David's Blog

The Official Word on Tax Liability for Short Sales

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Wed, 20 Aug 2008 16:46:01 -0500

Here is the official clarification on the tax liabilities from the shortsale of a primary residence.

** Note that 2nd homes and investment properties are not exempt

http://www.irs.gov/irs/article/0,,id=179073,00.htm

Mortgage Workouts, Now Tax-Free for Many Homeowners; Claim Relief on Newly-Revised IRS Form

Updated with FAQs at bottom - Feb. 28, 2008

IR-2008-17, Feb. 12, 2008

WASHINGTON - Homeowners whose mortgage debt was partly or entirely forgiven during 2007 may be able to claim special tax relief by filling out newly-revised Form 982 and attaching it to their 2007 federal income tax return, according to the Internal Revenue Service.

Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec. 20, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person filing a separate return. Details are on Form 982 and its instructions, available now on this Web site.

"The new law contains important provisions for struggling homeowners," said Acting IRS Commissioner Linda Stiff. "We urge people with mortgage problems to take full advantage of the valuable tax relief available."

The late-December enactment means that reporting procedures for this law change were not incorporated into tax-preparation software or IRS forms. For that reason, people using tax software should check with their provider for updates that include the revised Form 982. Similarly, the IRS is now updating its systems and expects to begin accepting electronically-filed returns that include Form 982 by March 3. The paper Form 982 is now being accepted, but the IRS reminds affected taxpayers to consider filing electronically, which greatly reduces errors and speeds refunds.

The new law applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. In most cases, eligible homeowners only need to fill out a few lines on Form 982 (specifically, lines 1e, 2 and 10b).

The debt must have been used to buy, build or substantially improve the taxpayer's principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available. See Form 982 for details.

Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lender. For debt cancelled in 2007, the lender was required to provide this form to the borrower by Jan. 31, 2008. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.

The IRS urges borrowers to check the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. Borrowers should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for their home ( Box 7).

New Housing Bill .... Let the phone calls begin...

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Tue, 29 Jul 2008 17:47:46 -0500

As of the time of this post, the new Housing Bill has only passed the senate and has not been signed into law.

Many of you have seen blips about it in the media, some of you have probably even taken the time to read some of the 20 page summaries that explain how this is really about bailing out the Banks on Wall Street, and not helping the Homeowner on Main Street. Anyone who has read into this knows that there is indeed a lot of fine print. ( Owners pledging future appreciation on their home to be paid to FHA in some circumstances )

Just received a call from a homeowner telling me that the government just forgave all prepayment penalties and loan balances over 90% of his home's value, etc. etc. etc. and wanted to know when he can receive a new FHA loan. For anyone in trouble with their home or mortgage, I certainly sympathize.

What this homeowner, and I'm sure so many others missed is the most basic tenet of this Bill.

....That banks only have to allow this if it costs them less to forgive the balance and refinance the loan to a new FHA loan than it does to foreclose...

..... That homeowners without jobs or facing medical problems that keep them from making income are really not going to receive anything out of this...

.... waiving your right to borrow against the home in the future... not that anyone may be lending anyways, but still...

I could go on, and on.

For anyone in trouble with their home or mortgage, I certainly sympathize. As a mortgage planner, as well as an owner of multiple homes, I've also personally seen my share of challenges in this marketplace. I'm not against helping homeowners in need, I am a bit ambivalent about this new bill, though.

My Question is this, what similar experiences are you seeing that are being caused by selective coverage

in the media? What's your take on this new Housing Bill? Helping Homeowners or Bailing out Banks?

The 4 Most Common Credit Scoring Myths

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Thu, 22 May 2008 16:39:12 -0500

Endless myths and misconceptions about the factors affecting credit scores are as abundant and varied as the scores themselves. This post will help you to separate fact from fiction.

Most loan officers, (and probably a lot of sharp agents out there,too!) already know the answers to these questions.

Here's a simple way to test your credit knowledge on some of the most common credit myths by answering the questions below:

Q: True or false; Closing accounts helps your credit score.

A: False. While it's true that having too many lines of credit open can be damaging to a credit score, once a line of credit is established, closing it can actually lower scores. Credit scores compare the difference between available credit and the credit that's being used. Shutting down accounts lowers total available credit, making the credit balance appear larger than it actually is, and hurting scores in the process. Scores also track credit history, so shutting older accounts can make credit history look younger than it actually is, thus hurting scores. A better solution is to pay down credit card debt.

Q: True or false; You don't actually have to use credit to get a good credit score.

A: False. Credit scoring formulas (like FICO) are designed to judge how well a consumer pays bills on time over time. If credit is never established, or the credit that is available isn't used occasionally, it's more difficult for the formula to make a fair assessment. Sadly, failure to maintain a credit history could result in higher premiums when the time comes to secure a large loan. Many conventional first and second mortgage products require a minimum number of active credit accounts, and also often require that those accounts be opened and maintained for a minimum of 12 months or more.

Q: True or false; Checking on your own FICO score can hurt your credit.

A: False. Ordering a copy of your own credit report or credit score doesn't hurt. Applying for new credit, however, can lower an individual's score. To minimize the damage from credit inquiries when shopping for a mortgage, make sure that multiple inquiries are made over a short span of time. The FICO scoring model treats multiple inquiries in a 45-day period as just one inquiry and ignores all inquiries made within 30 days prior to the day the score is computed.

Q: True or false; A FICO score is the same score at all three major credit bureaus.

A: Technically, this is a "trick" question, because Experian, TransUnion, and Equifax all actually use the same formula developed by Fair Isaac Corporation, but they each give the scores a different name and they don't all share the same raw data when determining scores. One bureau may list certain accounts over others and these variances across the three bureaus result in three different credit scores. Due to these subtle differences, it's always smart to pull and examine credit scoring from all three bureaus before applying for a big loan. Many lenders use the middle score from the three bureaus when making their decisions, so fixing errors in all three reports before shopping for a mortgage loan is wise.

Big Banks Announce 30-Day Freeze on Foreclosures

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Tue, 12 Feb 2008 12:14:40 -0600

JPMorgan Chase & Co., Wells Fargo & Co., Washington Mutual Inc. ,Countrywide Financial Corp, Bank of America Corp., and Citigroup Inc. announced new steps to help borrowers in danger of foreclosure save their homes.

The banks offer a 30-day freeze on some foreclosures to consider loan modifications that may be available. The effort, called ``Project Lifeline'', would help stabilize some communities disrupted by mortgage defaults.

``Project Lifeline has the potential to offer new solutions to responsible, able homeowners who want to keep their homes,'' says Treasury Secretary Robert Paulson. ``As our economy works through this difficult period, we will look for additional opportunities to try to avoid preventable foreclosures.''

According to the plan outline, Lenders would start the process with a letter to homeowners more than 90 days delinquent on payments that lays out procedures for them to ``pause'' the foreclosure process. The homeowner will be given 10 days to respond to the notice and will have to provide the lender additional financial information so the mortgage holder is able to weigh new payment options, or look at writing a new loan, most likely these borrowers will be steared towards an FHA loan that will insure the lenders agains any losses, and heap the problems onto the US taxpayer.

Under the plan, Subprime, Alt-A and prime borrowers may be eligible.

By definition, Subprime mortgages are loans for borrowers having poor credit and/or high debt ratios. Whereas, Alt-A loans are made to borrowers who cannot meet the terms of standard loan products, such as proof of income, noncomforming property type or investment property collateral, and also thosw who may not have larger down payments.

Federal Reserve officials estimate that approximately 2 million homeowners face an increase in their rates over the next two years as their ARM loans reset and adjust. Economists estimate foreclosures this year will approximately 1 million higher than the anuual average of 600,000 in a typical year.

Conforming Loan Limits to Increase - Washington as High as $493,000

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Mon, 11 Feb 2008 13:31:37 -0600

Conforming Loan Limits To Increase

Since August 2007 non-conforming or jumbo loans have been priced significantly higher than they have been in the past due to "liquidity issues". The House and Senate voted to increase the conforming limit to 125% of the median home price in all market areas, and set a cap of $713,000.

We should see these changes implemented by March of this year. The reason for the delay is that, currently, HUD does not track median home prices. Typically, HUD programs are based on income, and as such, they track median income levels. The will need this next 30 days or so to obtain the median home price data that they need, and both FHLMC and FNMA will need the time to model the impact the changes will have on their loan portfolios.

