John's Blog

Should Congress Extend the First Time Home Buyer Tax Credit? (from BarkerBlog.com)

John Barker (Signature Mortgage) — Wed, 23 Sep 2009 14:21:13 -0500

First-time Home Buyers (FTHB) who purchase a home before December 1, 2009 will receive a First Time Home Buyers Tax Credit (credit) of up to $8,000 when they complete their tax returns next spring. Many people are calling on Congress to extend, and even increase, this tax credit.

Over the past 6 months, most housing reports across the country have shown increasing gains in the housing market. Most reports point to this tax credit as at least one reason that the housing market seems to have bottomed and begun to rebound. These people argue that this resurgence in the housing market will end abruptly on December 1.

They point to the fact that 30% of all home sales in July were to FTHBs. Some reports show sales of FTHBs account for up to 50% of sales in some markets. What will happen to the housing market without this important incentive to lure would-be renters to purchase a home?

Richard A. Smith, CEO of Realogy, parent company to Century 21, ERA, Coldwell Banker, and Sotheby's International Realty, says, "The giddiness we see out there is without merit." He believes that the housing gains are mostly attributable to these credits. Others disagree. Michelle Meyer, an economist with Barclays feels that while the credit contributed to an increase in sales, much of the increase points to a strengthening of the economy. "Even if you say some of the gain is artificial, it's still true that we're seeing an increase in housing demand, and that shows fundamental strength," she says.

Others still think the credit should be extended and expanded in size and scope. Mark M. Zandi, chief economist at Economy.com, analyzed the housing market and says that increasing the tax credit to $15,000 for all home owners (not just FTHB) through the end of next year would result in 675,000 additional home sales. Johnny Isakson, US Senator from Georgia, is behind a plan to just that.

Regardless of whether or not you think it should be extended, if you're counting on using the First Time Home Buyer Tax Credit, time is running out. The purchase must close on or before November 30, 2009 (Not December 1, 2009 as many articles I have read suggest).

Want to know more? I can be reached at 708.473.7688 or BarkerLoans@gmail.com and, as always, my advice is free!

Falling Consumer Credit May Mean Lower Mortgage Interest Rates (from BarkerBlog.com)

John Barker (Signature Mortgage) — Fri, 11 Sep 2009 11:08:04 -0500

The Federal Reserve announced that consumer credit fell by a record $21.6 billion in July – more than 5 times the projected decline of $4.0 billion. Consumer credit figures for June were revised to a decrease of $15.5 billion from the originally-reported decline of $10.3 billion. Total consumer credit fell at a 10.4% annual rate to $2.47 Trillion. This data suggests those US households are staying away from the use of debt as unemployment and other economic factors worsen. This is the sixth consecutive monthly decrease – the first time that has happened since the last half of 1991 – and represents the largest decline since the Fed began tracking consumer credit in 1943.

So, how does this affect interest rates?

While several things can affect interest rates, most of the day-to-day fluctuations in interest rates are caused by simple supply and demand. As we have seen in the recent past, as investors demand more and more Mortgage Backed Securities (MBS) the price has increased which has an opposite affect on the interest rates. Now, with consumer credit shrinking so quickly, there is going to be a supply issue. As consumers borrower less and less, the supply of MBS and other investments go down. Lessening supply has the same affect as increasing demand – it raises the price which reduces the interest rates.

Like the Boy Scouts – Be Prepared!

As I always say about interest rates – you have to be prepared. As rates continue to fall, more and more people will be looking to take advantage of them. If you are not prepared you will miss out on this opportunity. Give me a call and we can get your mortgage application started. If rates do come down, we can lock them in as soon as possible. If rates don’t come down, we can lock them in at the near-record low rates we have seen this year. Either way, you need to prepare yourself now if you want to save money on your mortgage. As always you can call me anytime - from any state in the U.S. - at 708.473.7688 or at email me BarkerLoans@gmail.com And remember, my advice is always free - so call!

Are Mortgage Rates Going to Go Down in September? (from BarkerBlog.com)

John Barker (Signature Mortgage) — Tue, 01 Sep 2009 16:41:51 -0500

This is the biggest question I get, and the hardest to answer. Nobody knows for certain the direction of interest rates, but here is some thing to consider when deciding whether or not to refinance your mortgage or lock in your interest rates.

Now – Mortgage Rates Are in a Tight Range

Mortgage interest rates have been in a range between 5.0% and 5.5% for most of this year. Historically, these interest rates are incredibly low. The US government has done everything they can to keep these rates as low as possible. The Fed has been aggressively purchasing Treasuries and Mortgage-Backed Securities (MBS) – as the Fed purchases these securities the demand for them increases, as does the price, which causes the yields to decrease. It seems that every time mortgage rates approach 5.5%., the government has some announcement about purchasing treasuries and MBS in order to increase demand and push the rates back down. Anybody who is at or above 5.5% should at least take a look at refinancing to see how much money they can save. And, if you have equity in your home and carry balances on your credit cards you would be crazy not to consider paying that off to save lots of money. Now is ALSO the time to consider shortening the term of your mortgage.

Many Projecting Lower Rates over the Short Term

There are countless experts, journalists and bloggers who are predicting lower rates over the next 30 days. They point to the recent decrease of mortgage rates and increase of demand for treasuries and MBS. They also look at the rapid increase in the stock markets (The Dow closed at 9,582 on 8/28/09 up from 6,595 on 3/6/2009) and many predict a market correction (A market correction is when the stock market, while on an upward trend, goes down by 10 – 20%. Many people see this as a normal part of the stock market and feel that a correction is likely soon). If there is a market correction, the money that comes out of stocks will be put into safer investment vehicles such as treasuries and MBS – again, increasing demand and prices and decreasing rates. If this is the case, you need to be prepared to take advantage of these rates as these interest rate drops are historically short-lived. There are a lot of people who missed out on locking their mortgage rates below 5.0% earlier this year because it lasted for such a short period of time and they were not prepared. If you think rates are likely to decrease, give me a call and we can get the application process started. If rates do drop, we will have all of the information we need to jump on these rates as soon as they fall. If the rates drop and go up as quickly as before, the only people who will be able to take advantage of them are those with applications in process.

Later – Rates Have Only One Way to Go

Eventually, though, rates will have to increase. There is not a lot of room on the “down side” on rates. And, with the positive housing and economic news we have had lately, the government will likely reduce the amount of treasuries and MBS they purchase. With the government reducing their purchases, the demand goes down, causing prices to go down and rates to rise. Many experts are predicting the government to make an announcement at the end of September to this effect. Once that happens, rates will rise.

