuyer forgot about it. Then, the lender didn't double-check the pre-approval requirements for the specific property.

Because of issues like this, it's extremely important that homebuyers understand the following:

MORTGAGE APPROVALS ARE MOSTLY BASED ON MONTHLY HOUSING PAYMENTS NOT PURCHASE PRICES!

Let's study the pre-approval process to understand why.

A homebuyer only makes so much money per month, which means they can only afford to spend a portion of that income on a monthly housing payment. The rest of their income goes towards various income taxes, car payments, credit card payments, student loans, etc. On top of that, unless the homebuyer wants to freeze in the dark during winter, they have to pay utilities to keep the heat & lights on (if you're outside the snowbelt, think air-conditioning).

If you think about this, it makes sense.

Now, let's look at an example homebuyer:

Annual Income: $75,000

Monthly Debt Payments: $1,000

How much of a housing payment would this person qualify for?

First, let's break the annual income down to a monthly basis: $75,000 / 12 = $6,250/month income.

FNMA/FHLMC typically allows 40% of one's gross monthly income to go towards monthly debt, including a housing payment. The 40% number is called a Debt Ratio. The other 60% of monthly income is allocated for income taxes, utilities, food, clothing, car insurance & gas and other necessities of life.

So, to calculate the maximum amount of monthly debt allowed we calculate 40% of the monthly income:

$6,250 x 40% = $2,500.

But, our example homebuyer already has $1,000 per month in existing debt. That money then, cannot be allocated towards a housing payment. So, we calculate what's left:

$2500 minus current debt payments of $1,000 = $1,500 for a maximum housing payment

This is what our example homebuyer could afford. Now, they don't have to spend that much of course. There are also other variables that could allow for a somewhat higher housing payment. For example, if the homebuyer put 20% down, the 40% debt ratio might be allowed to increase to 45% as the higher down payment compensates for the higher debt ratio.

Now that we know our example homebuyer's maximum housing payment we're done right? Wrong - houses are sold by price, not monthly payments. So now we have to convert the maximum housing payment to a purchase price.

Here we run into a problem. It's actually the reason many pre-approval letters are misleading and homebuyers get unpleasant surprises.

The term "housing payment" is not the same thing as a mortgage payment. The mortgage industry considers a housing payment to include the following:

Mortgage payment

Monthly amount for property taxes

Monthly amount for home insurance

Monthly association fees

Property taxes are usually the biggest unknown when pre-approving a homebuyer for a home they haven't identified yet. Depending on the state your in, property taxes can vary significantly for similarly priced homes. Let's look at an example:

Assume:

Loan amount: $200,000

Interest Rate: 5.250% (APR 5.891) no PMI

Home insurance: $900 annually

If we compare these two monthly housing payments to our maximum payment allowed of $1,500, you can see that our example homebuyer would not qualify for property #2 - even though it had the exact same sales price as property #1.

We'll leave the reason as to why property taxes may vary on similarly priced properties to a future article. For now, just ask your local real estate expert.

How can a homebuyer address this problem? Simple, demand something in writing from the lender you get pre-approved by, that specifically states the maximum payment you're qualified for. While they're at, they should also disclose the interest rate they pre-approved you at. Interest rates change daily and if it takes you a month or two to find a property, higher rates could affect your pre-approval purchase price just like property taxes.

Real estate agents also need to understand this issue to better assist their homebuyers. Agents should contact their homebuyer's lender with the property taxes and any association fees to confirm the homebuyer does indeed qualify for the specific property, before writing an offer.

Understanding the process, putting specifics in writing and relying on true professionals can remove many of the unpleasant surprises in the pre-approval and home buying process.

# # #

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

Witch Hunt or Consumer Protection? - 178 Loan Mod Companies Pursued by Government.

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Sun, 19 Jul 2009 19:56:51 -0500

Loan Modification companies seem to be the latest mortgage industry group in the crosshairs of government officials.

Detroit - Over the last several weeks I've noticed a substantial increase in the number of loan modification companies being investigated by various government agencies.

All I can say is that it's about time.

Now don't misinterpret that statement - I believe that loan modifications may be part of a viable solution in getting our country out of the current housing crisis, although it's too soon to determine their actual long-term effectiveness.

I also have nothing against loan modification companies in general nor the people that work at them. I've met or connected with many individuals that are intent on really helping people and do their best to do so.

Lastly, many homeowners do need some type of assistance as lenders don't have their best interests in mind when they do loan modifications and many lenders draw the process out seemingly forever.

On the other hand, I've personally heard many stories from homeowners victimized by loan modification companies, have heard the same stories from mortgage associates and have read many more on the internet.

From Subprime to Loan Mods

I predicted over a year ago that loan modification companies would become the new subprime "churn & burn" debacle. This was triggered by my observations that many local subprime loan originators were flocking to do loan modifications. I even heard several stories of these originators approaching the same clients they'd put in subprime loans, with offers to now do loan modifications for them.

There really is no barrier of entry to do loan modifications. All you need is a phone and the ability to find clients. Finding clients is easy with so many homeowners struggling with their mortgage payment.

This should all sound familiar as much of it applied to the mortgage industry in general until recently, when state governments started requiring individual licensing of loan originators and the federal government created a national registration system.

When Michigan enacted its Loan Officer Registration Act, April 1, 2009, the state expected 10,000 to register based on past data. To date only 3141 have met the requirements of 24 hours of class time, passed a multiple choice test and background screening. How many of the unregistered do you think are now using their limited mortgage knowledge to do loan modifications?

Desperate People do Desperate Things

One would think that a homeowner, burned by a bad mortgage, would be a bit more cautious when considering a loan modification.

The number of loan mod companies popping up however, prove otherwise. It's basic supply and demand - the numbers of these companies wouldn't be expanding if there weren't desperate homeowners to support them.

So, how do homeowners get burned by these companies? In no particular order:

Paying upfront fees for a modification never completed.
Being told they'll get a principal balance reduction, when in reality it rarely happens.
Getting approved for a modification that raises their payment or insignificantly lowers it.
Following advice to not contact their lenders during the loan mod process, only to get foreclosed on.
Not being made fully aware of the possible credit damage, legal issues and tax consequences.

It's all boils down to these companies over-promising and under-delivering.

What Took the Government So Long to Act?

If I saw this problem coming over a year ago, you'd think the smart people in our government would've saw it coming also.

In a recent informal poll of mortgage originators by "Think Big Work Small", 81% responded that over 50% of those doing loan modifications are "rats".