Nationally, we should see this stimulate both purchase and refinance activity for borrowers financing between $417,000 and $713,000. Locally, 125% of the median home price for King County and Snohomish County equates to $493,000, an increase of $76,000 above the previous limit of $417,000.

More buyers will be able afford higher home prices, and this should have a positive impact on property values between $550,000 to $750,000.

So a $493K mortgage today @ 6.875% Jumbo Rate = $3,238.66 if the limit was raised today to the proposed $493,000 then this same buyer would get 5.375% on that same loan for a payment of $2,760.66! That's $478 A MONTH SAVINGS!!!! Or a borrower could purchase a home costing roughly $70,000 more with this savings.

David Mordue - Liberty Financial Group - 425.953.4009 - www.dreamhomewa.com - davidm@lfgloan.com

New Bill Would Repeal Home Mortgage Exception During Bankruptcy

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Mon, 24 Sep 2007 16:41:26 -0500

New Bill Would Repeal Home Mortgage Exception During Bankruptcy

http://www.housingwire.com/2007/09/21/new-bill-would-repeal-home-mortgage-exception-during-bankruptcy/

Great Article By Paul Jackson: Check out www.housingwire.com for this and other housing industry information

A new bill introduced today by Reps. Brad Miller (D-NC) and Linda Sánchez (D-CA) seeks to repeal the home mortgage exception in the current U.S. Bankruptcy code:

... the Miller-Sánchez bill will treat home mortgages the same as mortgages on investment properties and family farms. The bill repeals a provision that prohibits a bankruptcy court from modifying a home mortgage, but allows a bankruptcy court to modify any other secured debt, including mortgages on other properties.

Called the Emergency Home Ownership and Mortgage Equity Protection Act (H.R. 3608), the bill would make it possible for a bankruptcy court to restructure a home mortgage - meaning a bankruptcy judge could change interest rates or alter principal amounts as part of a Chapter 13 restructuring plan.

If you work in the mortgage industry, this bill should give you strong pause. From an investor's perspective, most structured securities are generally designed to account for prepayment and default risks - and not an additional restructuring risk due to borrower bankruptcy. (And I think we all know how well many of these securities have accounted for the expected impact of the first two risk factors.)

But it doesn't really stop there. If I'm understanding the bill correctly, I believe it would eliminate the "relief from stay" from a lender's/servicer's legal toolkit during property repossession and disposition. The result would seem to inevitably be an increase in the timelines surrounding default management and REO disposition, introducing a new cost source that would place further pressure on an investor or insurer's ability to recoup some of their losses.

Making it more difficult for lenders to take back homes when a default takes place - whether or not a forced modification is approved during bankruptcy - also hurts consumers, not just those making the loans. Consumers will either be charged higher rates to compensate for the higher risk of loss given default, and many lenders themselves will become less likely to lend to consumers whose credit profiles mark them as a relatively greater default risk. (That would be subprime.)

In case you missed it: if enacted, this bill will likely have the unintended effect of hurting the very group it is purported to help. Given the lack of options already facing many subprime borrowers today, I just don't know how much I can get behind a bill that seems likely to further thin out the herd of available options even further.

Understanding the FHA Changes

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Fri, 21 Sep 2007 15:59:23 -0500

This helpful email was a forward from Mortgage Mastery.

Ok, this is going to be a long one, but please don't get glassy eyed :). This is important and will affect your closings (for the good)!

IMPORTANT FHA NEWS!

The Senate Banking Committee passed by a vote of 21-1 the FHA modernization legislation this week. Senator Dole was the only "no" vote largely in principle over the way FHA is implementing risk-based pricing (administratively without Congressional authorization). The near unanimous vote virtually guarantees full Senate passage of the bill. It will then go to conference to reconcile differences with the House bill that was passed yesterday. Please understand that NONE of these items below have been finalized........ This is only what is on the table.

The speed with which the bill moved through the Committee demonstrates the political significance of the FHA program in today's marketplace. Accordingly, we expect the next steps to move equally fast and it is now likely that there will be an FHA bill ready for the President's signature in less than 30 days.

The key provisions of the Senate bill are:

FHA "floor" - increases from 48% to 65% of the GSE limit (i.e. from $200,160 to $271,050)
The House bill contains the same language virtually ensuring its inclusion in the final bill. The new "floor" will likely be effective upon signature by the President.

FHA "ceiling" may increase to $417,000
The House bill raised the FHA limit to around $730,000 in high cost areas- (note that we are in a low cost area, so our max should probably be $271,050 or it could go to $417,000 (which is also Fannie/Fannie's conforming limit). At a minimum therefore, the increase to $417,000 (in some areas) is a certainty assuming the bill passes. An increase above $417,000 will likely depend on market events.

This provision will likely not be effective immediately. FHA will need to analyze local markets to determine whether an increase is justified. We do believe that FHA will move to increase limits ASAP.

Lower and more flexible downpayment
The Senate passed the compromise provision that will require 1.5% borrower cash investment (vs the 3% now). There will be a cap of 100% loan-to value ratio. However, the upfront MIP will be required to be included in the 100% LTV effectively capping the loan amount at 98.5% assuming an upfront MIP of 1.5%. At first glance, our thoughts on this provision are:

The House bill still contains the zero downpayment provision. In this market environment, we believe it will be difficult to include the no downpayment proposal in any legislation. We believe the Senate provision will be the more likely scenario. However, lowering of the cash investment requirement is possible but unlikely.

No mention of risk-based pricing
There was no mention of risk-based pricing in the bill and no increase in the annual premium. In light of HUD's preemptive administrative action earlier this week to implement risk based pricing on January 1, 2008, it will be curious to see how this issue unfolds in the coming weeks and months. In the limited discussion this morning, risk based pricing was the one issue in which both Republicans and Chairman Dodd expressed concern at FHA's actions and want FHA to explain what they are planning to do with this change.

Condominium improvements
The bill will facilitate the acceptance of Fannie Mae and Freddie Mac approved condominium projects.

HECM (Reverse Mortgages)
There were several HECM improvements. They are: 1) raising mortgage amount to $417,000, 2) eliminating the cap on volume, 3) permitting use of HECMs for purchase transactions and cooperatives (right now only Fannie-not FHA- allows purchases using a Reverse Mortgage) and 4) lowering of the origination fee to 1.5% vs 2%

There were also several amendments accepted unanimously. They were: 1) much stiffer penalties to fraud (the draft called for 35 years in prison and $5 million in fines), 2) pre-purchase counseling demonstration, 3) expanding counseling to borrowers in trouble and 4) study on reverse mortgages.

What is next and when will the bill be enacted?

As we indicated, Senate was/is/will be the key to the enactment of the FHA legislation. Now that the Senate Banking Committee has moved affirmatively in a very bipartisan way, we are increasingly optimistic about the prospects for an FHA bill. We would expect the process to be completed and signed by the President in the next 30 days or so barring some unforeseen circumstance.

That being said, there is still the Conference of House and Senate Committee leaders to reconcile differences in the two bills and there are several thorny issues. Probably the most controversial are two House proposals. They are: 1) creation of a housing trust from a portion of the FHA profits and 2) raising the FHA limits in high cost areas above $417,000.

Because of the nature of Senate rules (i.e. minority has considerable power), we would expect most controversial provisions to be resolved along the lines of the Senate bill although changes are possible. However, House Financial Services Chairman Frank is deeply committed to the housing trust found. Republicans are vehemently opposed to it. I cannot imagine that a disagreement over this provision will hold up a bill but we'll have to see. The other is mortgage limits in high cost areas. As we noted, the House proposes to raise them to as high as $730,000. While the Senate Republicans will oppose such a provision, events in the mortgage industry could result in some type of compromise.

We will, of course, follow this process through the remaining steps that hopefully will end at a bill signing ceremony by the President.

So, what does this mean for you?

•·With the increase of the FHA limits, we will be able to put more buyers in FHA mortgages (remember that FHA is not credit score driven, only credit history driven- unlike Freddie and Fannie products).

•· If the buyer investment $$ decreases, that will allow the buyer to be less out of pocket than before.

•· More lenders will start "practicing" on your buyers without any experience at all of FHA. Don't let non-FHA experienced loan officers practice on your clients- We ARE the FHA experts.... Let our knowledge work for you.