What should I do?

First, call me and get your application done so you ARE ready the minute rates come down and you can benefit. Then, we can talk about your situation and see what the best plan is for you. If rates come down, we will be ready to take advantage of them. If rates don’t come down, we will be ready to lock at the current low rates before rates begin to rise. Either way, the best protection you have is to have an application in process so you are ready to take advantage of the market – no matter what the market does. For more info, any questions, or to help you get your application started today, I can be reached on my cell phone at 708.473.7688 or via e-mail at BarkerLoans@gmail.com.

New Credit Scoring Model May Help Some Borrowers’ Credit Scores (from BarkerBlog.com)

John Barker (Signature Mortgage) — Tue, 01 Sep 2009 16:40:43 -0500

FICO, formerly Fair, Isaac, & Co. and creators of the ubiquitous credit scoring system, has just released a new credit scoring model, FICO 08. Under the new system, borrowers are less likely to be penalized for one-time delinquencies than in the past. Minor collections (original balances less than $100) and one-time late payments two or more years old will no longer lower your credit scores. Many borrowers see their credit scores hammered for a collection from a forgotten parking ticket or an uncharacteristic late payment on a credit card. The newest version of the FICO credit scoring model, which is available at all three credit bureaus (Experian, Equifax, and TransUnion), should help those who pose a low credit risk. “There’s more flexibility with missing a payment,” said Careen Foster, director of global scoring management for FICO. “If you have a more habitual pattern of paying accounts late… you are more likely to get penalized for that.” However, those consumers whose credit usage is high could see their credit scores drop. Many people who are near or at their credit limits, even though they may pay their bills on time, may see decreases in the credit score. Approaching your credit limit has negatively impacted your credit score with all FICO models, but with FICO 08 the impact may be greater. FICO 08 will also deal with a practice called piggybacking, which was an attempt to misrepresent your credit history and increase your credit scores. With piggybacking, a person would pay someone who has good credit to allow them to become an authorized user on their credit accounts. By doing this, the other person's good credit would be taken into consideration in determining the credit score, thus falsely increasing their credit score. FICO 08 will determine which people are authorized users by deceptive means, but allow legitimate authorized users to be treated as they always have. Even though FICO 08 has bee available since July, not all lenders are using the new model. Many lenders are already validating the scoring model within their own systems and some banks, credit unions, and credit card companies have begun using the new model. However, since Fannie Mae & Freddie Mac have not yet authorized use of the new model, many mortgage lenders are not yet using it. Fannie Mae & Freddie Mac are expected to approve the new model by the end of 2009.

Taking Care of Your Credit

Regardless of the scoring model used by the lenders, it is up to you to proactively take care of your credit. See my article from August 2006 about “Understanding Credit Scoring & Credit Repair” which gives tips to help maximize your credit scores and minimize the cost of your credit.

Call mea t 708.473.7688 or e-mail me at BarkerLoans@gmail.com with any questions.

Existing Home Sales up for 4th Straight Month (from BarkerBlog.com)

John Barker (Signature Mortgage) — Tue, 01 Sep 2009 16:39:19 -0500

According to the National Association of Realtors (NAR), existing home sales increased 7.2% in July from the previous month – the first time home sales have been up for 4 consecutive months in over five years. This also marks the largest monthly increase since they began keeping track in 1999. There have been several reports over the past 4 four months that suggest that the housing market is beginning to stabilize. Still, the amount of the increase was much higher than anticipated. And, it is the first time since November 2005 that existing home sales are higher than the previous year’s level. The increase of home sales can be attributed to three main factors: 1) Housing prices are at their most affordable levels since 2003; 2) First-time homebuyers can receive an $8,000 tax credit for purchasing a home by November 30; and 3) mortgage rates remain at historically low levels. Lawrence Yun, NAR’s chief economist said, “The housing market has decisively turned for the better. A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales.” Even with the good news of the last several months, we are not out of the woods. First-time homebuyers accounted for almost one out of every three home sales in July leaving many people worried about what will happen when the tax credit expires December 1st. Also, nearly one third of home sale were distressed property – short sales, foreclosures, etc. which can continue to drive home prices lower. And, unemployment is still at all time highs which can keep a lid on home sales going forward.

I can be reached at 708.473.7688 or BarkerLoans@gmail.com.

Home Sales in Illinois up a Whopping 61.8%! (from BarkerBlog.com)

John Barker (Signature Mortgage) — Tue, 01 Sep 2009 16:37:50 -0500

According to the Illinois Association of Realtors, home sales in Illinois grew by 61.8% in the 2nd Quarter (Q2) of 2009 from the 1st Quarter (Q1). With the combination of low interest rates, affordable home prices, first-time homebuyer tax credits and a pent-up demand, home sales increased from 17,017 homes in Q1 to 27,531 homes in Q2. These sales figure include single-family homes as wella s condominiums. While year-over-year sales are still down (-16.4% from Q2 2008), these strong quarterly sales gains suggest that we may finally be working through the huge inventory of unsold homes on the market. The median price for homes was also up from Q1 – Q2. The median home sales price increased 9.6% from $146,000 in Q1 to $160,000 in Q2. Median sales prices are down 16.2% from $190,978 since Q2 2008. Not only are we seeing monthly and quarterly gains in home sales and median home prices, but we are also seeing a decline in the year-over-year losses. In the Chicago metropolitan area, which includes Cook; Will; DuPage; DeKalb; Grundy; Kane; Kendall; Lake and McHenry counties, total home sales increases 67.7% to 17,622 homes sold in Q2 from 10,507 homes in Q1. The median sales price increased 7.2% to $210,050 from $187,500. Year-over-year home sales and median home prices were down 15.4% and 19.6%, respectively. This is another piece of great news for the housing market and the overall economy. But, there is still a long way to go. The First Time Home Buyer Tax Credit, which is responsible for some of the strength in home sales, is only good for first time homebuyers who close on their purchase on or before November 30, 2009. Many in the industry are calling on Congress to extend the FTHB Tax Credit program beyond December 1, 2009 to make sure these gains continue. For information on home sales by county, click here. To take advantage of the improving housing market please call me at 708.473.7688 or e-mail me at BarkerLoans@gmail.com!