Unfortunately, just like with the mortgage meltdown and the banking crisis, the government only seems to act after the damage has already been done. Here's a list of the agencies currently chasing loan mod companies:

Federal Trade Commission
United States Attorney's Office for the Central District of California
Arizona Attorney General's Office
California Department of Justice
California Department of Real Estate
State Bar of California
Colorado Attorney General's Office
Idaho Attorney General's Office
Illinois Attorney General's Office
Iowa Department of Justice
Kansas Attorney General's Office
Maine Attorney General's Office
Maine Department of Professional and Financial Regulation, Bureau of Consumer Protection
Maryland Department of Labor, Licensing, and Regulation, Office of the Commissioner of Financial Regulation
Massachusetts Attorney General's Office
Michigan Attorney General's Office
Missouri Attorney General's Office
New Jersey Attorney General's Office
New Jersey Department of Banking and Insurance
New Mexico Attorney General's Office, Consumer Protection Division
North Carolina Department of Justice
Ohio Attorney General's Office
Oregon Department of Justice
Texas Attorney General's Office
Washington Attorney General's Office

Charges are being filed because of deceptive and/or false advertising (Section 5 of the FTC Act), charging upfront for services before rendered, unlicensed activities, mail fraud, attorney misconduct and several others.

Solutions

The Obama administration really needs to step up and address this issue quickly. The crooks and sharks need to be forced out of the industry to protect homeowners. Honest professionals also need protection - from overzealous government agencies. It'd be a real shame if those that were actually doing good things for homeowners were put out of business, fined or jailed.

An easy to implement option would be to allow loan modifications to only be done by licensed mortgage companies and attorneys. The mechanisms are already in place across the country to control this.

A better solution would be for the administration to create a national solution instead of letting all 50 states come up with their individual plans.

For a list of the loan modification companies currently be investigated, click here and then click on "preview".

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

Are Loan Modification Programs Working?

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Mon, 13 Jul 2009 22:13:17 -0500

Many financial experts say they aren't, quoting old data to support their statements. The latest data may force them to change their tune though.

July 13, 2009 -- DETROIT, MI - The Obama administration continues to push loan modifications as the best way to address the nation's growing housing crisis. Many so called financial "experts' though, disagree with this focus.

It's interesting to note that the administration recently announced that due to disappointing numbers for its Home Affordable Refinance Plan (HARP), the program was being expanded to allow refinances to 125% of a homeowner's property value, up from 105%. To be eligible for this program though, homeowners must be current on their mortgage and qualify with required FICO credit scores, income and assets.

The disappointing numbers for HARP are a sign that many homeowners don't qualify for it because they're either too far upside in their homes or they're behind on their mortgage payments. This makes loan modifications their only option - hence the administration's focus on loan mods.

So, what about all the naysayers against loan modifications?

Well, they all quote studies that seem to "support" their claims that modifications aren't working due to the high number of homeowners that default on their loan modifications.

One of these studies was done by the Federal Reserve Bank of Boston, published July 6, 2009. The study had some valid points:

•1. Lenders are reluctant to modify mortgages. Only 3% of seriously delinquent loans have had modifications.

•2. Percentage-wise, lenders are modifying FNMA/FHLMC and mortgages held on their books the same.

•3. 30% of delinquent loans become current with no intervention by the lender.

•4. Most modifications result in an increased loan balance as back payments are rolled into the loan amount.

•5. More and more modifications are being done and resulting in lower homeowner payments.

•6. 26% of modified loans in the 4^th quarter of 2008 resulted in lower payments.

•7. Payment decreases before the 3^rd quarter of 2008 ranged from 10-14%.

•8. Payment decreases in the 4^th quarter 2008 averaged 22%.

•9. 30-45% of modified mortgages redefaulted within 6 months of a modification.

These are all interesting statistics. The financial "experts' all seem to focus on the fact that 30-45% of modified mortgages redefault, while ignoring one important fact - only 26% of the loans modified resulted in a lower payment!

Why would a lender expect a homeowner that's already defaulted on their current payment, to be able to afford that same payment or a higher one? Anyone citing this report's redefault rate without taking that point into consideration should stop calling themselves an "expert".

A more recent report (through 1^st quarter of 2009) from the Comptroller of the Currency Administrator of National Banks, shows something a bit different:

•1. A significant increase in the number of modifications made by servicers. Up 55% from last quarter. Payment plans decreased in favor of loan modifications.

•2. Servicers implemented a higher percentage of mods that reduced monthly payments than in previous quarters.

•3. Modifications with lower payments continued to show fewer delinquencies each month following modification than those that left payments unchanged or increased payments.

•4. Modifications during the first quarter of 2009 resulted in lower monthly principal and interest payments on 54.1 percent of all modified loans

•5. The percentage of modifications that reduced payments by 20 percent or more increased to 29.3 percent of all modifications made in the first quarter of 2009, up 19.2 percent from the previous quarter.

•6. Modifications that increased monthly payments declined to 18.5 percent of all modifications during the quarter, down from 25 percent in the fourth quarter and 33.5 percent in the third quarter.

One very important statement from the report: "The number of modifications recorded in this report does not reflect actions taken under the Administration's "Making Home Affordable" program, which was announced in March and began to be implemented after this reporting period."

As Obama's plan is the most aggressive loan modification attempt to date, focusing on reducing homeowner payments to 31% of monthly income, the numbers should start turning even more positive.

Even without those numbers, statistics from the 1^st quarter of 2009 show improvements in loan modification performance after previous quarters showed a trend to the negative:

What can we conclude from all this?

While it's important to note that we're far from out of the woods on the housing crisis and we don't have enough recent data to really draw any long-term conclusions on the benefits of loan modifications - we do seem to be heading in the right direction.

For all the free-market advocates out there railing against bailing out upside homeowners - your arguments went out the window when the government bailed out the banks. If we can bailout upside down banks, how can we not bailout upside down homeowners?

For those who believe we have to lower mortgage balances to effectively modify mortgages, I disagree that we have to do so. It would be nice as I'm upside down in my own home, but I think it's more important to lower house payments.

People buy cars all the time where as soon as you drive it off the dealer's lot, you're upside down in it. I don't hear anyone asking for a bailout on their car loan. Why do they continue to pay on their upside down car? Because they need transportation and they can afford the payment.

Why are people losing their homes? Because they can't afford the payments. Statistically, most people are emotionally tied to their homes. Most won't do the logical thing and walk-away from their upside down home anymore than they would walk-away from their upside down car. Give them an affordable payment and even if they're upside down, they won't walk. Bring the payment down to their local rental rates and they won't be able to live anywhere cheaper. Yes, their will be a small percentage that move in with relatives or move to a lower income area, but most will stay.

It seems the so called "experts" live in their own little worlds and seem to have their own agendas. Few actually report unbiased facts, instead preferring to only focus on what supports their positions while ignoring all other facts. Heaven forbid they actually take the time to digest & think through the statistics.

The media is just looking for sensational headlines to sell more advertising. Very little actual research seems to happen these days. What's more, they all seem to regurgitate the same stories, propagating incorrect stories, fooling the public into believing them because of the repetition.

So be forewarned not to buy into what you read in the headlines or what so called experts tell you. Click on the links I've provided and read the material for yourselves to come to your own conclusions.