We will keep you informed of what changes are actually put in place and when it happens!

FHA REMINDERS

Seller can contribute up to 6% of the Sales Price.

No Termite Inspection Required.

No Non-Allowables required for the seller.

Buyer can currently be in a Chapter 13 Bankruptcy.

It is an assumable loan (important when rates go to 8% and they are at 6%).

Buyer can have Federal Tax Liens and not have to pay them off!

FHA is now using the standard Fannie Mae appraisal form- No more VC sheets

HOUSE PASSES FHA REFORM BILL, NEW LIMIT MAY EXCEED $700,000

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Fri, 21 Sep 2007 14:24:28 -0500

This passed the House and the Senate. Great news for first time home buyers, and this should open up the market for the new FHA SECURE program to people with higher loan amounts.

House Passes FHA Reform Bill

The House has passed a Federal Housing Administration reform bill by a 348-72 vote that raises the FHA loan limit to over $700,000 in high- cost areas and allows the FHA to reach more subprime borrowers by charging risk-based premiums. FHA Commissioner Brian Montgomery welcomed the House action despite concerns that the House bill (H.R.

1852) raises the FHA loan limits too high. The Bush administration proposed raising the FHA loan limit from $362,790 to the $417,000 conforming-loan limit in high-cost areas. But the House approved a bipartisan amendment by voice vote that raises the maximum FHA loan limit to 175% of the conforming loan limit, or $730,000, to address problems in the jumbo loan market. Commissioner Montgomery noted that the administration strongly opposes such a loan limit hike but said he expects the Senate bill to be more compatible with the administration's position. "We look forward to seeing what the Senate does, and we will try to work out those differences in conference committee," Mr. Montgomery told reporters.

David Mordue - Liberty Financial Group - Lynnwood WA - www.dreamhomewa.com

SENATE PANEL OKAYS FHA REFORM BILL ON INCREASING LIMIT TO $417,000

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Fri, 21 Sep 2007 14:15:48 -0500

More Good News

Senate Panel Okays FHA Reform

By a 20-1 vote, the Senate Banking Committee has approved a Federal Housing Administration reform bill that would lower the FHA downpayment requirement to 1.5% and raise the FHA loan limit to $417,000 in high-cost areas. Reforming the FHA is going to be a "big help" in dealing with the mortgage crisis, committee Chairman Christopher J. Dodd said after the mark-up of the bill. The chairman also thanked several senators for not offering government-sponsored enterprise amendments during the mark-up session that would raise Fannie Mae's and Freddie Mac's loan limits and the caps on their mortgage portfolios. The chairman told reporters he plans to mark up a GSE reform bill this fall and will "resist" any GSE amendments when the FHA bill goes to the Senate floor. The FHA reform is silent on the issue of FHA risk-based mortgage insurance premiums. But Sens. Dodd and Wayne Allard, R-Colo., raised concerns about Department of Housing and Urban Development moves to issue a risk-based premium proposal.

"HUD seems to feel they have the authority to move forward on their own," Sen. Allard said. "At the very least, I think they need to consult with the Congress and seek out our consent."

David Mordue - Liberty Financial Group - Lynnwood WA - www.dreamhomewa.com

FHA to implement new FHA SECURE Refinancing Project

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Tue, 11 Sep 2007 00:07:52 -0500

From http://www.fha.gov/press/2007-08-31release.cfm

BUSH ADMINISTRATION TO HELP NEARLY ONE-QUARTER OF A MILLION HOMEOWNERS REFINANCE, KEEP THEIR HOMES
FHA to implement new "FHASecure" refinancing product

WASHINGTON - President George W. Bush today announced that HUD's Federal Housing Administration (FHA) will help an estimated 240,000 families avoid foreclosure by enhancing its refinancing program effective immediately. Under the new FHASecure plan, FHA will allow families with strong credit histories who had been making timely mortgage payments before their loans reset-but are now in default-to qualify for refinancing.
In addition, FHA will implement risk-based premiums that match the borrower's credit profile with the insurance premium they pay-i.e., riskier borrowers pay more. This common-sense, risk-based pricing structure will begin on January 1, 2008.
"Many hard-working American families who were able to make their mortgage payments under the initial teaser terms of the exotic loan are now struggling to make ends meet because their rates have doubled or tripled," said HUD Secretary Alphonso Jackson. "FHASecure will bring stability to the housing market and give eligible families who were in good financial standing before their loans reset a chance to keep their homes."
The combination of FHASecure and risk-based premium pricing will permit FHA to return to the role it was originally designed to play, bringing stability to the real estate market by helping break today's cycle of foreclosures and price depreciation and creating much needed liquidity in the now-constricted mortgage market.
FHA has recently experienced a substantial increase in the number of conventional borrowers refinancing into FHA products. With FHASecure, it can help even more. The number of these refinancing transactions has tripled since the start of 2006. FHA's transactions are projected to surpass 100,000 loans by the end of the fiscal year. To date, these figures do not include refinances for delinquent borrowers.
The FHASecure initiativewill operate under the same safe guidelines as the FHA's existing mortgage insurance program without affecting FHA's financial health. Eligible homeowners will be required to meet strict underwriting guidelines and pay a mortgage insurance premium, which offsets the risk to FHA's insurance fund at no cost to the taxpayer.
The risk-based insurance premium structure will further expand FHA's reach to additional underserved borrowers, particularly minorities and first-time homebuyers who have been disproportionately lured into exotic mortgages, and enhance the FHA's overall risk management. The move to risk-based premiums ensures that FHA remains on solid financial footing as a self-financed agency for the long-term.
FHASecure, like all FHA products, will be underwritten to ensure the borrowers have the ability to repay the loan, will require escrow for taxes and insurance, and will continue to offer unprecedented foreclosure prevention assistance. The FHA has never permitted and will not include pre-payment penalties or teaser rates that are common in exotic mortgages and have caused much of the current market troubles.
To qualify for FHASecure, eligible homeowners must meet the following five criteria:
A history of on-time mortgage payments before the borrower's teaser rates expired and loans reset;
Interest rates must have or will reset between June 2005 and December 2009;
Three percent cash or equity in the home;
A sustained history of employment; and
Sufficient income to make the mortgage payment.
"FHASecure is designed for families who are good borrowers but were steered into high-cost loans with teaser rates," said Assistant Secretary for Housing-FHA Commissioner Brian Montgomery. "These homeowners, many of whom are minorities, need a safe, affordable mortgage product that will help build wealth. All FHA borrowers pay mortgage insurance premiums to offset claims to the FHA insurance fund and ultimately prevent risk to the taxpayer."
FHASecure will also bring much-needed liquidity to the mortgage market. FHA anticipates more lenders will offer FHA-insured loans, pool them, and securitize them with the Government National Mortgage Association (Ginnie Mae), which has the full faith and credit of the U.S. government. This guarantee makes Ginnie Mae's mortgage-backed securities the safest on the market and helps to channel greater capital into the housing market, benefiting U.S. homeowners.
Since its inception in 1934, FHA has helped almost 35 million people become homeowners, making it the largest insurer of mortgages in the world. The 109th Congress introduced the Expanding American Homeownership Act in June 2006 which would enable FHA to be a safe option for more underserved low- and moderate-income and minority families so they can achieve the American Dream of homeownership. Today, President Bush also urged Congress to quickly pass the Administration's FHA modernization proposal to help more families in need.
For more information about FHASecure and other FHA products, please call 1-800-CALL-FHA or visit http://www.fha.gov/ or http://www.hud.gov/. For a list of your local homeownership center or a HUD-approved housing counseling center, go to www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm

APPROVED - New FHA SECURE Mortage for Borrowers with Negative Equity

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Mon, 10 Sep 2007 23:48:11 -0500

The Federal Housing Administration recently passed legislation approving a new program known as the "FHASecure" loan. This program is designed to refinance consumers who have fallen behind on Subprime ARM loans due to recent adjustments in the rate. The "Fhasecure" loan will help consumers with negative equity, or who cannot meet the payments when their ARM loan adjusts. Expect to see the program available later this year.

At a glance, the FHASecure loan program will finance borrowers up to a 97.75% Loan to value. Up to 6 months past due mortgage payments may be included in the loan amount if the borrower qualifies.