Recession to End This Quarter? (from BarkerBlog.com 8/10/09)

John Barker (Signature Mortgage) — Tue, 01 Sep 2009 16:35:30 -0500

Most economists and economic forecasters believe the economy will exit the recession this quarter (July – September, 2009). However, many caution that this may be a lackluster recovery. A survey of 51 economists by Blue Chip Economic Indicators indicates that two-thirds of economists predict a U-Shaped recovery, meaning that while the economy will no longer be shrinking, economic growth will be marginal, if at all. One-sixth of the economists predict a V-shaped recovery (typical after a long, deep recession) with robust growth, and the other one-sixth of economist predict a W-shaped recovery meaning another period of retraction after some growth for the last six months of 2009. The majority of economists predict that consumer spending will remain low with very low inflation with the Consumer Price Index expected to be up 1.9% for 2010. Unemployment will continue to be a problem through 2010, with many predicting an average unemployment rate of 9.9% for 2010.

Please contact me at 708.473.7688 or BarkerLoans@gmail.com.

Illinois Home Buyers Can Get a Loan Against the First Time Home Buyer Tax Credit (from www.BarkerBlog.com)

John Barker (Signature Mortgage) — Thu, 06 Aug 2009 12:31:25 -0500

The Illinois Housing Development Authority (IHDA) has just announced a new program called Home Start. The Home Start program will offer first-time homebuyers (FTHB) a 30-Year FHA Fixed Mortgage and the option to receive a second mortgage to pay for the down payment on the home. This second mortgage would then be repaid when the buyers receive the tax credit when they file their 2009 tax returns next year. Click here for more information on the FTHB Tax Credit.

While the FTHB Tax Credit, which was created by the American Recovery and Reinvestment Act of 2009, is a great program for first time homebuyers, many people were still unable to purchase a home because they lacked the required down payment and were unable to access the tax credit until after they filed their 2009 tax returns.

On May 29, 2009 The Department of Housing and Urban Development (HUD) gave guidance to state housing boards, like IHDA, as to how they could assist these borrowers, who are eligible for the FTHB tax credit, obtain funds for the down payment, closing costs and prepaid expenses. (See my blog post on the tax credit from this past February for more info.)

The Illinois Home Start Advance Loan is a zero-interest loan for up to 3.5% (Maximum $6,000) of the purchase price of the home to be used toward the down payment of the home. In addition to this loan, the buyer must contribute a minimum of 1.0% of the sales price toward the purchase of the home. And receive homebuyer education through a HUD-Certified counselor. Other terms of the loan are:

Home purchase a mortgage loan must close prior to November 30, 2009.

A $300 application fee must be paid at closing. Tax advance loan may be used.

Tax advance loan must be repaid, in full, by June 30, 2010. If it is not repaid by then, the loan becomes a 10-year, fixed-rate, fully-amortizing loan at 0.5% about the rate on the 30-year fixed first mortgage.

Veterans and active duty service personnel do not need to be first-time home buyers to qualify.

Homebuyers interested in applying for the Illinois Home Start Loan Program should contact me today at (708) 473-7688 or BarkerLoans@gmail.com

ACT NOW to Help the Housing Market (from www.BarkerBlog.com)

John Barker (Signature Mortgage) — Sat, 20 Sep 2008 00:54:19 -0500

When most people talk about first time home buyer programs or home buyer assistance programs they are almost always talking about Down Payment Assistance Programs (DPAs). DPAs have been around for over a decade and have helped hundreds of thousands of families purchase a home who would have otherwise not been able to. For more specifics on how these programs work please see my blog article "Down Payment Assistance Programs."

On July 30, 2008 the Housing and Economic Recovery Act of 2008 has banned these programs effective October 1, 2008. At a time when the government should be doing everything they can to help qualified homebuyers purchase a home, they are taking away a valuable tool in helping these people aford a home. The down payment is the last obstacle for many families who are otherwise qualfied to purchase a home and responsibly make their mortgage payments. Instead of reforming the use of the programs and creating rules to make them less risky, Cogress decided to ban them all together.

This is going to have a huge adverse effect on the housing market. By some estimates, as many as 40% of all FHA home buyers use DPAs for their down payment. By taking this huge group of homebuyers out of the market, Congress may make the housing crisis even worse or, at least, make it last even longer.

Whether or not you are in the market to buy or sell a home or not, this issue should concern you. If you watch the news or read a newspaper, you hear about the huge financial institutions that seem to be failing every week - Fannie Mae, Freddie Mac, Bear Stearns, Lehman Brothers - the list seems to go on and on. In almost all of the news reports, these companies failures can be at least indirectly attributed to the housing crisis. In order to get the economy back on track, the housing market has to come back.

YOU CAN HELP!

We all need to make our voices heard to our Congressmen and Senators that we believe that the housing market is way too important to the overall health of the economy to elimate this huge group of homebuyers from the market. We need to let them know that we are all in favor of the responsible use of these programs and the implementation of rules to make these programs safer for FHA and the US economy. But we must let them know that we definitely support the continuation of these programs.

Please go to http://rallyforhomeownership.org/ for more information and an easy way to contact your Congressman and Senator. Time is almost up and we cannot afford to wait until the pool of potential home buyers shrinks before we act.

U.S. Government takes over Fannie Mae & Freddie Mac (from www.BarkerBlog.com)

John Barker (Signature Mortgage) — Sat, 20 Sep 2008 00:51:22 -0500

Today, the US Treasury took control of home mortgage giants Fannie Mae & Freddie Mac. This is the latest fallout from the ongoing housing and mortgage crisis facing the nation and slowing the economy. According to Henry Paulson, US Secretary of the Treasury, it was a necessary step to keep these companies from failing and stabilizing the beleaguered secondary mortgage market.

Under this government takeover, the companies will be run by the government and their CEOs will be replaced Monday. They will be placed under conservatorship - which means they will run as independent companies under the supervision of the Federal Home Finance Agency (FHFA).

James Lockhart, the head of the FHFA, said, "As house prices, earnings and capital have continued to deteriorate, Fannie and Freddie's ability to fulfill their mission has deteriorated. In particular, the capacity of their capital to absorb further losses while supporting new business activity is in doubt."

In addition, an audit of Fannie Mae & Freddie Mac conducted by Morgan Stanley was ordered by Paulson. Apparently, this audit has revealed very troubling information that led Paulson to believe that this was the only option to save these companies and prevent and even larger crisis in the national and global credit markets. Paulson characterized this action as a "time out" that should help these companies to stabilize.

