FHA Home Loans

Foreseeably Harder Approvals: FHA gets tough

Ken Cook, FHA Home Loans 678-439-8683 — Thu, 03 Dec 2009 14:52:03 -0600

For many years home mortgage insured by the Federal Housing Administration (FHA) have made home ownership possible for millions of home owners. During the "boom" FHA loans lost a lot of ground in the marketplace because non-conforming loans were often easier to get and cost the borrower less scrutiny and often less out of pocket. (More on Examiner.com from my article this morning.)

Welcome the day when Housing and Urban Development Secretary (HUD) Shaun Donovan stood in front of Congress and reported the reserves of the FHA insurance pool to be only .53% - far below the federally mandated, by law, 2% reserves. As you may imagine Mr. Donovan, in an effort to save his job, is now scrambling for good ideas to get those reserves back to the minimum legal level. Let us all observe as the fireman tries to put out a big fire while his own pants are on fire.

Here are some of the recommendations thus far:

Raise the required minimum down payment from 3.5% to 5%
Lower the maximum seller contribution from 6% to 3%
Establish a required minimum credit score
Eliminate the ability to finance the Up Front Mortgage Insurance Premium (UFMIP) into the loan
Raise the cost of FHA mortgage insurance (higher premiums)

Currently it is much more difficult to be approved for a home loan, purchase or refinance, than it was two years ago or even six months ago. Mortgage brokers are not dropping like flies they have already dropped like flies and the remaining small percentage are having great difficulty getting loans underwritten and closed when they involve lower credit, lower income borrowers. Mid-level lenders are now the ones who are disappearing as they still lose warehouse lines of credit at an astonishing rate. This week saw the demise of LendAmerica.

Judging from the applications I have accepted and closed over the last few months these changes will absolutely impact at least 25% of the borrowers who have successfully purchased or refinanced their homes in the last few months. In fact I have two borrowers today who easily qualify who will likely not qualify if these changes are made. Considering I'm one out of tens of thousands go ahead and do the math.

Just wait ... it's not only FHA - it's Fannie, then Freddie and Ginnie. We predicted it a few months ago that it would not be long until buyers would need a minimum of 5% down, a minimum of a 640 credit score and rates would start to rise.

Are you ready to pay attention even if you don't get CEs for participating in the conference calls? If I were an agent I would be - I would want to be ahead of the curve!

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

PMI, MIP, LPMI, UFMIP, MMIP - Stop! What is it? Why does it cost so much?

Ken Cook, FHA Home Loans 678-439-8683 — Mon, 23 Nov 2009 10:53:40 -0600

In the evil alphabet soup of mortgage related acronyms we find a few well known ones, some respected ones, some desirable ones, and then there are these. Why we all love to throw around LTV and DTI. Insiders are very familiar with SRP (our money) and CTC (Clear To Close) and virtually everyone knows YSP and RESPA.

So what is with these three letters, I, M and P, and how do they affect my mortgage?

Let's start with I. In this case I stands for insurance. Not the kind of insurance that helps you if your property is damaged or if you are burglarized. Not even the kind that helps you if you missed a payment or two. No, those types of insurance are certainly available but this insurance is designed to help only the note holder. That's right this insurance is designed and in place to mitigate the risk to your lender.

Next is M. The M stands for mortgage. If you do not have a mortgage none of this is relevant. If you have a conventional mortgage with the loan amount to the value of the property ratio less than 80% this point is also moot. Otherwise, if you have a mortgage and the equity or down payment is less than 20% keep reading.

Finally is P. Regardless of what type of insurance you have bought you have heard and are likely familiar with the word Premium. This is the cost, to you, of purchasing this insurance and in this case it is mortgage insurance you are purchasing.

What is the purpose of mortgage insurance?

When a lender makes a loan they examine the risk to their depositors or investors. If the loan presents to much risk there needs to be some mitigating circumstance to limit the risk and that's where mortgage insurance comes into play. Without mortgage insurance many loans would never be made. The insurance does not protect the buyer but rather the lender against the buyer.

Mortgage insurance is underwritten along with the loan but always adds an extra layer of qualifications to the applicant. For example even though Fannie Mae may only require a score of XXX the mortgage insurer may require a score of XZZ. The same goes for late payments in mortgage history, income levels compared with debt and amount of liquid assets available.