A new appraisal is ordered for the property for an FHASecure loan program. The new appraisal for the Fhasecure loan must be performed by an FHA approved appraiser, and must adhere to FHA guidelines.

The main benefit of the FHASecure loan program is getting consumers out of adjustable rate loan programs they cannot afford, and to help them before their mortgage payments increase too much for their budgets.

The FHASecure loan will be offered as a fixed rate program.

The primary reason that the FHAsecure loan program was created not to bailout for mortgage lending institutions, but rather as a tool to help consumers caught in a jam.

in 2008 than 2 trillion dollars of mortgages are due to reset, according to some economists.

Under the new program guidelines, FHA will insure first mortgages where (1) the existing note holder writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage; or (2) either the FHA-approved lender making the new mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing if the indebtedness exceeds FHA prescribed LTV and maximum mortgage amount limits.

For more information about this program, contact David Mordue at davidm@lfgloan.com, or 425.953.4009

Only Article that I have read that does not blame Loan Officers for the current lending problems

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Tue, 04 Sep 2007 16:48:12 -0500

NEW YORK (Fortune) -- Wall Street loves to talk about letting financial markets weed out the weak. But when the Street itself gets in trouble, it sticks out its little tin cup, asking for help. And gets it.
The subprime-mortgage-market meltdown is a classic example of the way small fry get devoured, but the whales of Wall Street get rescued. Here's the deal: People with crummy credit who took out mortgages are being allowed to fail in record numbers. The mortgage companies that made those loans are being allowed to fail.
The Street itself? It's bailout city. Even before the Fed made a symbolic half-point cut in the discount rate, it and other central banks from Switzerland to Singapore were trying to rescue the Street by injecting hundreds of billions of dollars into the financial markets and announcing they will put up more, if needed.
Hello? If you believe in markets - which I do - this rescue is especially galling, because Wall Street enabled this mess in the first place. How so? By happily sucking up hundreds of billions of dollars' worth of suspect mortgages from marginal U.S. borrowers-and begging mortgage makers to create more of them. The Street sliced and diced this financial toxic waste into a variety of esoteric securities, making a nice markup when it sold them and generating a continuing stream of profits when it made markets in them.
Somehow analysts at credit-rating agencies, looking at computerized scenarios rather than at the real world, decided that the bulk of the securities backed by these trashy loans could be rated triple-A.
It's really amazing: Most of the loans to substandard creditors borrowing 100% of the purchase price of homes they couldn't afford were rated the same as GE and the federal government. That makes no sense. But the money rolled in, and Wall Street-by which I mean the world's biggest and most important financial institutions-didn't care about the real world or ask any questions. It was too busy making money, and cashing bonus checks generated by subprime-mortgage profits.
But the world's central banks aren't letting the big guys fail. Think of it as the Escape of the Enablers. The reason this is happening, of course, is the same reason that the Fed orchestrated a bailout of the infamous Long-Term Capital Management hedge fund a decade ago-and about 20 years ago didn't close some of the nation's biggest banks, even though they were effectively insolvent because unrealized losses had wiped out their capital.
It's the "too big to fail" syndrome. In a world in which big players make incredibly large and complex deals with one another - that's what derivatives are - regulators don't dare let a big or important institution fail for fear that the collapse of one would lead to "cascading failures," and other institutions wouldn't be able to collect what the collapsed institution owed them.
The Fed's job, you see, isn't to protect you and me and our retirement portfolios, or even many of the nation's largest companies and biggest employers. The Fed's job is to protect the financial system. That's why it's trying to rescue the gigantic subprime enablers while letting borrowers and mortgage companies go under.
Your collapse or mine wouldn't bother Fed chairman Ben Bernanke or the world's other central bankers. But if, say, a big German institution loaded to the eyeballs with subprime securities croaked, Bernanke and his fellow central bankers would care a lot.
Sure, we know that Ben and the boys will always bail out the biggies. And none of us - I think, anyway - wants the world's financial system to implode. But I'd feel a lot better if the Street had to pay a serious price to its rescuers--say, having to fork over a big equity stake and pay a loan-shark interest rate. That way taxpayers, who are picking up the tab for the rescue, would get paid bigtime for taking on bigtime risk.
After all, that's the Wall Street way.

How to Get a Mortgage Today

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Mon, 03 Sep 2007 20:10:57 -0500

Came accross this article today when I was reading Market Watch.

How to get a mortgage today

By Gail Liberman and Alan Lavine

You still may qualify for a mortgage, regardless of a shaky credit market. But you need to know the ropes because many lenders have tightened standards. So what should you do if you're buying a home today or you need to refinance?

Understand that some types of lenders are more apt to loan you money in today's markets than others. Plus, certain types of mortgages may be easier to get than others.

Above all, don't be discouraged. Even if your credit is too far gone, or your home appraisal falls short of what you owe, government efforts are under way to make money available to bail out cash-strapped borrowers.

The best way to qualify for a mortgage with decent terms may be to shop savings institutions, smaller commercial banks and credit unions. The key is to find a "portfolio lender." Portfolio lenders both originate and hold onto the loan. They don't sell to investors.

By contrast, mortgage brokers generally offer mortgages from a variety of lenders. Mortgage brokers typically don't finance a loan with their own money. They're intermediaries: The more people involved in a deal, the more chances that the chain could break or something could fall through the cracks. Also, be sure to consider a mortgage broker's fee, which could take the form of a higher rate or points. One point equals one percent of the loan amount.

Mortgage bankers, on the other hand, front their own money for your mortgage, but often sell loans to investors. It's investors who are demanding higher interest rates due to their higher perceived risk.

Historically, "portfolio lenders" largely have been savings institutions. But more recently, lines between these businesses have blurred. Some lenders may shift from one line of business to another as needs change.

Credit unions

Right now, for example, "credit unions have $170 billion of first mortgage loans on their books," says Bill Hampel, chief economist for Credit Union National Association. "Lately, they've been selling about one-third of their production, which means they hold onto two-thirds. So they're primarily portfolio lenders."

Yes, Hampel says, you can get a jumbo loan, which is mortgage of more than $417,000, from a credit union. Can't get what you want from a large credit union? You could stand a better chance with a smaller one, he suggests.

To join a credit union, you generally must fit into a specific "field of membership," and open a "share" or savings account. Find a credit union you can join at . Click on "Consumer information."

Large savings institutions

Large savings institutions making mortgages include IndyMac Bank, Pasadena, Calif., and Astoria Savings, New York.

But IndyMac officials acknowledge that the days of no-down payments may be over -- at least for now. Also, except for loans it can sell to government-sponsored secondary market players, IndyMac no longer offers subprime loans, or those for less creditworthy borrowers. It has eliminated second mortgages except for some home-equity lines of credit.

High-quality borrowers, however, still may qualify for mortgage loans with a 10% down payment.

Hampel suggests that if you can't get attractive terms on a 30-year fixed-rate mortgage, you might find a 5/1 or 7/1 adjustable-rate mortgage. With those mortgages, the interest rate is fixed for five years or seven years. Then, the rate becomes subject to change annually. Borrowers usually only stay in a home for seven years anyway.

Five steps to a mortgage

Before applying for a home loan, consider taking these steps:

Pay down credit balances. That will make you look less risky and might help your credit score, suggests Tom Quinn, vice president of scoring for Fair Isaac Corp., Minneapolis. If you have good credit, it may be possible to raise your credit score by asking existing creditors to raise your credit limits. But ask the lender not to pull your credit report to do it. Credit-report inquiries or deteriorating credit can lower credit scores.
Get a copy of your credit report from each of the three major credit bureaus. Fix errors and get as much adverse information removed as possible. You're entitled to one free credit report annually from each credit bureau at .
Check licenses of lenders you're considering. This may not be easy because state licensing requirements vary by state and lender. Banks and thrifts can be checked out at by clicking on "Institution Directory."
Shop several lenders. Don't assume if you get one quote of an unusually high interest rate, all will be high. Negotiate lower rates and seek removal of unnecessary fees.
Consider that interest rates and terms may change daily. Also, a low interest rate could mean more upfront points or added fees. Get all pricing information in writing before obtaining a written commitment for your loan. Get a commitment letter directly from the lender who's financing the mortgage, which may be different from the loan originator.

Tax-Free Profits on All of Your Real Estate Deals? Yes You Can!