Parts of the plan call for Fannie Mae & Freddie Mac to actually increase their mortgage holdings in the short term to help further stabilize the mortgage and housing markets. In the long term, though, they will have to reduce their holdings in order to minimize future risk for the companies. Congress will ultimately have to decide the future of these companies.

Federal Reserve Chairman Ben Bernanke said that he fully supported the government takeover. "These necessary steps will help to strengthen the U.S. housing market and promote stability in our financial markets," Bernanke said.

Although this all seems like horrible news for the mortgage and housing markets (as well as the broader economy) there are some positives to this move. First, this prevents the failure of the mortgage giants and possible the entire mortgage system as we know it. Second, with the government guaranteeing the debt of Fannie and Freddie, many people believe we could actually see rates go down and mortgage become easier to get. Bother of these could help to end the housing crisis and downward spiraling home values across the nation.

FHA Mortgages to Become More Popular

John Barker (Signature Mortgage) — Thu, 17 Jan 2008 07:02:03 -0600

FHA Mortgages to Become More Popular

FHA Mortgages are sometimes referred to as the "Original Sub-Prime Mortgage." Before there was a sub-prime mortgage market, those with low down payments, shaky credit histories, etc. had to go with the FHA mortgage to purchase a home. In the 1980's and 1990's, FHA loans accounted for about 25% - 40% of all mortgages originated in the United States. According to Wikipedia, that fell to less than 2% in 2006.

With the increase in the number of "No Money Down Loans" and loans for those with poor credit, FHA fell out of favor. It was much easier to get a sub-prime loan than it was to get an FHA loan. Unfortunately, it was usually a less-affordable option for the homeowner in the long-term.

Now, with the sub-prime mortgage market all but non-existent, and the credit standards much tighter for those programs that remain, FHA will once again become an important program for many homeowners.

AS I discussed in my blog article, "This is not Your Father's FHA" from April 2007, FHA has already made a lot of changes to make them more user-friendly. FHA mortgages are much more like conventional mortgage than they have been in the past, and closing them can take about the same amount of time.

Recently, the US Senate passed some more changes that will make FHA mortgages a more viable option for more homeowners. Some of these changes are:

Down Payment/Minimum Cash Investment has been reduced from 3% to 1.5%
Mortgage limit ("floor") will be raised from 48% to 65% of GSE (Fannie Mae/Freddie Mac) limit ($271,050)
Mortgage limit for "high cost" areas: $417,000, which equals the maximum mortgage amount for conventional mortgages
Condominium processing: It will facilitate FHA acceptance of GSE approved projects and possibly other projects depending on how FHA implements the provision
Reverse mortgages: Raise the maximum loan limit to $417,000 and allow reverse mortgages to be used for home purchases
The Senate also included a measure that puts a one year moratorium on HUDs effort to introduce risk based pricing to the FHA program

The US House of Representatives also passed similar legislation months ago with some differences:

No down payment required
Maximum mortgage amount of $725,000

When Congress returns late this month, they will have to hammer out the differences before the bill goes to President Bush for approval. There is a lot of pressure on Congress to get these changes enacted so look for new legislation quickly.

With the upcoming changes added to the changes already made, FHA Mortgages are better than ever and will become increasingly popular. But, beware of lenders and loan officers who are not experienced with FHA loans. There are still enough differences in the ways FHA loans are originated and processed that can cause delays if you work with someone not experienced with FHA loans.

President Bush Signs a 3 Year Extension to the Income Tax Deduction for Mortgage Insurance

John Barker (Signature Mortgage) — Thu, 17 Jan 2008 07:00:08 -0600

President Bush Signs a 3 Year Extension to the Income Tax Deduction for Mortgage Insurance

On December 20, 2007 President Bush signed into law legislation that will allow homeowners with mortgage insurance (those with less than 20% down payment) to deduct the cost of their mortgage insurance from their taxes. This deduction is for private mortgage insurance (PMI) on a conventional mortgage or Mortgage Insurance Premiums (MIP) on FHA loans.

In late 2006, Congress passed a law that allowed the income tax deduction on 2007 tax returns for loans originated in 2007 only. This new legislation extends that deduction for loans originated from 2007 - 2010 and is part of the Mortgage Forgiveness Debt Relief Act of 2007 approved last month by both the US House of Representatives and the US Senate.

The tax break is for families with an adjusted gross income (AGI) of $100,000 or less. Families with AGI greater than $100,000 up to $109,000 are eligible for a partial deduction.

With the collapse of the sub-prime mortgage market and the reduction of the amount of exotic mortgages that allowed for no money down and no income verification, more people will be using the more secure conventional and FHA mortgages with the protection of mortgage insurance. This deduction will save many low- and moderate-income families money and allow them to better afford their homes.

How much will my credit score cost me on my next mortgage?

John Barker (Signature Mortgage) — Thu, 17 Jan 2008 06:58:28 -0600

How much will my credit score cost me on my next mortgage?

Due to the mortgage market mess we have been experiencing, Fannie Mae and Freddie Mac are drastically changing the way they do business. Many people think these changes will help protect the corporations and the future of the mortgage market.

Until now, a credit score of 620 was the theoretical limit for obtaining a conventional loan. If your scores were above 620 you would get a rate the same whether your score was 620 or 800, as long as you had at least a 5% down payment. I say the 620 is theoretical because a lot more is considered when applying for a mortgage (e.g. credit history, down payment, cash reserves in the bank, debt-to-income ratios, etc.). Many people with credit scores below 620 have been approved for conventional loans and some with credit scores above 620 were denied.

Starting with loans delivered March 1, 2008, Fannie Mae and Freddie Mac are adding fees for any loans with a loan-to-value (LTV) greater than 70% and a credit score less than 680.

Following are the Loan-Level Price Adjustments (LLPAs) for loans with LTVs of 70.01% and greater:

These LLPAs are for single-family, owner-occupied properties and are adjustments to the points required on a loan, and not to the interest rate. There are other adjustments for 2-unit properties as well as mortgages with subordinate financing (2nd mortgages) such as 80/10/10s.

Borrowers will have to decide to pay for the LLPAs as points or accept a higher interest rate in place of the additional points. For example, for a borrower with a credit score below 620 and LTV greater than 70% they can expect to pay about 1.00% higher in their interest rate.

If you are planning to purchase or refinance a home in the future, make sure you contact your loan officer well in advance so you can check your credit scores and make any improvements necessary to increase your credit score. Please view my blog posting Understanding Credit Scoring and Credit Repair from August 2006 to see how you can improve your credit score.