# # #

Drew Sygit writes and 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. He also publishes his own blog: http://drewsmortgagenews.blogspot.com. He can be reached at dsygit@TheLendingEdge.com.

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

125% Refi's Announced! The Government Finally Gets it?

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Wed, 01 Jul 2009 20:49:43 -0500

The government appears to be finally understanding how many Americans are upside down in their homes.

As I've been predicting for months, the FHFA just announced today that they will be allowing FNMA & FHLMC to refi underwater homeowners up to 125% of their property's value.

Previously the cap was at a joke amount of 105% LTV, resuting in President Obama's hyped Home Affordable & Stability Plan being way behind on the estimated number of homeowners it was meant to help.

It would have been better if they would've done away with the appraisal requirement on refinances all together, but this should help a decent amount of homeowners not eligible under the previous program

Now, keep in mind that this will take awhile to be implemented as a lot of software needs to be rewritten. Also, the when the government approved the 105% LTV, FNMA & FHLMC both added pricing hits, which offset some of the gains of lower rates. I would hope they don't do the same this time. Lastly, lets hope FNMA & FHLMC allow more lenders and brokers to do these loans. Right now, FHLMC forces homeowners to only go to their current lender. These lenders are prety backed up, some taking 60-90 days or more to close these loans.

If you think you may qualify under this new guideline, contact me ASAP as I expect a flood of refinance applications to hit the industry quickly. With rates off their lows, waiting could cause you to miss a rate opportunity.

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

Talking About a Housing Revolution - Predictions on Housing

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Sun, 28 Jun 2009 15:41:18 -0500

The Beatles song comes to mind when I consider what the bottom of the housing market and recovery will look like.

June 28, 2009 -- DETROIT, MI - Recent housing reports brought apparently good news on housing as it was reported that Housing Starts in May jumped 17.2% and Building Permits jumped 4% in April. Also, the National Association of Realtors (NAR) reported that Existing Home Sales, the Pending Home Sales Index and New Home Sales were all up in recent months.

According to Lawrence Yun, chief economist for NAR, "We are at or near bottom in terms of sales."

So, it's a great time to put that home of yours on the market that you desperately want to sell?

Not even close.

One month of good news doesn't mean the housing crisis is over. On top of that, it's spring - a time when home sales invariably go up after winter. Look at the following graph, the same thing happens just about every year:

As for the housing starts and building permit numbers - it's amazing how theses numbers were skewed to look good. The numbers reported by NAR and the media compared May of 2009 numbers to April of 2009. If one references the source of these numbers, the U.S. Census Bureau website, the May numbers for 2009 when compared to 2008 are actually down - by 45.2% for Housing Starts and 47.0% for Building Permits. How does that qualify as good news?

Yesterday it was also reported by NAR that May home sales were up 2.4% over April. Yet again, when compared to May of 2008, sales were actually off 3.6%. Not really good news as it doesn't show we've reached a bottom yet.

THE REAL STORY

Looking at the big picture, it's obvious that the housing market is not out of the woods yet.

The FNMA/FHLMC foreclosure moratorium from Thanksgiving through March (waiting for Obama's housing plan) created an artificial shortage of foreclosed properties on the market. Not surprisingly, April foreclosure filings set a record.

Last week, California announced its own 90 day moratorium on foreclosures which will further hide the true extent of the housing problems in that state. Michigan recently passed legislation that will have a similar, albeit more limited, effect. Several other states have passed or are considering doing the same.

All the Adjustable Rate Mortgages (ARM) that borrowers took out at the peak of the housing market so they could afford to buy or cashout of their homes, are starting to reset in record numbers and will continue to do so for the next two years. The ugliest situation is for those with "Option ARMS" also known as "Pick a Payment" plans, but technically called "Negative Amortizing" ARMs. Anything with the word "negative" in it is usually not good. In the case of these products, they were originally designed for sophisticated borrowers that understood how they worked and the inherent dangers. Only two lenders, WAMU and World Savings, initially offered them. At the height of the housing boom, many more banks jumped on the bandwagon to offer them and pushed mortgage brokers to sell them to their clients by offering insane commissions. Of course, many unscrupulous brokers, few understanding the product themselves, pushed these loans onto borrowers that didn't take the time to understand anything but the artificially low payment. Now, many of these borrowers will see their payments increase by 50% or even double. Many won't be able to afford the payment shock and will eventually be added to the foreclose statistics.

There's also the issue of a "Shadow Inventory" of homes. How many of you see vacant homes in your neighborhoods that aren't for sale? Many of these are foreclosures where the lender is just sitting on the home instead of trying to sell it at a loss. There's also the inventory of homes where owners aren't making payments, but haven't been foreclosed on yet, despite being well past the point where they should've been. Several sources have estimated this shadow inventory at 600,000 homes. Now do you understand why banks were forced to take TARP funds?

Real estate investors are also contributing to the problem. I know of many that are struggling with rentals where the rents don't cover their payments. Many of them will eventually throw in the towel as their reserves run dry or the value of the rental falls to where it just doesn't make sense to keep throwing good money after bad.

Finally, we have the unemployment situation. May's unemployment figure hit 9.4%, the highest since 1983. June's number is expected to hit 9.6%. Since the recession begin in December 2007, we've lost 6 million jobs. These numbers are bad, but actually are worse if you include all the workers that have had to settle for part-time jobs or are making less than half of what they used to. Housing won't stabilize until unemployment does. Even then, there'll be a lagging effect as households paydown debt, replenish reserves and proceed cautiously.

PUTTING IT ALL IN PERSPECTIVE

The highly touted, and over referenced, Case-Shiller Index predicted that housing prices would fall 10-20% this year. As of May, the median price of a home is off 16.8% from last year.

Faced with these numbers and all this information, what would you do if you were in charge of our government?

Would you let housing free-fall and probably put the country into a Great Depression II?

Or would you use every financial tool at your disposal to soften the landing, wherever that may be?

Obviously, the current administration has chosen the soft-landing option and is pulling out all the stops to make it happen:

The real reason for the Thanksgiving to March foreclosure moratorium was to come up with a plan to force banks to modify mortgages and slow the flow of foreclosures hitting the market and driving down prices. Obama's administration had to do something dramatic after the disaster of Bush's "Hope for Homeowners" plan that resulted in only 50 or so homeowners being helped. TARP funds were probably used as "bribes" to get banks to go along with the new plan.

Ben Bernanke is doing his best to keep mortgage rates low. Not only does this encourage home buying, it also encourages people to refinance to lower their payments and not let them go to foreclosure. After a brief spike to 6%, when Wall Street bluffed the Fed, rates are back to the mid 5's, still historically low.