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Fri, 31 Aug 2007 13:00:02 -0500

This is a repost from an earlier blog entry. I'm posting it per the request of a group member. -- dm

A few of my clients have set up these Real Estate IRA's, so I thought I would post this article that I found today..

A lot of people have never heard of these types of IRA's. Only a small number of companies offer them, and I don't know of any company offering them in the Seattle area.

These accounts allow for Developing Real Estate, buying Tax Liens, and some other types of real estate investment. A great option for someone who makes their living by investing in real estate. This is the only way that I know of to avoid the high taxes associated with developing real estate.

If anyone knows of someone in the Seattle Area who offers these types of accounts, please let me know. It would be great to have a local Financial Planner to refer my clients to.

- David

Tax-Free Profits on All of Your Real Estate Deals? Yes You Can!

Written by Jeff Desich

Tax-Free Profits on All of Your Real Estate Deals? Yes You Can

Harness the power of real estate and alternative asset investing in an IRA to make tax-free or tax-deferred profits for the rest of your life!

By Jeff Desich, President of Equity Trust Company

Apr 26, 2007 -- /prbuzz/ -- After completing a successful real estate transaction, do you ever wish a chunk of the profits didn't have to go back to the IRS for taxes? Do you ever dream about how many more real estate deals you could do or how many more properties you could buy if profits weren't split with the government because of taxes?

Well dream no more. Realizing tax-free or tax-deferred profits on real estate and alternative asset investing is a reality.

Government sponsored retirement plans such as IRAs and 401(k)s allow you to invest in almost anything (including real estate), not just stocks, bonds and mutual funds. And all the benefits those plans provide, tax-deductions and tax-free profits, apply to whatever investment you choose, including real estate.

The Power of Tax-Deferred and Tax-Free Profits

"The most powerful force on Earth is compounding interest." - Albert Einstein

One of an IRA's greatest features is that it allows Americans to enjoy the true power of tax-deferred compounding interest. Compound interest occurs when interest is earned on a principal sum along with any accumulated interest on that sum. In other words, you are earning interest not only on your original investment sum, but also on the interest earned from the original sum.

Compound interest can occur with any investment you make, but the "true" power of compounding interest is obtained when you make an investment in a tax-deferred environment, like an IRA.

By taking advantage of an IRA's tax-deferred status, you do not have to pay tax immediately on your earnings (like the sale of a property or rent collected). Thus, you are able to enjoy the power of compounding on ALL of your profit, not just what is left after taxes.

Now apply those benefits to your real estate or alternative asset investing. Tax-deferred profits on your real estate transactions allows greater flexibility to make more investments, or to just sit back and watch your real estate investment grow in value, without worrying about taxes.

Is This for Real?

Most investors don't know this opportunity exists because most IRA custodians do not offer truly self-directed IRAs that allow Americans to invest in real estate and other non-traditional investments.

Often, when you ask a custodian/trustee, "Can I invest in real estate with an IRA?" they will say, "I've never heard of that" or, "No, you can't do that." What they really mean is that you can't do this at their company because they only offer stocks, mutual funds, bonds, or CD products.

Only a truly self-directed IRA custodian like Equity Trust Company (http://www.trustetc.com/) will allow you to invest in all forms of real estate or any other investments not prohibited by the Internal Revenue Service.

Is This Legal?

It sure is. For more than 33 years and through the management of $2 billion in IRA assets, Equity Trust has assisted clients in increasing their financial wealth by investing in a variety of opportunities from real estate and private placements to stocks and bonds in self-directed IRAs and small business retirement plans.

IRS Publication 590 (dealing with IRAs) states what investments are prohibited; these investments include artwork, stamps, rugs, antiques, and gems. All other investments, including stocks, bonds, mutual funds, real estate, mortgages, and private placements, are perfectly acceptable as long as IRS rules governing retirement plans are followed (To view IRS Publication 590, please visit www.trustetc.com/links/irspubs.html).

Getting Started

"Is it hard to do?" is a common question about investing in real estate with a self-directed IRA. It is really simple and is very similar to the way you currently invest in real estate. The following five steps demonstrate how easy it is to invest in real estate, or just about anything else, with a self-directed IRA.

1) Establish an account with a self-directed IRA custodian.
First, you must establish an account with a self-directed IRA custodian and Equity Trust Company is your best option. For more information on why Equity Trust is the right choice for your self-directed IRA needs, visit http://www.trustetc.com./

Setting up an IRA account with Equity Trust usually takes only minutes to complete by filling out a simple application and sending (or faxing) it to our office.

2) Fund your account.
Next you have to fund the account, and this is just as easy as opening a self-directed IRA account. There are two ways to fund your account.

· Contributions

You can contribute to your account through a check or wire transfer and contribution limits range from $4,000-$50,000 depending on which account you choose.

· Transfer/Rollover

In most cases, if you have an existing retirement plan such as an IRA, 401k, or 403b these funds can be transferred to a self-directed IRA allowing you to make real estate IRA investments.

3) Investment found: You're set to go!
Now that you've got your account established, funded and you've identified a real estate investment, you are ready to make an investment.

Making a real estate investment with your IRA is straightforward if you remember a few simple rules. First, complete a Direction of Investment (DOI) form. A DOI instructs the custodian where and how to remit funds from your self-directed IRA for your real estate purchase.

Information contained on the DOI includes the property address, cost, funding instructions (check/wire) etc. In addition to the DOI, the custodian will need accompanying investment documents to ensure proper titling of the investment.

4) Ensuring proper title: You and your IRA are not the same.
One of the most common mistakes (and cause of delays) in real estate IRA investing is when the property is titled incorrectly. Frequently the IRA owner will incorrectly put their personal name on the title of the property.

Remember you and your IRA are two separate entities, and as such, the property needs to be titled in the name of your IRA and not you personally.

· The correct title for a real estate (or other asset) IRA investment is:

Equity Trust Company custodian FBO (for benefit of) YOUR NAME IRA

5) What happens after your IRA owns the property?
Now that your IRA has purchased the property you need to remember two things:

· Expenses: Any expenses associated with the property (maintenance, improvements, property taxes, condo association, general bills etc.) must come from the IRA.

· Cash Flow/Profits: All net profits must return to the IRA, meaning all income (rent) and profits (selling of property) are deposited back into your IRA account-tax-free!

That is all there is to it, it's as simple as 1-2-3. In no time at all you can be investing in real estate and other alternative assets receiving tax-free or tax-deferred profits for the rest of your life.

Don't delay in opening an account. Every day that passes is one less day your investment can benefit from the Earth's most powerful force (at least according to Einstein), compounding interest.

For more information about self-directed IRA investing, the plans and services available to you, and how to get started, please contact Equity Trust Company via http://www.trustetc.com/ or by phone at 1-877-693-8209.

Article Source: PRBuzz.com: http://www.prbuzz.com/tax-free-profits-on-all-of-your-real-estate-deals-yes-you-can-2552.html

David Mordue / Senior Mortgage Planner / Liberty Financial Group / Kirkland WA

Mortgage Liquidity Crisis-What Does It Mean?.

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Thu, 30 Aug 2007 23:34:20 -0500

There have been many recent headlines about a mortgage liquidity crisis, but what exactly does a mortgage liquidity crisis mean? More importantly, how does a mortgage liquidity crisis affect the average consumer. The next few paragraphs will explain the mortgage liquidity crisis and what you should know if you plan to purchase a home or refinance a home in the near future.

The mortgage liquidity crisis refers to the inability of mortgage lenders to sell closed loans in the secondary market. Lenders generally have a large line of credit to fund their mortgage loans. Once a package of closed loans has been sold, a lender once again has freed up their line of credit to fund a series of mortgage loans. If there are no buyers of the bundle of closed loans, the lender cannot make any more mortgage loans as they have no more outstanding credit to fund the loans.

Many loan programs that were previously offered such as no-income verification loans and "stated income/stated asset" loans are now proving unsaleable in the secondary market. This is because these loans performed poorly, which means people got loans that they could not afford and subsequently defaulted on these loans. With homes no longer appreciating rapidly to bail out those who can not afford their loan, these homes are being foreclosed upon.

The main mortgage markets that have remained liquid and stable are the markets for Fannie Mae/Freddie Mac Financing as well as the FHA/VA financing markets. Most lenders are gearing their current portfolio's to sell mainly to Fannie Mae and Freddie Mac.