Sellers Concessions Help Sell Houses in Slow Market (www.BarkerBlog.com)

John Barker (Signature Mortgage) — Fri, 11 Jan 2008 12:19:02 -0600

Sellers Concessions Help Sell Houses in Slow Market

With the real estate market so slow these days, many Realtors are suggesting that the sellers offer incentives to the buyers who purchase their home. This can be a great way to separate your home from the many other homes on the market. These concessions are so popular now that I am going to revisit the issue I discussed in my June 11, 2007 article, "How can a "carpeting allowance" be a bad thing?"

There are right and wrong ways to give seller concessions. The way it is structured can make all the difference in the world.

Limits to seller concessions

Most mortgage programs set limits to the amount of concessions a seller can make to the buyer before it begins to affect the sales price of the home. For instance, with a conventional 30 year fixed rate mortgage, if you have a down payment of 10%, the seller can give you up to 6% of the sales price as a concession. If the concessions are greater than 10%, the sales price will be reduced by that amount when the lender calculates the down payment and loan-to-value ratios (LTV).

Types of acceptable seller concessions

Typically, sellers can pay for non-recurring closing costs up to the maximum allowed by the lender for the specific mortgage program. Also, sellers can pay points to help the buyer lower their interest rate or pay for a temporary buydown. Also, if the buyer and seller agree to a payment abatement program (see my posts on PITI Payment Abatement Programs and Interest-Only Payment Abatement Programs for more information on payment abatement programs) the seller can pay for the payments that the buyer will skip.

Types of unacceptable seller concessions

Sellers can never give the down payment for the purchase to the buyer nor can they give them allowances for decorating, carpeting, repairs, etc. Many real estate professionals do not understand this and write them into the sales contract. If you are going to do repairs or replace carpeting for the buyers, it will have to be done before closing, put into escrow for the buyers to do later, or paid directly to the contractor who is going to do the work. If not, it will affect the sales price used by the lender to calculate down payment and LTV.

Concessions are a great way to entice buyers to take a closer look at your property and make an offer. But, it must be done correctly for the buyer to get the full benefit of the conecssion.

How much will my credit score cost me on my next mortgage? (www.BarkerBlog.com)

John Barker (Signature Mortgage) — Fri, 11 Jan 2008 12:16:28 -0600

How much will my credit score cost me on my next mortgage?

Mortgage rates are low. Take advantage of them while you can! (barkerblog.com 11/27/07)

John Barker (Signature Mortgage) — Tue, 04 Dec 2007 14:48:30 -0600

Tuesday, November 27, 2007

Mortgage rates are low. Take advantage of them while you can!

Mortgage rates have dipped to the lowest point in the past 2 years. Fueled by the fear of an upcoming recession (a result of the soft housing market, mortgage meltdown, etc.) mortgage rates have continued to fall lower than many people had anticipated.

Now is the best time to refinance your current mortgage to save money. Many of you have an adjustable rate mortgage that will be adjusting in the next year - refinance to a fixed rate mortgage before your rate, and payment, increase.

You may have a first and a second mortgage - roll them into one mortgage for savings and convenience.
You may have higher interest debt such as credit cards - pay them off and save a ton of money.
Or, maybe you have a large expense coming up (college tuition, automobile purchase, vacation, Christmas) - cash out some of the equity in your home to pay for these expenses at the lowest possible rates.

Whatever your situation now is the time to take action.

But, John, what if rates go lower?

I get this question from customers all the time. The problem is, we never know for sure what is going to happen with interest rates. If we knew for sure, we would all be retired by now by investing perfectly and making a fortune.

The truth is, you can save money NOW - but you may NOT be able to save money next month, or even next year. During the refinance boom a couple years ago, I had customers that did not want to lock into a 30 year fixed rate mortgage at 5.00% because they thought rates would continue to fall. Well, they lost the opportunity to refinance and have paid all that extra money for the past couple of years.

And remember, if rates go lower, you can always refinance again.

Won't that cost me more money?

Yes, and no. If you refinance, there will be some closing costs. If you refinance a second time, you will have to pay closing costs again, but they will be much lower. And, if you continue lowering your rates and payments, it can make perfect sense financially.

The real fear should be NOT refinancing now and rates NOT getting any lower. If rates remain the same as they are now, and you wait a couple of months to refinance, you have LOST the cost savings for those couple of months by paying at your current payment. If rates go up, you have lost even MORE money because now you will have to refinance to a higher rate or, worse, not be able to refinance at all.

Also, if you refinance before the end of the year, you may increase your deductions on your income taxes for the year, thereby reducing the amount of tax you owe the government, or increasing the amount of your tax refund (check with your tax professional to see what you can or cannot deduct from your taxes).

What if the value of my home has fallen?

There will be situations where the value of the home has fallen to a point where you cannot refinance your home. There is nothing you can do about that now. But, by contacting your loan officer, he or she can at least let you know what is possible. Your loan officer can ask the appraiser for an opinion on the value of your home to see if it is worthwhile to have the appraisal done. And, at least you know for sure what is happening, rather than just wondering.

Give your loan officer a call so he can do a mortgage checkup to see if refinancing is right for you. Or, give me a call at 708-473-3788 or send me an email - I would be happy to help you.

HUD's Ban on FHA Down Payment Assistance Programs on Hold (barkerblog.com 11/15/07)

John Barker (Signature Mortgage) — Tue, 04 Dec 2007 14:46:40 -0600

Thursday, November 15, 2007

HUD's Ban on FHA Down Payment Assistance Programs on Hold

I recently wrote, FHA Bans "Gift" Down Payment Assistance Programs, about HUD's new rule that would eliminate the use of third-party down payment assistance programs to help people purchase a home.

On October 31, in AmeriDream, Inc. v HUD, the US District Court for the District of Columbia said that HUD acted against the wishes of the House of Representatives who had just passed a law in support of the program in July. The judge also ruled that HUD acted without supplying a reasoned analysis from its departure from its long-standing policy and failed to consider proposed alternatives. The court ordered a temporary injunction against the new rule.

Both sides will be presenting their arguments and the judge approved an agreement by both sides that they will try to end the case by February 29, 2008.

I will update this blog as the case progresses. This has been a great program that has allowed thousands of families to purchase a home. Please contact your US Representatives and Senators in support of this program.