FNMA/FHLMC, now under government control, currently allow homeowners to refinance up to 105% of their home's value so they can lower their monthly payment. Again, this was done to keep people in their homes through lower monthly payments. I expect to see the 105% increased to at least 115%, or done away with altogether, as housing prices have fallen faster than expected and the number of homeowners qualifying for a 105% refinance are much lower than the original target.

The $8,000 tax credit to buy a home has generated quite a bit of home buying activity as intended. I predicted a couple of months ago that the tax credit program would probably be extended past its December 2009 deadline. There's now talk in Congress about not only extending the program, but increasing the tax credit to $15,000 and opening it up to anyone that buys a home. It'll be interesting to see what they do with the income restrictions as the current plan has propped up the lower end of the housing market, but left the rest of the market struggling.

PREDICTIONS

So far, the housing market is down over 30% from its 2006 highs.

The government is doing its best to prop up our housing market, but it's expected to fall further. How far is anyone's guess, as one can't predict it any better than one can predict where the stock market is going.

I don't think we'll see housing bottom until late 2010 at the earliest. That being said, I think the pace of the decrease will slow after this winter.

I also think that we won't see a rebound for quite some time and it won't be the rebound that many are hoping for. We won't see double digit appreciation of housing for decades, if ever again. Nationally, we'll see very slow anemic appreciation as homebuyers will be extremely cautious after this crisis.

There will be a rebound bounce in areas where prices dropped ridiculously low. Detroit immediately comes to mind. The median price of a home in Detroit (the actual city) stands at $6,000 as of today. As long as one buys in a decent area of the city, that price could easily double, triple, even quadruple once unemployment improves. A house at $24,000 is still quite a bargain, especially when it would cost at least $80,000 to build a new one. The southern Florida condo market is another place that might have a double digit rebound as prices there are quite low due to over building. Understand that any double digit rebound in areas like these will be a quick, one-time thing as values bounce back from their oversold positions. Then they'll follow the national trend of anemic appreciation.

It could take a generation (25 years) for nationwide home values to return to the peaks of this decade.

THE HOUSING REVOLUTION

We're also going to see residual effects from this crisis, much the same as we saw after the Great Depression. People that lived through the scarcity of those years tended to be savers and hoarders, not throwing anything away. Going forward, I think we'll see a large increase in the number of people that never buy another home. After going through the trauma of getting foreclosed on or watching their parents, family, neighbors and/or friends go through it, they'll choose to be lifetime renters. That's good news for real estate investors as many of these people will still want to raise their families in houses, not apartments.

I also think we're seeing the end of the "McMansions" and sprawling suburbia. Inland California was overbuilt, in the middle of nowhere (that's why it was cheap to develop) and is now turning out near vacant ghost towns due to all the foreclosures. Values have already dropped over 50% in many of these areas and show no signs of slowing yet. Why? It's too far to commute to work. Eventually population growth will fill these towns back up, but that could take a decade or more.

Millennial's, those born after 1980, are flocking to urban landscapes and smaller homes. They don't want to be house poor or commute more than minutes to work, preferably via mass transit. As gas and energy prices rise when the world economy recovers, more of us will be forced to address these same issues. This will eventually be good news for decaying urban areas and those that invest there ahead of the curve.

People will also stop looking at their homes as a source of wealth. Homes will be seen less as "castles" and more as just places to live. Europe and Asia are already like this. People there don't socialize in their homes as much as we do (most are too small), they meet at cafes, restaurants, parks, etc.

SHOULD YOU BUY NOW?

No one can predict the bottom of the housing market. So, if you're in the market for a home, you should buy something that fits your budget, that you think is a good deal, when you think you're ready for the monthly liability. Notice I didn't say a great deal or a steal of a deal. Too many people still fall into the trap of following the herd lining up for the sensationalism the media peddles to get our attention. They want to hit the jackpot with the deal of a lifetime on a home. Well, keep in mind that very few hit the jackpot in Las Vegas and even fewer win the lottery. It's usually better to play it safe and follow you head than gamble your future away by listening to others.

Buy a home you can afford now that fits your lifestyle. Don't stretch to afford something and put yourself in a tenuous financial situation. You also don't need to be keeping up with the Jones' and getting in over your head by doing so.

Homes should be bought that fit one's monthly budget. I can't believe all the homebuyers I talk to that have never sat down and put together a monthly budget to figure out what they can afford for a monthly housing payment. They expect ME to tell THEM what they can afford! I'd be very appreciative if this was because they trusted me, but it's actually due to laziness. Don't they realize that they're looking at buying a foreclosure where the previous owner probably made this same mistake?

Consider how long you plan to live in a home before deciding whether to buy it. Don't count on buying something and being able to break even if you sell it 2 years from now. You'll probably need 5 years or so to be able to do that.

Overall, homes are now more affordable than they've been in over a decade. Foreclosures have created unique opportunities for many to get solid deals on homes. Throw in the current $8,000 tax credit (with talk of it going to $15k soon) and this could be the time for many to buy a home. Not for everyone, but for many.

If all of this is a bit much to take in and analyze, find professionals that can assist you. Run from those that are pushy. They should ask a lot of questions and rarely tell you what to do, but rather help you find your own answers.

# # #

Drew Sygit writes and 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. He also publishes his own blog: http://drewsmortgagenews.blogspot.com. He can be reached at dsygit@TheLendingEdge.com.

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

Michigan tries to Slow Foreclosures with New Laws

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Thu, 18 Jun 2009 22:34:28 -0500

Three new laws make foreclosures tougher on lenders to force them to do more loan modifications.

June 18, 2009 -- DETROIT, MI - On May 20^th, Governor Granholm signed new laws into effect that will put more pressure on lenders to work out loan modifications as opposed to just foreclosing.

The new laws, PA 29, PA30 & PA 31, go into effect July 5^th and force lenders to perform several addition steps before foreclosing. Interesting that the effective date falls right after Independence Day.

The new laws only apply to foreclosures started after July 5^th and only on real estate that is the primary residence of a mortgage borrower. The laws also expire in two years. The state legislators appear to be pretty optimistic the housing crisis will be over by then. More likely, there won't be anyone with a mortgage that hasn't been foreclosed on or had their mortgage modified by then.

Lenders will be required to give written notice to a defaulting borrower, providing the name and phone number for a real person the borrower can speak with. What's more, this person has to have the authority to negotiate and approve a loan modification. Anyone that's had to deal with the customer service department at a lender can tell you how frustrating it is to get someone on the phone that can make a decision. So, this is great news.

Lenders will also be required to send a defaulting borrower a list of state approved housing counselors and gives borrower the right to require a lender's authority person to meet with the borrower and the counselor to work out a loan modification. Once a borrower asks for this meeting, the foreclosure is put on hold for 90 days.

The laws basically mimic Obama's "Making Home Affordable" program by requiring a borrower's housing related debt be no more than 38% of their gross monthly income. Also outlined is how to get to the 38% figure - lowering the interest rate to as low as 3% for at least 5 years, and/or extending the loan term to up to 40 years, and/or deferring up to 20% of the principal balance until the end of the loan term, sale or future refinance.