Recently mortgage insurance companies have "taken a beating" because of the high number of defaults on mortgages across the nation. This has resulted in a necessity for increased rates and tightened qualifications. In the end everyone who is buying today is paying the price for the failures in the past.

The major insurers today are, The Federal Housing Association (FHA), Radian, Genworth, MGIC, UG, RMIC and PMI.

If you would like to have a presentation for your group, invite me to speak on a conference call or for radio or television appearances you can contact me directly at the number below.

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

FHA 203K Streamline Renovation/Purchase

Ken Cook, FHA Home Loans 678-439-8683 — Thu, 19 Nov 2009 15:42:23 -0600

So you or your client have found a home in a great area in the client's price range. Only one problem: it's in bad shape. The HVAC system is 50 years old, the roof is 40 years old and the windows may as well not even be closed. Plus the kitchen has vinyl floors in 3 different patterns and the counters are all laminate with burns and holes and scars.

Not to fear! Meet the FHA 203K Streamlined renovation loan.

Eligible Improvements Virtually any kind of improvement is eligible provided it becomes a permanent part of the real property and adds value.

Additions to the structure
Kitchen or bath remodels
Finished basement or attic
Patios, decks or terraces
Roofing and landscaping
Safety, energy efficiency and electrical upgrades
Handicapped accessibility improvements

Luxuryitems are not eligible

Swimming pools, hot tubs, tennis courts, gazebos, barbecue pits, saunas or alterations to support commercial use

The maximum loan amount must be within the FHA loan amount maximum for the MSA where the home is located and must include the purchase price and the renovation amount. The maximum renovation amount is $35,000 and the minimum is $5,000. Under $5,000 we can do with an escrow of repair funds. A minimum of 10% contingency reserve is required and must also fit into the FHA loan maximums for the area where the property is located. (Any balance remaining on the contingency will be applied to the principal balance and may not be used for additional repairs.)

Yes, it takes a little longer to close an FHA203k Streamline loan than it does to close a standard FHA loan. If you are an agent and you are concerned about that extra couple of weeks just think of it this way: You may make a sale you would not have otherwise made. You may help a buyer get into a home in the area where they wanted to live instead of where they "had" to live. You can be a real hero for someone.

If you are in Georgia I can help you with the necessary paperwork and give you a short class in how to use the FHA 203K Streamline Rehab loan to purchase, sell or represent homes in today's economy. Never hesitate to call me at any time and I'll be happy to answer your questions.

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

Useless Pieces In The Transaction (Wholesaler, Flipper, "Loss Mitigator")

Ken Cook, FHA Home Loans 678-439-8683 — Fri, 13 Nov 2009 16:14:09 -0600

Someone reading this post will think it's about them. If it is you then do something right for once go turn yourself in and get out of the business of hurting sellers, buyers and my industry you piece of trash.

Today I received a call from a friend and broker who is representing a buyer in a short sale transaction. He called me because I have been on the lender and trainer side of short sales longer than the vast majority of so called "short sales experts" have known the terms. Because I am a HUD Direct Endorsement lender for FHA loans and a Fannie Mae direct seller I know the difference between guidelines and lender overlays. The latter are designed to protect the middle men and often enhance the guidelines for underwriting government and agency loans. So his question was whether or not his buyer was being denied because of a real guideline or something only that lender does.

Since the initial question was about seasoning on title and flipping the answer was very simple - 90 days required from purchase to sale date. In other words the useless piece of the puzzle, the "wholesaler", would need to be on title as recorded in the deeds and records office, for 91 days prior to the clear to close on the sale. I offered some ideas that would help his client take possession of the property prior to the consummation of the sale which included a bona fide lease purchase but when I began to question more specifically some big bright burning flashing red flags started popping up.

First I asked how long the "wholesaler" had been on title. When I found out he has not yet closed and this is a short sale I asked how he got into the mix. The broker indicated the guy is a "Loss Mitigator". Oh, so he works for the lender? No, he's just some guy who owns a loss mitigation service and is wholesale flipping the home from the owner to the purchaser. Oh, a scum sucker!

I have written about "Loss Mitigators" before and I'm going to kick some teeth with my next statement but swallow them and like it if it's you. "LOSS" MITIGATORS WHO DON'T WORK FOR THE LENDER ARE USELESS, COSTLY AND UNWELCOME PIECES OF THE TRANSACTION. I have heard the FTC is investigating you and I'll be happy to provide them with all the case study and education they need to get you out of my industry and far away from real estate.