Financial Relief for Military Servicemembers

John Barker (Signature Mortgage) — Tue, 04 Dec 2007 14:42:14 -0600

Tuesday, October 30, 2007

Financial Relief for Military Servicemembers

What is the Servicemembers' Civil Relief Act of 2003?

The Servicemembers' Civil Relief Act of 2003 (SCRA), which replaced and updated the Soldier's and Sailors' Civil Relief Act of 1940, is a federal law that gives members of all branches of the armed forces important rights and protections as they enter active duty. It covers mortgage interest rates, foreclosures, rental agreements, evictions, civil judicial proceedings and income tax payments.

These protections are for active duty military members, reservists and members of the National Guard called to active duty, and, in some situations, their spouses and dependents. To receive protection under some parts of the SCRA the member must be prepared to show that the active military service has had an adverse affect on the legal or financial matter involved.

The Six Percent Rule

The most well-known part of the SCRA is the Six Percent Rule. This provision allows the member to reduce the interest rates on consumer and mortgage debt to 6% under certain circumstances.

This does not happen automatically. The member would have to notify their creditors and lenders in writing and provide a copy of their mobilization orders. Then, the creditor or lender is required to reduce the interest rate on their debts to 6% for the period of time the member is on active duty. The SCRA does not apply to debts that are incurred after the start of the active duty.

The creditors or lenders can take the member to court to fight this. In court, the creditor or lender, not the member, must prove that the member's ability to repay the loan at the agreed terms has not been "materially affected" by his military service.

Will the forgiven interest have to be repaid later?

No, any interest above and beyond the 6% is forgiven and the member will never have to repay that amount. However, as soon as the member's active military service has ended, the interest rates will be reset per the original agreement and the payment adjusted accordingly. Also, the member will have to make the regular payments during the active duty to avoid having the account considered delinquent.

There are numerous other protections that a member can receive under the SCRA. To see the entire act please go to http://www.blogger.com/www.navy.mil/navydata/policy/hr100-scra.pdf.

FHA Offers Relief to Homeowners with FHA Secure (from www.barkerblog.com)

John Barker (Signature Mortgage) — Wed, 03 Oct 2007 14:03:01 -0500

FHA Offers Relief to Homeowners with FHA Secure

President Bush recently announced that HUD's FHA will be able to help an estimated 250,000 homeowners avoid foreclosure by enhancing some of its refinancing guidelines effective immediately.

The FHA secure initiative is a temporary program designed to provide refinancing options to borrowers of conventional adjustable rate mortgages (ARM) who are delinquent under their current mortgage as a result of an interest rate adjustment.

Eligible borrowers must be able to demonstrate that they were current in their mortgage payments prior to the interest rate adjustment of their ARM and are now delinquent due to the subsequent increase in monthly payments. Borrowers may be able to include the past due payments in their new FHA loan subject to FHA loan limits and loan-to-value limits.

Eligibility Criteria for FHA Secure Refinance Option:

The current mortgage must be a non-FHA ARM
The new FHA mortgage may be fixed or adjustable
The borrowers' payment history must show that they were current on their payments prior to their interest rate adjustment
The borrowers must qualify for a new FHA mortgage using standard FHA guidelines
If there is sufficient equity in the property, the new FHA loan may include past due mortgage payments up to the FHA loan limits
Loans that are currently in foreclosure are not eligible
Borrowers may obtain secondary financing if the new FHA mortgage is not sufficient to pay off the existing first lien plus closing costs

If you have an adjustable rate mortgage, and are delinquent due to increases in your interest rate, contact me or your current mortgage lender to see if this option can help you.

What do I do if my mortgage lender shuts down? (from www.barkerblog.com)

John Barker (Signature Mortgage) — Wed, 12 Sep 2007 15:22:21 -0500

What do I do if my mortgage lender shuts down?

If you are already making payments on a mortgage, you will continue to make the payments as you have in the past. You may receive a notice that the mortgage has been transferred to another lender but the terms of your mortgage will remain in effect until the mortgage is paid off. If you're concerned, call your current mortgage company at the customer service number located on your mortgage statement.

What if my mortgage lender shuts down before my loan closes?

Until recently, I worked for American Home Mortgage (AHM), the nation's 10th largest lender. And, like many other lenders, AHM went bankrupt and shut down their mortgage operations with little to no warning. While this is hard for the employees of AHM and the other lenders that have had the same fate, what about the people who are in the process of purchasing or refinancing their homes? What do they do?

Unfortunately, in the case of AHM, borrowers with over $800 Million worth of mortgages went to the closing table on July 30 & 31 expecting to close on their loans. Since AHM had no money to fund these loans, these borrowers had to cancel their closings and re-apply for a mortgage with another lender. In many cases these loans that did not fund affected even more closings that were dependent on these closings.

What should I do if I am in this situation?

In this crazy market it pays to be prepared for the worst. The first thing to do is to make sure you are working with a true mortgage professional. I understand that rates and costs are important considerations, but it is more important to make sure the loan will get closed on time. That means working with someone experienced, competent and professional.

Second, make sure that you always keep copies of all of the documentation you provide to your lender. If the lender happens to run into trouble and you need to find another lender, you will be prepared. On the same note, make sure you get a copy of the appraisal from your lender as soon as you can. If you have to find another lender you can forward this appraisal to them to help speed up the process.

Third, don't panic and just run to the first lender you see. If you are working with a professional loan officer, contact him or her and ask for advice. Chances are they are already working on taking care of their customers' loans before you even know there is a problem.

I had several mortgages that were set to close in August. As soon as I knew there was a problem, I contacted my borrowers and assured them that I would find a lender to close their loans on time. Luckily, several national lenders, including GMAC Mortgage, put plans in place to help these customers who found themselves suddenly without a lender. All of the customers who chose to stay with me closed on time and at terms as good as, or better than, they had at AHM.

Some of my customers chose to contact another lender for their mortgage. I heard from a few of them and, unfortunately, they received rates and fees higher than they should have gotten. When you panic and you're desperate, the chance of having someone take advantage of the situation is greater.

Pre-Screened Offers of Credit (Part 2) from www.barkerblog.com

John Barker (Signature Mortgage) — Mon, 23 Jul 2007 14:54:32 -0500

Pre-Screened Offers of Credit (Part 2)

On February 9, 2007, I wrote about receiving unsolicited credit offers from lenders as soon as you apply for a mortgage with another lender (Is My Mortgage Company Selling My Name?) Since then, I have spoken to a few customers who have been annoyed by the amount of offers they receive, and they want them to stop.