The mortgage liquidity crises stems from the fact that over the last five years lending standards dropped dramatically and many people received loans that will not be repaid due to the poor credit quality of the borrower. The mortgage market will have less liquidity going forward and will continue to raise lending standards to ensure that loans that are made will be repaid.

The long and short of the mortgage liquidity crisis is that if you now want to borrow money against your home, your lender will try to reasonably verify that you can pay back the money you are borrowing. The value of your property will be scrutinized more closely as well.

The primary mortgage market lender evaluates the homebuyer's ability to repay the mortgage, and if the lender's criteria are met, arrangements are made to make the loan. The transaction between the lender and the borrower culminates in what is called "the closing." By signing the closing documents, the lender agrees to fund the purchase of the home and the homebuyer agrees to pay the mortgage as negotiated. Once the loan is closed, the funds are transferred from the primary lender to the property seller through an escrow agent at closing.

The Secondary Market is where the loan is packaged and sold to various investors.

After the closing, the primary lender may either hold the mortgage in its portfolio or sell it in the secondary mortgage market.

When primary mortgage lenders sell loans in the secondary market, they generally sell them as loans to an institution like Freddie Mac. They then use the proceeds of the sale to make new loans to other homebuyers in their community

Fed Rate Cut : Reading Between the Lines

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Fri, 17 Aug 2007 11:16:50 -0500

Here is an email from an ABN-AMRO AE that clarifies the cut today. Thought I would share as it is good info:

"Today (08/17/2007), in an unprecedented move, the Federal Reserve made an
emergency Discount Rate cut of .50% (1/2 percent) in order to attempt to
avert further liquidity crisis (cash shortage) in the banking industry.

This does not mean that mortgage rates have been cut.

And this is not the same thing as a Fed Funds rate cut. There is an
important difference.

In order to understand what this means, you need to know a few basic
definitions:

The Federal Reserve banks' primary responsibility is to ensure that
fluctuations in the demand for cash does not disrupt the banking
industry

Fed Discount Rate: The interest rate at which eligible banks may
borrow funds, usually for short periods, directly from a Federal
Reserve Bank - this is to meet temporary shortages of liquidity
caused by internal or external disruptions (also known as the
Discount Window)

The Discount Rate has very little to do with how retail interest rates
ultimately affect consumers of loans and credit, but rather primarily
affects the internal stability of the banking industry

Fed Funds Rate: The interest rate at which non-Federal Reserve banks
lends immediately available funds to other non-Federal Reserve banks
overnight (Also known as the Overnight Lending Rate)

The Fed Funds rate is the one that is adjusted to increase growth or
moderate inflation of our overall economy. This usually has a direct effect
on the 10 Year Treasury Bill, which is the primary driver of mortgage
rates. A Fed Funds rate change has a significant impact on retail interest
rates.

In summary, it would be a mistake to assume that because the Fed Discount
Rate has been lowered to help the banks avoid a cash crunch meltdown, that
mortgage rates will either drop or go up. This is because the primary Fed
Funds Rate has not been revised.

In fact, it is just as likely that as the stock market recovers, mortgage
rates are more likely to go up than down! This is because bonds will get
sold, which raises the yields and therefore mortgage rates.

Any impact of this Discount Rate cut remains to be seen and will only play
out in a macro-economic, long term way via restored confidence and
liquidity of the banking industry.

I hope this helps you to further communicate with your borrowers and secure
your relationship as an informed mortgage professional."

My take;

Wall Street knew that the Fed rate cut was coming yesterday before trading ended. How else can anyone explain the miraculous recovery that took place in the last hour of trading yesterday?

We will continue to see the Fed cut rates in measured increments over the next few months. The key reason for these cuts will be to stabilize Wall Street so that institutional investors can continue to dump their financial sector stocks in hopes that they can unload them before the next batch of bad news (truth) makes its way into the news.

Unless we see cuts totalling 2%+ , I don't see any real relief coming. And don't think consumers will see any major benefit from these cuts, at least not on first mortgage loans. The banks will borrow at the lower rates and not pass the discount on to the consumers; they'll keep the difference.

Borrowers will see an immediate decrease in their adjustable rate 2nd mortgages as well as their credit cards, which mostly track movements in the prime rate.

Bernanke continues to say that inflation is the primary concern. Defaults and foreclosures are going to bring far more serious consequences than inflation will.

Can anyone honestly say that people losing everything, every bit of their net worth is not more serious than someone paying $8 more for flat screen tv or .35 cents more for a loaf of bread?

Legislation to Eliminate Stated Income loans - H.R. 3081

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Thu, 16 Aug 2007 20:48:24 -0500

Interested to hear your thoughts on this.

http://www.govtrack.us/congress/billtext.xpd?bill=h110-3081

A few highlights from the link...

---

`(C) VERIFICATION OF CONSUMER INCOME AND FINANCIAL RESOURCES- In the case of any consumer credit transaction secured by a consumer's principal dwelling, the income and financial resources of the consumer shall be verified for purposes of this paragraph by tax returns, payroll receipts, bank records, or other similarly reliable documents.

`(D) OTHER CRITERIA- No provision of this paragraph shall be construed as prohibiting reliance on criteria other than a consumer's income and financial resources to establish the reasonable ability of the consumer to repay any consumer credit transaction secured by the consumer's principal dwelling, to the extent such other criteria are also verified through reasonably reliable methods and documentation.

`(E) CONSUMER STATEMENT IS INSUFFICIENT PROOF- A statement by a consumer of the consumer's income or financial resources shall not be sufficient to establish the existence of any income or financial resources when verifying the reasonable ability of the consumer to repay any consumer credit transaction secured by the consumer's principal dwelling, for purposes of this paragraph.

---
3) PROHIBITION ON PREPAYMENT PENALTIES FOR ARMS-

`(A) IN GENERAL- In the case of any consumer credit transaction secured by a consumer's principal dwelling that provides for variable rates of interest on the credit extended under the transaction, the transaction may not contain terms under which a consumer must pay a prepayment penalty for paying all or part of the principal before the date on which the principal is due.

18.0% Price Increase in All Luxury Homes?... Even Declining Markets?

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Tue, 14 Aug 2007 19:44:56 -0500

What would happen if luxury home prices increased 18.0% in less than 30 days? Sounds like 2005 all over again right? You're probably wondering if you can buy one as a pre-sale, right?

What would you say if I told you that, in a way, prices have already increased that much even in declining markets?

Well, something very similar has definitely happened, but it's not positive.

Unfortunately, the "prices" have not actually gone up for the people who own them, only for the people who are buying or refinancing them.

Think I'm crazy?

Read on and you'll see my reasoning for this statement.

In the past few weeks, 2 major changes the pricing and underwriting of Jumbo Loans have caused many borrowers to fall short of qualifying for Jumbo loans.

Change #1: The Pricing for Jumbo Loans ( Jumbo Loans are conventional loan amounts greater than $417,000) has worsened by approximately 60 basis points (.600%) in the past 3 weeks. There is no true way to explain this other than it is a simple case of the market overreacting, and the banks taking advantage through the gouging of their high end / prime customers to subsidize the losses coming from their lower end / sub-prime customers.

Change #2: The 7/22/07 FNMA underwriting guideline change requiring that borrowers obtaining conventional loans that with interest-only payment options must qualify for the loan based on the full Principal Interest Tax and Insurance Payment (PITI)

How does this possibly equate to a 18.0% increase in home prices?

Let me show you;

Assume the following;

Purchase Price of Home: $625,000

80% LTV Jumbo Mortgage: $500,000

Buyer/Borrower Monthly Income: $10,000

Impact of Change #1:

Now, assume that the rate for a Jumbo 30 Year Fixed Interest Rate loan with interest-only payment has gone up from 6.750% to 7.375% in the past few weeks. (this represents the .600% increase mentioned above)

Payment Before Increase (a) $500,000 @ 6.625% Interest-Only = $2760.42

Payment After Increase (b) $500,000 @ 7.375% Interest-Only = $3072.92

Increase in monthly payment over past 20 days = ( b - a ) = $312.50

This adds 3.1% to the debt to income ratio of the borrower earning $10,000 per month ($312.50 / $10,000)

- Making it harder to qualify and eroding purchasing power

Impact of Change #2:

Next, assume that the borrower must wishing to obtain the interest-only mortgage must qualify for the fully amortized payment. (I can leave out the tax and insurance figures since they are the same for all scenarios)

(a) $500,000 @ 7.375% Interest-Only = $3072.92

(b) $500,000 @ 7.375% Fully Amortized Payment = $3453.38

Increase in monthly payment ( b - a) = $380.46

This adds 3.8% to the debt to income ratio of the borrower earning $10,000 per month ($380.46 / $10,000)

- This is a true expense, and again, makes it harder to qualify, and erodes purchasing power.