Naturally I wondered how the "Loss Mitigator" got involved and was very VERY intrigued to learn the listing agent had told the buyer's agent (my broker friend) he would have to deal directly with this "Loss Mitigator".

ORLY?

So the LISTING AGENT cannot deal with the BUYER'S AGENT and the BUYER'S AGENT has to deal with this "Loss Mitigator" who is NOT an employee of the lender?

Interesting. So just who is this so-called "Loss Mitigator" who is not an attorney, is not a real estate agent and does not work for the lender?

After a few more questions and answer I discovered the preferred title agent for the seller had been changed to the preferred title agent for the "Loss Mitigator" who shares and office with the new title agent.

This is probably the best of all: The buyer's agent sent the contract to the seller's agent and the contract came back with the home owner's name lined through and the LLC (company name) of the "Loss Mitigation" dude written in.

My advice? Call the Real Estate Commission, call the bank holding the note on the property and run! I also added to have the buyer contact the seller directly and ask who this "Loss Mitigator" is and what the exact negotiated sales price is. The contract the buyer currently has is probably useless since the "Loss Mitigation" Company (and I sure hate using that term because it's as bogus a use of the terms as they come) signed as the seller. I'm sure Wells Fargo would be very happy to know about this case since they are the ones who allegedly hold the security instrument.

Scumballs, bottom feeders, leaches, parasites, and crooks - I can smell you 864 miles away and you need to get out of this industry. You are in part to blame for the condition of the industry today. You prey on people with your fancy titles that don't mean squat and in fact are INTENDED only to confound the innocent and those who are already facing financial devastation. YOU ARE ON MY RADAR and there are thousands like me who remain silent.

There is a right way to profit from real estate and the success to be enjoyed even in this market can be huge. This is the way thugs, crooks and cheats do it. I don't care WHO you are: If you don't work for a bank, if you are not BUYING homes and adding value before flipping them, if you don't have a LICENSE to represent buyers and sellers, then YOU are an unwelcome turd in the punchbowl.

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

Would You Prefer To Argue Or Close Your Loan?

Ken Cook, FHA Home Loans 678-439-8683 — Fri, 13 Nov 2009 10:41:44 -0600

Many of you who regular read my writings know I often write what others are thinking even if they don't want to publish it. This, of course, makes me the point of contention for some while other appreciate my openness and *transparency*. That word is so abused these days - especially by those people who claim that by telling you the costs of the mortgage up front they are somehow the only people in the industry you can trust. Hogwash and bologna.

In my years in the industry I have seen thousand (and thousands) of mortgage applications. The greater majority of those applications have become loans. During the last 3 and 1/2 years I have written about what happens between application and closing many times right here on Active Rain. Hopefully you have read enough to pick up on the fact that there are as many as 35 or more moving parts and people in the mix from application to close. Oddly enough I had a "loan officer" once argue with me about that number. But I digress.

Escape me it does not that there are people in the mortgage industry who are inept and have a difficult time comprehending the process themselves and that makes it harder for people not in the industry to know if they are working with a mortgage professional or an application taker. That being said I have always made myself available to anyone, from anywhere in the country, for any reason to answer questions about what is happening in the loan process. Call my Google Voice number at 678-439-8683 and we can chat about it.

Professionals tend to want to do everything in a very planned order of execution and, as a general rule, that planned order goes something like this:

Talk to the prospect about the loan needs and interview them for details of the type of transaction they are interested in or which will best serve them.
Take a complete application which includes asking where the borrower(s) work, bank and live for the last 2 years.
Examine and evaluate the credit report.
Barring obvious reasons to deny or suspend at that point the mortgage professional will use an underwriting engine for a preliminary decision which will be based solely on statements made by the applicant regarding employment, income and assets and the credit report which will be read directly by the automated underwriting engine.

Let's call all of the above "The Initial Application Process". Some people seem to believe that's all there is to the mortgage process even though all of that generally takes less than an hour. You can rest assured it has only just begun. In fact this does not even mean an approval. It is simply a pre-approval or an application approval - not a loan approval. This is the end of the easy part.

As a borrower you will now have a list of things to gather. I have written about those before so I won't bother making you read them again. Read it here if you want.