Mark Strassmann of CBS News did a report on this topic for The Early Show in May. Take a look at the amount of harassment this one couple had to endure: "Lenders Target Home Buyers"

Remember, you can stop this from happening by opting out of this process. By opting out, you will remove your name from lists sold to other mortgage companies. Simply visit http://www.optoutprescreen.com/ or call 888-567-8688 to opt out. You will have to give them some personal information necessary to process your request, and you can opt out for 5 years or permanently.

Payment abatement? What the heck is that?

John Barker (Signature Mortgage) — Tue, 10 Jul 2007 17:31:04 -0500

Payment abatement? What the heck is that?

You've probably seen advertisements for new construction homes that say, "Purchase a new home and don't make payments for up to 6 months!" This is a payment abatement program. The seller, in this case the builder, will make your first six mortgage payments (interest-only payments).

With the slower housing market, there are more properties on the market and it is taking them longer to sell. This increase in inventory of homes will affect the housing market until they are all sold and/or taken off the market.

How can this help someone sell their home in a slow market?

Many Realtors have asked me about the payment abatement program over the past several weeks as a way to drive more traffic to their listings. They are beginning to advertise their listings by saying, "Move into this beautiful home and don't make a payment for up to 6 months!" Now, that will surely attract more buyers and could possibly be the deciding factor when the buyer is looking at several similar properties in the area.

How does it work?

When the contract is written, the seller offers the payment abatement for 1 to 6 months the same way as they would any other seller's concession (e.g. closing costs, points, etc.). They agree to pay an amount equal to the number of interest-only mortgage payments they are willing to make for the buyers. The amount of the payment abatement is still subject to the limitations of the mortgage programs. Generally, if the borrower has a 5- 10% down payment, the seller can give up to 3% of the sales price as a seller's concession. For a 10% - 25% down payment the seller can give up to 6%. And, for a 25% or more down payment, the seller can give up to 9%.

The payment abatement program is an interest-only mortgage program and is offered as a 30 year fixed rate mortgage or a 3/1, 5/1, 7/1, or 10/1 ARM. The interest-only period for the fixed rate mortgage is 10 years (there is also a 15 year option) and the interest-only period for the ARMs is equal to the initial fixed rate period. After the interest-only period, the payment is calculated by amortizing the balance of the mortgage over the remainder of the 30 year period.

Can the buyers pay off their principal during the interest-only period?

Yes. The amount of interest due on the following payment will then be reduced to reflect the reduction in principal. May people may be uncomfortable with an interest-only loan (especially with all of the bad press they've received lately) so this makes them more like a traditional fully-amortizing loan. But, the buyer is the one that has to add the principal each month. This is also a good idea to avoid payment shock when the interest-only period ends and the new payments are now fully-amortizing.

Want to know more about how a payment abatement program might work for you? Just drop me an email or give me a call.

Does a Bi-Weekly payment plan save me enough money to make it worthwhile? (from www.barkerblog.com)

John Barker (Signature Mortgage) — Fri, 29 Jun 2007 16:12:44 -0500

Does a Bi-Weekly payment plan save me enough money to make it worthwhile?

Yes! With a bi-weekly payment program, the homeowners pay one-half of their normal mortgage payment every two weeks instead of once a month. Because you are making a payment every other week, you make a total of 26 payments a year (there are 52 weeks in a year.)

These 26 payments are the equivalent of 13 full payments for the year, versus the 12 payments you would make with the regular monthly payments. So you are essentially making one extra payment a year. Even though it doesn't sound like a huge savings, it can really add up over time.

Let's take a look at a $200,000 mortgage at 6.5% interest rate. Your monthly Principal and Interest (P&I) payment would be $1,264.14. By splitting that payment in half ($632.07) and making this payment every other week, you would pay off your mortgage in 23 years instead of 30 years. The savings in interest over the course of your mortgage would be in excess of $60,000.00.

Below is an amortization tables that shows a standard 30 year mortgage versus one using the bi-weekly payment plan:

So you see that the mortgage is paid off in 24 years. With the traditional mortgage, you would still have 6 years of payments left. Over the 24 years that you made bi-weekly payments, you made extra payments (that 13th payment each year) of $30,339.84, which gives you a savings of $60,751.68.

Even if you don't plan on living in your home for 30 years, the bi-weekly program can still save you thousands of dollars in interest. After 5 years, your principal balance would be $7,730.13 lower. In those 5 years, you made extra payments of $6,320.80 for an interest savings of $1,409.33. After ten years, the cost savings would be $5,759.82 and the principal balance on your mortgage would be $18,401.42 less than with the regular payment program.

So, is the bi-weekly payment program good for everyone?

No. The bi-weekly payment program works really well for those homeowners who are sure they have the funds available when the payments are due. Bi-weekly programs almost always require an automatic withdrawal from a checking or savings account. If you typically use the 15-day grace period that is standard with a mortgage, you would NOT be a good candidate for this program. This program works very well for those homeowners who have bi-weekly pay periods, because you can make your payments fit your pay schedule to make sure the money is always there.

Can I save this kind of money without signing up for the bi-weekly payment program?

Yes. You can achieve the same results without the bi-weekly payments if you add an additional principal payment to your regular payment each month. In the above example, if you add an additional $105.35 to your payment each month (the equivalent of 1/12 of your regular payment) you will achieve the same results that the bi-weekly payments will. You will pay off your mortgage in about 24 years by adding one additional payment each year.

I actually advise my clients to do this for several reasons. First, there is usually a fee to enroll in the bi-weekly payment program. Second, if you use the grace period on your mortgage (or, if your income fluctuates and is not consistent) it can be easier to make the payments yourself and add the additional principal.

On the other hand, some of my clients see the bi-weekly payment plan as a forced savings plan. They say they don't even notice that there are two extra half-payments made each year, and it pays down their mortgage more quickly without them even thinking about it.

Bottom line, you can save a lot of money by paying extra on your mortgage - whether you use a bi-weekly payment program or do it on your own.

How can a "carpeting allowance" be a bad thing? (from www.barkerblog.com)

John Barker (Signature Mortgage) — Mon, 11 Jun 2007 17:28:55 -0500

How can a "carpeting allowance" be a bad thing?