If the borrower qualifies under this outline, but the lender refuses to approve the loan modification, then the lender must go through a judicial foreclosure. This means they have to take the borrower to court, a lengthy and costly endeavor. In other states where judicial foreclosure is required, it can easily take 18 months for this to happen. This is a huge penalty to lenders and should force most of them to approve a loan modification.

The new laws were written so that federally chartered lenders cannot claim "federal pre-emption" and ignore state laws. A great move by the state legislators.

The only problem is that the laws don't apply to FNMA, FHLMC, FHA and VA mortgages. These loans are expected to follow Obama's loan modification plan, but that plan is voluntary. So, homeowners may still be in a pickle if they have one of these loans.

Also, there aren't enough counselors available to meet with borrowers and representatives from their lenders. This may work in a borrower's favor though as lenders may prefer to wait until a counselor is available versus pursing the judicial foreclosure process.

I'd like to see figures on how many mortgages fall under the requirements of these new laws. It's estimated that FNMA/FHLMC currently control over two-thirds of the loans in this country. Adding in FHA and VA probably pushes this number close to 75% or more. That means that these new laws may help only 1 in 4 mortgage borrowers.

# #

Drew Sygit writes and 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, the 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. He also publishes his own blog: http://drewsmortgagenews.blogspot.com. He can be reached at dsygit@TheLendingEdge.com.

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

New Michigan Foreclosure Prevention Law

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Sun, 07 Jun 2009 19:01:39 -0500

SUMMARY OF MICHIGAN HOUSE BILLS 4453-4455

(FORECLOSURE PREVENTION LAW)

May 27, 2009

The bills were signed by the Governor on May 20, 2009 and will become effective 45 days after signature. The legislation will be repealed two years after its effective date.

The bills amend the chapter of the Revised Judicature Act, which governs foreclosure by advertisement. After its effective date, the legislation requires that prior to the initiation of foreclosure by advertisement on a mortgage loan, secured by a dwelling claimed as a principal residence, the holder/servicer must give any borrower who requests it an opportunity to work out a modification of the loan. The legislation prohibits the commencement of foreclosure by advertisement if the required procedures had not been followed or the relevant time limits had not expired. "Principal residence" status is established or claimed by the homeowner under MCL 211.7cc of the General property Tax Act.

HB 4453 (Public Act 29 of 2009)

The Act prohibits a holder/servicer or its agent from commencing foreclosure by advertisement of a principal residence mortgage if the foreclosing party had not mailed notice to the borrower as required under Section 3205a of HB 4454 (Public Act 30 of 2009). The written notice to the borrower must be sent by first class mail and by certified mail, return receipt requested, to the borrower's last known address and must include the information as paraphrased below:

•(a) The reasons that the mortgage loan is in default and the amount that is due and owing under the mortgage loan.

•(b) The names, addresses, and telephone numbers of the mortgage holder, the mortgage servicer, or any agent designated by the mortgage holder or mortgage servicer.

•(c) A designation of the person named in the notice to contact who has the authority to make agreements under sections 3205b and 3205c.

•(d) A list of approved housing counselors, including their addresses and telephone numbers, prepared by the Michigan State Housing Development authority, and that within 14 days after the notice is sent, the borrower may request a meeting with the named designated person to attempt to work out a modification of the mortgage loan and that the borrower may also request a housing counselor to attend the meeting.

•(e) That if the borrower requests a meeting with the designated person foreclosure proceedings will not be commenced until 90 days after the date the notice is mailed to the borrower.

•(f) That if the borrower and the designated person reach an agreement to modify the mortgage loan, the mortgage will not be foreclosed if the borrower abides by the terms of the agreement.

•(g) That if the borrower and the designated person do not agree to modify the mortgage loan but it is determined that the borrower meets criteria for a modification under section 3205c(1) the foreclosure by advertisement is not allowed and that the foreclosure of the mortgage will proceed before a judge instead of by advertisement.

•(h) That the borrower has the right to contact an attorney, and the telephone numbers of the state bar of Michigan's lawyer referral service and of a local legal aid office serving the area in which the property is located.

The Act also prohibits a holder/servicer or its agent from commencing foreclosure by advertisement of a principal residence mortgage if:

After notice was mailed to the borrower, the time for a housing counselor to notify the designated contact person of the borrower's request to work out a modification had not expired.
Within 14 days after notice was mailed to the borrower, he or she had requested a meeting with the designated contact person and 90 days had not passed after the notice was mailed.
The borrower had requested a meeting with the designated contact person and provided necessary documents if requested, and the designated person had not met or negotiated with the borrower.
The borrower and mortgagee had agreed in writing to modify the mortgage loan and the borrower was not in default under the agreement.
Calculations under section 3205c(1) show that the mortgagor is eligible for a loan modification and foreclosure by advertisement is not allowed under section 3205c(7).

House Bill 4454 (Public Act 30 of 2009)
In addition to the aforementioned pre-foreclosure notice requirement, HB 4454 requires the foreclosing party or its agent within 7 days after mailing the notice, to publish a notice informing the borrower of the borrower's rights. The notice must be published once in the same manner required for publishing notice of foreclosure sale. The published notice must contain all of the following:

(a) The borrower's name and the property address.

(b) A statement that informs the borrower of all of the following:

(i) That the borrower has the right to request a meeting with the mortgage holder or mortgage servicer.

(ii) The name of the designated person to contact and that has the authority to make agreements under sections 3205b and 3205c.

(iii) That the borrower may contact a housing counselor by visiting the Michigan state housing development authority's website or by calling the Michigan state housing development authority.

(iv) The website address and telephone number of the Michigan state housing development authority.

(v) That if the borrower requests a meeting with the person designated under subsection (1)(c), foreclosure proceedings will not be commenced until 90 days after the date notice is mailed to the borrower.

(vi) That if the borrower and the designated person under subsection (1)(c) reach an agreement to modify the mortgage loan, the mortgage will not be foreclosed if the borrower abides by the terms of the agreement.

(vii) That the borrower has the right to contact an attorney, and the telephone number of the state bar of Michigan's lawyer referral service.

A foreclosure proceeding on a loan, previously modified pursuant to Public Acts 29-31, would be exempt from Public Acts 29-31 if the date of the modification was less than a year prior to commencement of the foreclosure proceeding.