During the next few to several days you will be asked to provide some very private details about your finances, work history and residence history. Some of it may seem too intrusive or too bothersome for you. If you are a very skeptical and private person you may have more resistance than another but we are all equal under the rules of lending based on the five things that matter most: Credit, income, assets, property type and loan purpose. If you and/or the property present a lower risk you will enjoy a simpler ride from start to finish. If you and/or the property provide increased risk the due diligence of the lender, mortgage insurer and mortgage investor are going to make things more complicated simply by virtue of risk and underwriting guidelines.

I'm glad you read down this far because what I want to say that every mortgage professional has to deal with is the process of meeting underwriting and risk guidelines from the lender, the investor and the mortgage insurer (if there is one): Don't argue about what I am asking you for. When you do you waste your time, my time and the time of the other people depending on me closing your loan. You also waste the time of the 10 other borrowers and their agents and the sellers of the homes they are buying with whom I am working.

When I ask for a copy of the bill of sale for the 1956 Edsel you say you sold 2 months ago to come up with the down payment - just say okay and fax it to me. When I ask for for a copy of your CD information from the bank to prove you actually have $50k in CDs with them - likewise. When I ask you for the name, address and phone number of the company where you worked 18 months ago before you took your new job go find it and get it to me. When I ask for a picture of your foot in a cast because you are out of work for 9 weeks due to a broken toe SEND ME THE &%$@! PICTURE. Trust me - I don't want a stack of crap I don't need setting on my desk which already looks like Denis the Menace is my assistant - I need it to close the loan.

Oh, and another thing, I don't care how many things I have asked you for and how many things you have sent me if I call you the morning of the closing (chances are I won't) and I ask you what color interior was in the car your parents drove you to school in on your first day of school - DON'T ARGUE - just get the answer.

If you keep in mind the fact that you are asking someone to buy a home for you and let you pay them back slowly over a period of up to 30 or more years and that in the last 2 years a huge percentage of people defaulted on that promise to repay for any number of acceptable to ridiculous reasons we'll get along just fine. And if you keep in mind that the LOAN OFFICER is the last person to ever get paid on a closed loan and that we don't earn one penny until your loan is closed and funded you'll begin to get the picture we are actually TRYING to get your loan closed not to keep it from closing.

Oh, and any loan officer or lender who tells you they won't put you through all this is full of ... well, you know what and it's not truth. If you are asked for very little documentation consider yourself and your property a great credit risk. The other 99% of the people are going to provide "stuff" to get their loan closed.

Can we be friends now? Why can't we all just get a loan?

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

How Many Times Have YOU Violated The Fair Housing Act?

Ken Cook, FHA Home Loans 678-439-8683 — Thu, 12 Nov 2009 14:44:16 -0600

I enjoyed the session today with Seth Weissman. I did the intro and bought the lunch (well, my boss did :), and well known and respected attorney Seth Weissman did the training. The responses and questions from the 60 some agents who attended the 4 hour session were interesting and thought provoking.

Here was one of the questions that was asked which may surprise you: "If I know I have a home in a predominately Jewish area is it okay if I advertise only in the Jewish Times (a big local magazine where I have indeed advertised) and not in the big paper which services a broader audience"? Mr. Weissman, THE authority on FHA violations not only in Georgia where he quite literally wrote the book, says "no". He doesn't say it is a blatant violation but he does say it could be construed as a violation and the average cost to defend against a charge of violating the FHA is $50,000 and that's if you win.

Another one was also surprising and that is if someone asks if the area is a gay friendly area how do you think you can respond? Interestingly enough gender preference is not a class that is protected under the FHA so you can answer (according to Mr. Weissman who wrote the book ;) but you cannot answer if you are asked if there are a lot of same sex parents with children in the area.

What about an owner who insists on not showing their home to a certain race or nationality? Or an advertisement printed only in Spanish? Better yet what about an advertisement printed only in English and Korean?

Lastly, and I have been aware of this one for some time because of my history as a landlord, if you prohibit pets and advertise that way you are likely in violation of the FHA where animals are used as companions for people with disabilities. That does not mean just blind people either. He relayed the story of a case where a tenant had a young son who suffers from fetal alcohol syndrome and as a result has very bad anxiety and panic attacks and he was prescribed a companion animal to help him overcome that debilitating condition.

All in all most people learned they didn't know nearly as much about the Fair Housing Act as they pretended to know before today's CE class. If you want to know more please contact Seth Weissman at Weissman, Nowack, Curry and Wilco.