On many real estate sales contracts we see credits from the seller to the buyer in the form of "carpeting allowances" or "repair credits." Basically, a buyer wants to purchase a home but wants the seller to replace the carpet or make some other repairs to the property. The sellers are unwilling to make the repairs before the close of the property, either because they don't want to pay for the repairs out of their own pockets or they don't want to wait to close on the property. So the sellers agree to give the buyers a credit at closing out of the proceeds from the sale.

So, what's the problem? Sounds like everyone is getting what they want.

The problem with this is that the lender will not usually allow a credit directly from the seller to the buyer at closing. They will allow the seller to pay for closing costs and prepaid items for the buyer but the money does not go directly to the buyer. One of the reasons for this is that the sellers are not allowed to give the down payment for a home purchase to the buyers. The lenders do not allow this because it would be an easy way for this to happen.

When there is a repair credit on the contract, the lender will reduce the sales price by the amount of the repair credit and calculate the loan to value (LTV) off of that reduced sales price. For many transactions this will not have much of an affect. If the buyer has a large down payment and if the repair credit is relatively small the buyer will not even notice any difference.

The problems arise when the buyer has a smaller down payment and/or the repair credit is large relative to the sales price of the property. Let's look at the following transaction:

Sales Price: $150,000
Down payment (5%): $7,500
Mortgage $142,500

Let's now assume that the seller is giving the buyer a $3,500 carpeting allowance at closing. The lender will reduce the sales price by the allowance and calculate the LTV off of that sales price.

Sales Price: $150,000
Allowance: $3,500
Effective Sales Price: $146,500
Mortgage $142,500
LTV: 97.2%

Now, the buyer thought they were going to be able to do a 95% LTV Conforming Fixed Rate loan. Because of the credit at closing, they either have to increase their down payment to $10,825 which would give them a loan amount of $139,175 and an LTV of 95% or, they would have to get a different mortgage program that allowed for a higher LTV. Most likely, since the buyer was only putting 5% down on the property in the first, place, the second option is the most likely. And, the mortgage programs available to the buyer now would usually result in a higher interest rate and/or higher mortgage insurance payments on the program.

So, what can we do so everyone comes out a winner?

There are a few ways to deal with repair credits that will accomplish the goals of the credits. Here are three:

1) The seller agrees to lower the sales price by the amount of the credit. The sellers will still walk away with the same amount of proceeds from the sale of the home and the buyer will still be able to make a smaller down payment and get the mortgage they initially wanted. The buyers are also getting a better sales price. Unfortunately, the repairs have still not been completed and the buyers will now have to make these repairs with their own money. Chances are, they do not have the money to make the repairs or they would not have asked for the credit in the first place.

2) You can write in the contract that the seller agrees to pay a certain amount of money to a contractor of the buyer's choice from the seller's proceeds at closing instead of making the repairs. The money is not going directly from the buyer to the seller - it is going to the contractor for repairs agreed upon in the contract. This would have to be approved by the lender.

3) The seller can get bids for the work that needs to be completed and agree to set up an escrow account for the work to be performed after closing. The work will have to be completed and an inspection will need to be performed before the money will be released from the escrow account. Any money left in the escrow account after the repairs have been made will go back to the seller unless other arrangements were made. This is generally more acceptable to the lender since the money is held in escrow until the work in performed and the lender will verify that the work has been completed.

Although seller repair credits have not been allowed by mortgage lenders for quite awhile, I still see them written into contracts. Many Realtors and attorney are not aware of this, so if they are written into your contract, make sure it's done properly.

What is a short sale? (from www.barkerblog.com)

John Barker (Signature Mortgage) — Mon, 04 Jun 2007 15:42:58 -0500

What is a short sale?

With the increase in foreclosures lately you may have heard the term "short sale" and wondered what it was. A short sale is when the lender will accept less than the full amount due on a mortgage when a property is sold. Usually, the lender will accept the short sale to avoid the time and expense of a foreclosure.

When a borrower is in default on a mortgage they not only owe the back payments but also may owe late fees, property inspection fees, attorney fees, etc. This can add up quickly to eat up all the equity the borrower had in the property. If the borrower is unable to bring the account current the lender will then foreclose on the property. With a foreclosure, the lender can lose up to 40% of the mortgage amount because of the extra costs involved with foreclosing on a property: attorney fees, court costs, lost interest, eviction costs, property maintenance costs, and selling costs. Foreclosing on a property can also take up to two years in some states. Therefore, it is sometimes in the best interest of the lender to accept the short sale.

It also can be in the best interest of the borrower. They will not have to endure the time and stress of a foreclosure and their credit may not be as adversely affected as it would with a foreclosure. It is quicker and easier and does not subject the borrower to the embarrassment of a foreclosure.

How does it work?

The first thing the borrower should do when they can no longer afford a property is to contact the lender immediately. The last thing a lender wants to do is foreclose on the property. Lenders typically have departments that work with people who are behind on their payments to resolve the situation. If you cannot resolve the default with the lender, and you want to see if they will accept a short sale, they will direct you to the department that handles short sales.

The lender will usually require the borrower to submit a lot of information to the lender in order to consider the short sale. The information required may include:

· Income documentation such as W-2s and pay check stubs to verify the borrowers' income.

· Bank statements to verify the borrowers' assets

· Hardship letter - this letter will describe for the lender the reasons the borrowers are in the financial position they are in and will ask the lender to accept the short sale. Borrowers should make this letter sound as sad as possible and back up the story with any documentation you may have such as medical bills, etc.

· Fair market value for the property - depending on the lender they may require an appraisal or may accept an opinion from a local Realtor know as a Comparative Market Analysis (CMA).

· Preliminary proceeds sheet from the sale of the property. This will show the proceeds of the sale of the property after the mortgage is paid off and all other closing costs and fees are paid. This will be negative in the case of the short sale and this negative amount is the amount of the shortage.

· Listing agreement and purchase agreement when they are available.

When the lender reviews all of this they may or may not approve the short sale. If they do not approve the short sale they will proceed with the foreclosure. If they do agree to the short sale you will close on the sale of your property and the lender will take the loss.

So, is the borrower off the hook?

Not necessarily. The lender still has options to try to collect this shortage. As a condition of the short sale the lender may require the borrower to sign a note to repay the shortage. They may also file a collection or a judgment for the amount of the shortage. This is something that an attorney with expertise in this area of real estate needs to be consulted.

Also, the IRS may come after the borrowers for income taxes on the amount of the shortage. If the shortage was forgiven, the lender will report the shortage as income to the IRS and the IRS will collect taxes on this amount. Again, for the specifics on this please consult a tax professional.