A borrower who opts to participate in negotiations to work out a loan modification must contact a housing counselor from the list provided under section 3205a within 14 days after the list is mailed to the borrower. Within 10 days after being contacted by a borrower, a housing counselor must inform the designated person in writing of the borrower's request. (It could be deduced that if the designated person for the holder/servicer is not notified of the borrower's request for a meeting within 24 days after the mailing of the notice, the holder/lender could proceed with foreclosure by advertisement. Any decision on such action should receive the advice of legal counsel)

After being informed of a borrower's request for a meeting, the holder/servicer or its agent may request that the borrower provide any documents that are necessary to determine whether the borrower is eligible for a modification. The borrower must provide the holder/servicer or its agent copies of the requested documents

A housing counselor contacted by a borrower must schedule a meeting between the borrower and the holder/lender or its agent to attempt to work out a modification. At the request of the borrower, the housing counselor will attend the meeting. The meeting or meetings shall be held at a time and place that is convenient to all parties, or in the county where the property is situated.

HB 4455 (Public Act 31 of 2009)

Public Act 31 provides that if the meeting specified in Public act 30 does not result in an agreement to modify the mortgage loan, the lender/servicer or its agent shall, with some exceptions, work with the borrower under Section 3205c to apply a loan modification program or process that complies with subparagraphs (1)(a) and (1)(b) of Section 3205c, and includes the following features:

(a) The loan modification program or process targets a ratio of the borrower's housing-related debt (including principal and interest, taxes, insurance and association fees) to the borrower's gross income of 38% or less, on an aggregate basis.

(b) To reach the 38% target specified in subdivision (a), 1 or more of the following features must be applied:

(i) An interest rate reduction, as needed, subject to a floor of 3%, for a fixed term of at least 5 years.

(ii) An extension of the amortization period for the loan term, to 40 years or less from the date of the loan modification.

(iii) Deferral of some portion of the amount of the unpaid principal balance of 20% or less, until maturity, refinancing of the loan, or sale of the property.

(iv) Reduction or elimination of late fees.

Loans, which are pooled for sale to an investor that is a governmental entity, or have been sold to a government-sponsored enterprise, are exempt from the aforementioned modification process, but must comply with the modification guidelines dictated by the governmental entity or the government-sponsored enterprise. Additionally, the act does not prohibit a loan modification on other terms or loss mitigation strategy, agreed to by the servicer/holder and the borrower.

If the modification program or process reveals that the borrower is eligible for a modification, the holder/servicer could not foreclose by advertisement and could only proceed with judicial foreclosure. However, the holder/servicer could commence foreclosure by advertisement if the borrower was offered a modification agreement and the borrower had not executed and returned the modification agreement within 14 days after having received it. If the modification process or program reveals that the borrower is not eligible for modification the holder/servicer could proceed with foreclosure by advertisement.

This summary is prepared by Murray Brown, MMLA Director of Development, and is not meant to be a legal opinion or an alternative to a full review by legal counsel of Public Acts 29-31 of 2009.

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

Fed Losing Battle to keep Mortgage Rates Low?

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Sun, 07 Jun 2009 15:43:29 -0500

Mortgage rates spike almost 1% in just over two weeks, what's going on?

June 6, 2009 -- DETROIT, MI - One of the government's stated goals this year is to stabilize the housing market. The thinking is that a long as home values continue to fall, homeowners will lack confidence in the economy and in response, won't spend money.

To stop home values from falling, the number of foreclosures must be curtailed. One of the ways the government has been trying to curtail foreclosures is by keeping mortgage rates low. Low rates allows homeowners to refinance and lower their payments, so they don't let their homes go to foreclosure and makes buying homes more affordable, so it increases homes sales to absorb the homes that have been foreclosed on.

Recent events might have put a damper on those plans. The chart below shows the price of Mortgage Backed Securities (MBS) over the last three months. Keep in mind that the price is the opposite, or inverse, of interest rates. The higher the price of the MBS, the lower the corresponding interest rate. To keep it simple, "green" is a good day for mortgage rates on the chart and "red" is a bad day. (MBS are sold by FNMA and FHLMC to fund their purchases of mortgages from banks and brokers).

Starting May 21^st the chart shows four bad days in a row, culminating in one of the worst days for mortgage rates ever on May 26^th. Intermixed with attempts to rally, mortgage rates have continued to worsen since then. Rates haven't been this high since late November 2008.

What caused the sudden spike in mortgage rates?

To answer that, we have to go back a bit to look at why they were so low to begin with.

At the end of 2008, there was a lot of doom and gloom on Wall Street about the economy due to the bankruptcy of Lehman Brothers, the forced sale of Merrill Lynch, and the federal bailouts of AIG, Goldman Sachs, Morgan Stanley and a slew of banks deemed too big to fail.

In response, money flowed away from high-risk to low-risk investments. U.S. Treasuries and MBS are considered fairly low-risk, so prices on them were bid up, lowering interest rates.

On top of that, the Federal Reserve announced in early December that it was buying up to $500 billion in MBS over the next several months to lower mortgage rates even further. In mid March this figure was increased to $1.25 trillion.

The result of these two factors was the lowest mortgage rates in over 50 years.

Nothing Lasts Forever

Recent positive news on the economy now has Wall Street investors thinking that the worst recession in memory, may be ending. Over the last two weeks, economic reports are showing signs that unemployment, housing and consumer confidence may be stabilizing. The key word there is, "may". The stock markets though, have responded to this news by increasing, pulling money away from the MBS market and causing rates to rise.

So, has the government's stimulus working to lift us out of the recession? Will a turn around in the economy lead to lower unemployment, higher wages and housing prices, making rising mortgage rates a minor issue?

The chart below compares several recessions to our current one. The chart shows that historically, recessions tend to last around 30 months, a tad longer than the 20 months we've experienced in the current one.

The term, "Bear Market Rally, is used on Wall Street to describe a false rally in the stock markets, that's followed by further downturn. The chart below shows that during the Great Depression, there were six bear market rally's that were followed by the market dropping to new lows.

Is the current stock market rally something similar and we have several months to go until we see a true end to the recession?

What about the Fed's $1.25 trillion allocated to buy MBS to keep mortgage rates low? So far, they've only used about $370 billion of that total, so there's a lot left that could be used to attempt to drive mortgage rates back down. The problem is, that may not work much longer.

The game only works to lower mortgage rates when Wall Street investors play along. There's growing concern on Wall Street that the amount of borrowing by the federal government to fund all the economic plans, including the Federal Reserve, is simply becoming a game of "borrowing from Peter to pay Paul" and vice versa.

Figure 2 shows that when the federal government borrowers too much to fund its stimulus packages, the effect of the stimulus funds loses steam. So, throwing more money at the economy doesn't help.

Our concern is that the same rules may apply to the Federal Reserve's game on mortgage rates. The markets may have arrived at the point where even if the Federal Reserve increases its purchases of MBS, mortgage rates may not respond and go lower.

Summary

I wish I had a crystal ball and could accurately predict what mortgage rates are going to do. We're in this economic mess because people way smarter than I, thought they had a good grasp on the financial markets.

It is my opinion (only) that we'll soon find out if this is all a bear market rally or not. If it is, we'll see the stock market drop and rates will improve. I don't think we'll see the same recent lows though, unless there's major bad news on the horizon.