So together we have a total increase in payment of $692.96

Calculated by :

(More Expensive Payment from Rate Increase + Difference between Interest Only & Qualifying PITI Pymt)

This results in 6.92% increase to the debt to income ratio of borrower/buyer earning $10,000 per month.

The additional $692 that the buyer must have to qualify for the loan at the higher rate is the equivalent of having a loan of $112,596.61 @ 7.375% with an interest only payment.

$112,596 + The purchase price of $625,000 = $737,596.61

This equates to a price increase of 18% of the original sales price.

Calculated by:

( $112,596 / $625,000 ) or ($737,596 / $625,000) ; both yield the same result.

Summary;

The 2 major changes to pricing and underwriting of jumbo loans that took place in the past 3 weeks are similar to home prices increasing 18% in a 3 week period; the only problem is there is no benefit to anyone, other than banks.

Instead of housing prices continuing to increase, we've got lenders taking money from the top to pay for the bad loans they made to the bottom, and keeping the home values flat.

These recent changes are keeping many homeowners from qualifying for homes because of the new qualifying requirements and the higher rates.

Now how can anyone make the case that the current changes in the mortgage industry are positive by any measure?

Guess it's one way to control "inflation" in the housing market. The reason I say that is because this concept actually falls in line with the increases to prime rate and the new regulation that virtually doubled the amount due for minimum credit card payments earlier this year.

This begs another question, are the people that are best qualified (Jumbo Borrowers) being penalized, and forced to shoulder the burden of the lenders that have non-performing sub-prime loans? There has been very little change to the conventional conforming loans (loans up to $417,000), so it is obvious that no-one is wanting to settle the typical home owner/home buyer with any additional burden, and also obvious that they want to promote homeownership for first time buyers.

The effect that these changes is going to have on luxury homes is HUGE!!!

PS - I also think this is especially relevant to Builders and Agents selling new homes...

In Western Washington, and many other areas, new home prices tend to set the pace for the rest of the market. I don't see how this could possibly benefit them in any way.

David Mordue / Mortgage Planner / Liberty Financial Group - Kirkland / - http://www.dreamhomewa.com/

How much does cashing out your equity really cost you?

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Mon, 13 Aug 2007 16:01:45 -0500

Be mindful when pulling cash out of your home that the cost of doing this is not excessive. Paying $7000 in refinancing fees may not be worth it when pulling out $15,000. You may want to try an alternative option to tide you over until your circumstances change.

When trying to cash out the equity in your property there are two choices. First is adding a second mortgage or home equity loan. The second option is to refinance your primary mortgage and extend the balance. Besides considering the cost of both these options you will also want to consider which option will give you the best over all monthly payment.

Doing a cash out refinance is a very common thing. Many homeowners take cash out of the equity in their homes to send their children to college, take vacations, invest in other areas, consolidate debt, pay for medical bills, regain control of their finances, and for many other reasons as well. If you need only a small amount of money to help your situation out then you might be best off trying to get a home equity line of credit because most of the time you can obtain a home equity line of credit for little to no cost at all. However, if you are looking to cash out a substantial amount of money it will probably be best for you to communicate with your loan officer or mortgage professional exactly what you want and need and have them show you the differences in costs and payments between an equity line or a second mortgage and a first mortgage refinance.

Many times a cash-out loan makes sense, particularly if you plan on staying in your home a long period of time. Ask your mortgage professional about low cost refinance options as well as a loan with a piggyback line of credit for unexpected future expenses.

Many people choose to use the cash taken out of their equity for home improvement projects that will enhance the value of their home and protect appreciation. Additional rooms, garages, decks, pools, and guest houses are popular choices for the home owner who wants to use equity for home improvement.

David Mordue / Mortgage Planner / Liberty Financial Group - Kirkland / - http://www.dreamhomewa.com/

Great Website Tool

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Thu, 09 Aug 2007 15:57:31 -0500

I've seen this a few times on various blogs and websites. I thought it would be interesting to see where the different Active Rain members are located. I guess future releases will allow you to see how many people in your own city are clicking on your sites, blogs, and posts. You Can Get Your Own Free ClustrMap @ www.ClustrMaps.com

The Importance of Paying Your Rent by Check

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Tue, 31 Jul 2007 12:30:43 -0500

Many potential homeowners make a huge mistake by paying their monthly rental payment to their landlord in cash. Why is this a mistake?

Many lenders will require 12 months cancelled checks to verify timely rent payments. If you only pay your rent with cash there will be no way to document a rent payment history. Some lenders will accept a VOR or Verification Of Rent that is filled out by your landlord. A VOR is basically a written rent history statement endorsed by the landlord.

Fannie Mae loans and FHA loans will accept a Verification of Rent(VOR) filled out by your landlord. Many other loans do not allow for VOR's. By having cancelled checks, you do not have to notify your landlord in advance of your intention to move due to having a VOR request done by a lender.

When paying your rent by check you also want to make sure that your landlord is cashing your checks when you give the landlord your check. When you need to use 12 months worth of cancelled checks to verify your rental payment history, not only will the underwriter look at when the check was dated, but he/she will also need to see the backside of the check to see when the check went through the bank. Anyone can date a check whatever date they want to on the front of a check and this won't prove that their payment was made on time. However, the back of the check will prove whether the payment was made on time or not. Therefore, if you have a landlord who does not cash your checks immediately, this could reflect poorly to demonstrate a good payment history and can possibly cause some problems with verifying your rent payments.

In some situations, lender can even count a 12 month rental history documented with cancelled checks as one of the qualifying tradelines. This is extremely important for borrowers with a thin credit profile or limited tradelines.

Having a paper trail to document that rent is being paid is important in getting purchasing a property that you have been renting. If you have been paying cash, then providing 12 months of bank statements of the seller showing that payments have being deposited along with a letter explaining the situation can suffice.

A lender may request a verification of rent (VOR) during your loan application process. Paying your rent by check will provide a paper trail for the lender and satisfy this lending requirement.

If you live at home or with a relative, there are options for you as well. Most lenders will accept a "Rent free" letter. This is a verification form signed by the person in whose house you currently reside. In many cases, this satisfies the lender's requirement for a rental history. This is an option many first time homebuyers employ.

A paper trail of your rent payments can qualify as a tradeline and be seen upon as "good credit" toward making monthly obligation living payments. Most lenders require 12 months of cancelled checks or a private VOR signed by a landlord or a management company.

David Mordue / Mortgage Planner / Liberty Financial Group - Kirkland / - http://www.dreamhomewa.com/

No Equity Available to Consolidate Debt

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Tue, 31 Jul 2007 12:13:15 -0500

Today many homeowners have to much unsecured credit card debt that they struggle to pay every month. Reducing your monthly debt load by refinancing is a great option, but what can you do if youhave no equity in your home for a debt consolidation refinance? If you have no equity an good credit one option is to transfer balances over to low rate credit cards.

If you have no equity in your home to consolidate debt, you can look into obtaining a personal loan. This way you can consolidate all of your monthly debt into one low monthly payment, free up your credit cards again, which will improve your credit scores, and get yourself on a payment plan to actually get somewhere with all of your debt so that you can get it paid off in a timely manner. The most important thing is to make sure that you do not go out and use your credit cards until everything is paid off and even then only use them very sparingly.

Some lenders are still offering 115% and 125% programs. If you owe 100% of your home's value and would like to consolidate, you may be eligible for a 115% or 125% loan if your credit and income are good.

These loans are not for everyone, but may fit your particular financial needs.

David Mordue / Mortgage Planner / Liberty Financial Group - Kirkland / - www.DreamHomeWA.com

Capital Gains When Selling Your Home

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Wed, 25 Jul 2007 01:35:26 -0500

Great Tax Advice from Christopher Anderson

Over the years the tax laws have changed with regards to how the sale of your home is taxed. There were once laws that said that you could rollover the profit from the sale into a new more expensive home. There used to be a one time exclusion on the sale of your home if you were over 65. Those laws are now no longer valid and have been replaced by the current law.

The current law states that if you purchase a home, and live in it for 2 out of 5 years, you do not have to pay capital gains (or any other tax) on up to $500,000 gain for a married filing joint couple or $250,000 gain for a single person. In plain English, this means that if a couple purchased a home for $200,000, lived in it for 2 years and then sold it, they could sell it for $700,000 without paying any taxes on the profit ($450,000 for a single person). There is no limit, you can buy and sell a home every two years with the same exclusion.

What if you do not live in the home for two years? There are three exceptions to the two year rule.

1. Change in Place of Employment. The IRS says that if you, your spouse, a co-owner of the home, or a person whose main home is the same as yours changes employment, you can still take the exclusion. The employment can be a new employer, the same employer or self employment. The new employment must however, be at least 50 mile farther from the home you sold than the old place of employment. The change of employment must take place while you are living in the home.

2. Health. The IRS says that you can claim the exclusion if you have to move because of a specific medical problem. This can be for a parent, grandparent, stepparent, sibling, step sibling, half sibling, mother or father in law, aunt, uncle, nephew, niece or cousin. The move must be to obtain, provide, or facilitate the diagnosis, cure, mitigation, or treatment of disease, illness or injury. You can't take the exclusion if you move just because it will benefit a persons general health or well-being unless a doctor recommends the change of residence.

3. Unforseen Circumstances. Unforseen circumstances is an event that you could not reasonable have anticipated before you bought and moved into the property. They include things such as natural or man made disasters, act of war or terrorism, death, unemployment (if you qualify for unemployment), divorce or legal separation, multiple births resulting from the same pregnancy or a change in employment that results in the inability to pay your ordinary living expenses. Unforseen circumstances does not cover if you just prefer a different home or your finances improve or you spend too much to maintain a luxurious life style.

Examples:

Employment: Justin was unemployed and living in a townhouse in Florida that he owned and used as his main home since 2005. He got a job in North Carolina and sold his townhouse in 2006. Because the distance between Justin's new place of employment and the home he sold is over 50 miles, he qualifies for the exclusion of the gain from the sale of the townhouse.

Health: In 2005, Chase and Lauren, husband and wife, bought a house that they used as their main home. Lauren's father has a chronic disease and is unable to care for himself. In 2006, Chase and Lauren sell their home in order to move into Lauren's father's house to provide care for him. Because they are moving to care for the father, they qualify for the exclusion.

Keyword Articles: http://www.keywordarticles.org/

David Mordue / Senior Mortgage Planner / Liberty Financial Group / Kirkland WA

Christopher Anderson wants to educate people on how to take every tax deductions as possible. That means learning about the rules of tax deductions. Lone Peak Business Solutions

Two Fundamental Ways of Investing in Real Estate

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Thu, 19 Jul 2007 04:37:51 -0500

Real estate investing runs the gamut in terms of risk and investment success. The first rule of real estate investing, even before location, location, location, is be very careful with whom you are dealing. For some reason, real estate is fraught with unscrupulous characters, many of whom you'll see on late night television commercials with their "no-money" down methods of becoming millionaires. Only a very small percent of these so-called real estate gurus are legit.

If you are seriously considering investing in real estate property, it means essentially that you will need:

Investment capital, or a legitimate means of attaining some without putting yourself in debt.
A good knowledge of the real estate market and the neighborhood in which you are looking to buy property
Good management, people and negotiating skills
The ability to do repair work or access to people who can do it for you
The name and number of a property inspector or engineer.

Unless you are able to find, evaluate and buy houses that are either in foreclosure or fixer-uppers, which can be turned around quickly, you will most likely serve as a landlord for the property while it increases in value. Be careful to whom you rent because your property must be well-maintained.

Since legitimate real estate investing means having some money to make money, you need available capital. For this reason, many people go into real estate after coming into a sizable amount of money. For example, empty nesters who sell a large home for $500,000 and buy a smaller condo for $250,000 have money to purchase another property or two.

Make sure to research your location. Go to local town board meetings, do research in libraries and go on the Internet to find out as much as possible not only about the location today, but about plans for the area over the coming years.

And then there are REITs - Real Estate Investment Trusts. This is a way of investing in real estate for a lot less money and without having to worry about fixing a tenant's leaking bathroom pipes in the middle of the night.

REITS invest in various corporations involved in real estate, ranging from industrial parks to shopping centers to construction companies. They are listed on the NASDAQ and the stock exchange.

Essentially REITS work in the same way as mutual funds, except they set up a diversified portfolio that deals only in real estate. They primarily pay the bulk of their earnings in investor dividends. Before investing in a REIT, consider:

The economic conditions where the key holdings are located
Past performance of the REIT and future projections
The manager of the REIT, who operates like a mutual fund manager
The overall state of the real estate market

REITS, like stocks, bonds and mutual funds, have high and low periods. Like other income-producing vehicles, they can be strong investments over time and pay dividends. They are fairly liquid and are a much safer way of investing in real estate than buying property.

David Mordue / Senior Mortgage Planner / Liberty Financial Group / Kirkland WA

Understanding the Basics of Bankruptcy Chapter 13

David Mordue - Mortgage Planning & Investing (Wells Fargo ) — Wed, 18 Jul 2007 19:39:40 -0500

Great overview of the Chapter 13 process that I came across today. This author has a lot of great info on bankruptcy.

By: Bowe Packer

The US Congress passed a law that established a set of uniform laws to govern how bankruptcy was handled. These laws were situated under a system called the bankruptcy code. In this code there are chapters that refer to various issues in bankruptcy. One such chapter deals with allowing the debtor to start a new life whilst they pay off their future debts. This bankruptcy chapter 13 is one of the popular bankruptcy laws.

In bankruptcy you by and large need to find some way of surviving while at the same time you pay your creditors what you owe to them. This sounds like a civilized way of dealing with this matter but the truth is otherwise.

In most cases creditors will try to force you to give them the assorted amounts that you owe. This form of force payment can range from a simple letter to torment via phone calls and even visits from your creditors. With bankruptcy chapter 13 you have the best way of stopping this force payment and you are given a way to live again.

When you file for a chapter 13 bankruptcy you actually have protection against the creditors. Once a payment plan is setup and both parties agree, then there is nothing more the creditor can ask of you. They cannot change their mind and ask for more money. Again they may try, but you are now covered by the law and your agreed upon payment amount.

With a bankruptcy chapter 13 filing, for the person who has gotten into a debt which seems to be eating up their life's earnings, this law allows the person to find a fair way of paying off their debts.

The terms of repayment will need to be discussed with your creditors in your lawyer's presence. This way the terms of payment will be in conformity with a court sanctioned payment scheme. With this payment scheme your debts can be paid off with an amount of money that you can afford to spare from your monthly living expenses.

Make sure you take the time to understand and know what your monthly expenses are. Don't put yourself in a payment plan that you can't afford. Give yourself enough room to cover all your debts.

Once you have filed for bankruptcy chapter 13 your creditors are no longer suppose to talk to you directly about your credit claims. There is a ceiling period of five years for you to pay off any outstanding debts that you have. This is not set in stone so understand your state laws and ask the questions.

During the period of your bankruptcy chapter 13 gives the court the right to oversee how the repayment is progressing. Your interests for this entire time period will be looked after by your lawyer. There are other benefits that you can find with this bankruptcy chapter 13 law. So, be sure to ask your lawyer and the court system the questions you need answered.

In this law you will be able to get a full discharge option for your bankruptcy claim if you have managed to pay off of all of the outstanding debts. The other great advantage of bankruptcy chapter13 law is that anyone can file for bankruptcy chapter 13 as long as they have a steady income with which they can pay off their debts.

Don't be afraid or embarrassed about gathering information on bankruptcy or even filing. Just make sure that you handle it with care. Meaning get all your questions answered and if you file, pay your debt back promptly. And remember, it is a new start with the discharge option.

Source: http://articlecrux.com/

David Mordue / Senior Mortgage Planner / Liberty Financial Group / Kirkland WA