On the other hand, if this is the end of the current recession, than better days are ahead for the economy and all of us. Higher interest rates won't be that big of an issue when sanity returns to the housing market and unemployment drops.

# # #

Drew Sygit is President of The Lending Edge and holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor. He's spoken for HUD, written articles for the Financial Planners Association of Michigan and the Oakland Real Estate Investors Association, presented for the Michigan Associations of CPA's, has written numerous industry articles, and is a mortgage industry advocate for loan originator licensing and consumer education. He can be reached at 248-356-3739, dsygit@TheLendingEdge.com or read his blog: http://drewsmortgagenews.blogspot.com.

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

Someone says, "Crud my Name is Mud!" for HUD's Dud

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Mon, 01 Jun 2009 07:19:45 -0500

HUD issues then retracts a letter, "Using First-Time Home Buyer Tax Credits" and then releases it again.

May 29, 2009 -- DETROIT, MI - Oops! Someone has some explaining to do to their boss at HUD. In case you missed all the hoopla, on May 11^th HUD issued Mortgagee Letter 2009-15 on its website and then pulled it later that same day. The letter, with an important change, was released again on May 29^th.

It sounds like someone didn't follow protocol and jumped the gun in releasing the letter the first time. Hope they still have a job.

If you've been out of touch with the housing news of late, President Obama's housing recovery plan includes an $8,000 tax credit for anyone buying a home that hasn't owned one in the last three years. Home purchases between January1, 2009 and December 1, 2009 qualify.

Unlike President Bush's homebuyer incentive, which was really a $7500 loan that had to be paid back over 15 years, the $8,000 tax credit is a real credit. Qualifying homebuyers just have to file their federal tax return to claim it. They can even amend their 2008 return after buying a home to get the credit this year.

HUD was basically forced to release their letter and play catch up, in response to several state governments creating programs using second mortgage and/or short-term loans to advance the tax credit money to qualifying homebuyers. The homebuyers than used this money as their down payment to buy homes with FHA financing.

At this time there are 10 states with these "tax credit advance programs" and several more working on and considering them.

HUD now allows the following entities to offer tax credit advance programs:

Federal, state and local government agencies
Non-Profit Instrumentalities of government
FHA-approved non-profits
FHA approved lenders

These entities can either advance the tax credit through a second mortgage or by purchasing the tax credit from the homebuyer.

If using a program with a second mortgage:

No cash back to a borrower.
The loan amount can't exceed the total needed for down payment, closing costs and prepaids.
Secondary financing may OR may not require monthly payments.
If payments are required, they must be included in debt ratios for the FHA mortgage.
If payments are deferred, the deferment must be at least 36 months in order to exclude the payment from qualifying ratios.
If the tax credit advance loan has a short term for repayment and the borrower fails to repay by the designated deadline, principal and interest payments begin automatically or the loan converts to a "soft" second (no payments).
No balloon payments before 10 years.

If using a tax credit purchase program:

Proceeds of the sale of the tax credit may not exceed the anticipated tax credit due.
Borrower must sign a certification that the tax credit is not subject to offset of other debt.
Copy of form IRS 5405 must be retained by the FHA lender.
Costs associated with the tax credit purchase cannot exceed 2.5% of the anticipated credit. (Example: $8k tax credit means maximum $200 cost)
The proceeds of the sale of the tax credit to FHA approved lenders, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity), may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs.

This last condition is mainly what HUD changed when they retracted the first letter they released.

Many real estate agents and mortgage lenders are misinterpreting HUD's announcement to mean that Down Payment Assistance (DPA) programs are back. (DPA programs allowed a seller to basically give the buyer their down payment funds). They're hoping the $8k tax credit can be used to fund the DPA. Not going to happen.

HUD was pretty adamant about stopping the use of DPA programs and finally succeeded in April of 2008. Their internal statistics showed default rates on loans with DPA were three times higher than the rest of their portfolio.

The revision HUD made to their mortgagee letter was specifically done to avoid the return of DPA programs. The language, "any third party or entity that is reimbursed, directly or indirectly" is the key to that goal. Any entity that advances the tax credit can only be paid back by the borrower, no one else. On top of that, they can only charge 2.5% of the tax credit, which means a maximum of $200.

That amount of money and the risk in trying to get it back, are not going to have anyone setting up shop to open a DPA company anytime soon. Especially since the program ends December 1^st.

I don't think a lender is going to go through the hassle of setting up a special program to take advantage of HUD's allowance for such a short timeframe either.

So, that leaves buyers in the other 40 states without a tax credit advance program hoping that one develops in their state soon - or else the opportunity will be gone.

Of course, they can also hope that President Obama extends the program past its December 1^st deadline. That might actually happen as the housing crisis is far from over.

# # #

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

A Very Bad Day to be Betting on Low Mortgage Rates (Detroit, MI)

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Thu, 28 May 2009 05:43:45 -0500

Another bubble may have burst, this time with low mortgage rates.

May 27, 2009 -- DETROIT, MI - It's an unsettling feeling watching a market in free-fall. You watch it drop, drop and drop some more, wondering and hoping that it'll level off. When it doesn't, panic and paranoia creep in and your stomach starts to tighten.

I'm sure a lot of bond traders on Wall Street were going through this as one of the WORST days for Mortgaged Backed Securities played out. Take a look at the chart below:

(NOTE: this chart reflects MBS prices which are the inverse of interest rates.)

As if to set the market up like a pool hustler, the day started with a bit of improvement after a bad day yesterday. Then the market kept dropping and dropping and dropping, etc.

What's this mean for interest rates?

Well, you're looking at rates being ½% worse than they were at the start of last week, maybe even higher.

What caused the sell off?

It was an accumulation of factors plus mob hysteria thrown in for good measure. The government's auctioning off a slew of Treasuries this week, consumer confidence shot up last month and was reported yesterday, housing sales are up and the market was just nervous that all this will lead to inflation.

The question is, is this a reset of the markets or will the next round of bad news drive rates back down? We also have the Fed to watch and see how team Bernanke will react to this. The Fed pledged 1.25 trillion dollars to buy MBS and keep mortgage rates around 5%. They've only used up about half of this amount. Will they go "all in" and blow the rest on a gamble to call Wall Street's bluff?

Stay tuned.

# # #

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

The Misconduct of the Home Valuation Code of Conduct (HVCC) - Detroit

Drew Sygit (The Lending Edge) Real Estate Financing Expert (The Lending Edge) — Sun, 17 May 2009 11:23:54 -0500

HVCC, as currently written, will be kicking a housing market that's already on its knees.

DETROIT, MI - Despite the efforts of the real estate and lending industries, the Home Valuation Code of Conduct went into effect May 1, 2009, bringing a dramatic change to the home financing process.

HVCC is the result of a 2007 lawsuit brought against an appraisal division of First American Corp. by the New York Attorney General, Andrew Cuomo, for allegedly inflating appraisal values on an estimated 260,000 WAMU mortgages.

So now, in typical government fashion, we go from one extreme to the other - unmonitored appraisal inflation replaced with bureaucratic appraisal deflation.

The intent of HVCC is to prevent loan originators from having undue influence over appraisers on the valuation of homes and prevent inflated appraisals.

Appraisals for mortgages on 1-4 family homes to be sold to FNMA or FHLMC, will no longer allowed to be directly ordered by loan originators. They must be ordered through Appraisal Management Companies (AMC) that act as middlemen between appraisers and loan originators. (Currently HUD's FHA loans are not subject to HVCC. Loan originators can still order their own appraisals from trusted appraisers for FHA loans.)

Sounds great in theory, but the reality is far from perfect.

I had lunch with several of my mortgage competitors this past week. The main topic ended up being the HVCC and what it'll mean to the process of financing a home. The consensus was that there are going to be a lot of unhappy people - homeowners, homebuyers, sellers, real estate agents, loan originators and more.

Was there a problem with inflated appraisals?

Yes, but HVCC in its current version, creates more problems than it solves. Underwriting departments at most lenders were already using advanced computer programs to address the problem of inflated appraisals. Appraisers found to be providing questionable values and work, were banned by that lender.

Why is the industry so up in arms over HVCC? Well, let's look at how the system is supposed to work:

Loan originator orders appraisal from AMC (usually via internet)

Payment must be made when the order is placed to avoid appraisers being forced to bring in a specific value in order to get paid.

AMC randomly assigns the appraisal order to one of the appraisers on its list of approved appraisers

Appraiser is typically required to complete & deliver the appraisal within 48 hours

Sound easy doesn't it! So what's the problem?

There are no requirements concerning the proximity of an appraiser to a property or their knowledge of an area. I know of a recent occurrence where an appraiser from Grand Rapids was assigned to appraise a home in Livonia. Not surprisingly, the value came in significantly under what local real estate agents estimated it to be.

The cost of appraisals has gone up. Our appraisers typically charged $300-$350, now the AMC's charge $450 or more. Instead of an appraiser getting their full $300, AMC's only pay them $175-$250 of the $450 charged. So, appraisers will have to do more appraisals to earn the same amount they have in the past. This will lead to shoddy work.

The AMC doesn't care if data for the appraisal is difficult to find and would normally take longer to provide an accurate value. They want them ALL back in 48 hours, failure to do so could exclude the appraiser from their list. Again, this will lead to shoddy work. Many high end homes sold in the past recorded the sales price as $1 in the MLS. Normally, an appraiser would go to county records to research the actual sales price. The 48 hour turn time requirement will now lead to appraisers just ignoring these sales, which could negatively impact the appraised value.

There is very little anyone can do to challenge a low valuation at this time. Oh sure, there are forms you can fill out to do so, but the real chances of an override occurring are slim. The only option then is changing lenders and paying for another appraisal, while still hoping for a better value. This will all have to be paid by borrowers and mean longer application timelines.

Each lender has their own approved AMC. There is nothing in HVCC requiring lenders to honor each other's appraisals, so switching lenders could mean paying for another appraisal.

I haven't seen anything in writing about how AMC's will monitor and rate appraisers for the quality of their work. Will it be any surprise that appraisers will just use the first three comparables that pop up on their computer searches? What incentive do they have to put more time into making sure an appraisal reflects the best and most accurate value possible?

These are not the type of challenges you want to hear when real estate values are dropping, especially for those trying to refinance.

Should we blame the appraisers when their valuations start affecting transactions? I don't think we should. None of the appraisers I know have anything good to say about HVCC. Many of them have spent years building their businesses by establishing relationships through providing great service. Now those relationships are all being taken away from them. They're also not happy about the time constraints the AMC's are placing on them. HVCC and the AMC's treat appraisers like they're a commodity and 100% the same. It'll create a race to the bottom and reward appraisers who work the cheapest and fastest at the expense of quality.

I'm going on record here advising real estate agents to pull their own comparables and hand them to the appraiser when you meet them at a property. Maybe even go one step further and do a mini Broker Price Opinion! Otherwise you're leaving the fate of your transaction in the hands of an appraiser who really may not care if your deal closes or not.

If you're a homeowner looking to refinance, you may want to get back in contact with the real estate agent that sold you your home and have them do what I suggested for a purchase transaction in the paragraph above.

By the way, anyone thinking that going to a bank or a certain lender will avoid the problem, is seriously mistaken. Everyone in the industry will be facing the same problems. Homeowners trying to refinance won't be able to threaten to go to their banks to avoid the problem. Real estate agents won't be able to blame loan originators if a sales price is not met. It's a new reality we'll all have to learn to deal with.

A BETTER SOLUTION?
Obviously, there was a problem with inflated appraisals. HVCC is a step in the right direction to address the problem, but several logical modifications can be made to improve it.

Create a nationwide, central database where all appraisers have to register, so "bad eggs" can be identified by all. The federal government required it for loan originators due to fraud issues, so why not appraisers? The same mechanism can also be used.

Require any and all owners of AMC's to pass a background check. Currently, an appraiser, lender or real estate agent could have their license revoked, but still open an AMC.

Create a national system to randomly review the work of appraisers and address complaints. HVCC as it is, leaves this to the AMC's themselves. Self-regulation really worked in the banking industry, didn't it?

Require all lenders to use independent AMC's. Banks are currently allowed to own AMC's, which makes absolutely no sense - unless you're a politician getting bribed by the banking industry.

Standardize the AMC's appraiser approval process and require that they all accept each other's appraisals.

Create penalties for AMC's that pressure appraisers to work on unrealistic deadlines to stay on their approved lists. The 48 hours that most AMC's require is foolhardy. A week is more realistic. Pressuring appraisers to rush their work is really no different than pressuring them to inflate values.

There should be geographic proximity requirements for assigning appraisals. Is it reasonable to expect an appraiser desperate for work to turn down an order in an area they don't know?

Create a standardized system of review, so shoddy appraisal reports can be properly addressed. Since any review system takes time, which could cause a transaction to fall apart, the review system should provide a borrower the option of ordering and paying for a 2nd appraisal, but then require a full refund of the 1st appraisal if it's found to be suspect.

The improvements suggested above won't create a perfect solution as that's impossible in the real world. They could dramatically improve a seriously flawed HVCC though.

Please keep in mind that we're all in this together, both borrowers and industry professionals. We have a government that's giving out hundreds of billions in bailout relief to those at the top that caused the housing crisis - while seeming to make everything harder for the average homeowner. We have to stick together to find our way through this new challenge.

For additional facts about HVCC watch this short video:

https://www.thinkbigworksmall.com/mypage/tbws/7789/661622

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755