And here's a plain English brief from HUD click this link.

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

What is FHA Concentration and How Does it Affect Condo Sales?

Ken Cook, FHA Home Loans 678-439-8683 — Wed, 11 Nov 2009 14:25:50 -0600

"They just keep on changing these rules, don't they?" It was an honest question from a frustrated agent.

Here is what I do know: FHA Concentration can shoot you in the foot. HUD Mortgagee Letter 2009-46B in Section 1 Subsection V Paragraph 10 parts a, b and c tells us about FHA Concentration and how to see it coming from miles away. Keep in mind you can still get financing in developments which have reached the maximum concentration levels specified by HUD for FHA insured loans but not with FHA.

The easies rule to remember is thirty percent (30%). If the project development (not phase) has 30% or more of the available units financed with an FHA insured mortgage there will be no further issuance of FHA case numbers in that project. In a nutshell this means there will be no more FHA loans issued for those condominiums until the concentration level again falls below 30%.

For condominiums consisting of three or fewer units only one unit may be financed with an FHA insured loan. With condo projects of four or more units the 30% rule comes in to play. If you are math challenged just remember for every 10 units in the project only 3 can be financed with an FHA insured loan.

So remember, in Georgia and especially the metro Atlanta area, even if I have not yet closed a condo loan in your new or existing condo project I know a few things about condos. This might be the first time you and I have ever met but one look at my gray hair and you'll know I didn't just step off the chicken farm yesterday.

I do condo loans. Give me a call and let's chat then let's get your loan closed. Right Mrs. Martin? (Mrs. Martin came to me with a very unusual and challenging condo loan and we are closing on Friday. No other lender she worked with including banks with two or three words in their name could get it done for her.)

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

Increasing Home Sales with the FHA 203k Streamline

Ken Cook, FHA Home Loans 678-439-8683 — Tue, 10 Nov 2009 14:41:21 -0600

"Oh I don't want to mess with all that trouble", the agent said to me during a phone conversation. She meant she did not want to mess with selling a home that needed a new roof, some plumbing repair, new carpet and new appliances which I could finance into the loan amount.

I asked, "why not? What trouble?"

It seems she had a few misunderstandings about how this powerful purchase loan works. The truth is it doesn't involve any extra work for her than a regular FHA loan. What it does it take an unsellable home and turn it into a sale. Conventional loans do not allow for some of these types of repairs on an "as is" home sale. Even there it increases the sale amount by the mere virtue of dealing with a homeowner financing the property instead of an investor paying cash for the property.

The FHA 203k Streamline purchase loan is perfect for the large majority of homes in the US. Any home that qualifies for a standard FHA home loan, the 203b, also qualifies for the FHA 203k if it needs less than $35,000 in non-structural upgrades or repairs. So what CAN you do with an FHA 203k loan?

Repair or replacement of roofs, gutters and downspouts
Upgrade of plumbing and electrical systems
New flooring or floor covering
Exterior decks, patios and porches
Minor remodeling (no structural such as room additions)
Paint and wall covering
Weatherization including storm windows, storm doors, insulation and weather stripping
Purchase and installation of new appliances
Disability access improvements interior and exterior
Basement finishing and remodeling
Basement and crawl space moisture control and waterproofing
Window and door replacement
Exterior residing such as replacing old, defective siding
Septic system or well repair or replacement

One caveat which we don't understand is the FHA 203k Streamline does not allow for completion of a home which was started in construction but not completed. This is one they really need to take a look at because I get at least one call every month or so with this exact question which tells me others get it, too!

Repairs cannot take any longer than 6 months and there are only 2 draws available regardless of how much the contractor(s) beg. Your contractor will need to be able to fund the job for up to 60 days out of pocket while they wait on the draw from the bank.

Most lenders require the contractor to be licensed in the state where the property is and do not allow the home owner/buyer to do the work their self. You *may* be able to find a lender who will allow the work to be owner performed *if* the owner can prove they are a professional in that type of work. My company does not allow this.

Plan on a little extra time to close these loans because of the necessary underwriting. There are a few documents extra which are needed which I will not disclose here because while I enjoy helping the general public I have to be careful about educating my competitor's and their inexperienced loan officers.

When you need an FHA 203k (or any other mortgage) call me. My team is the best of the best and if it can be done we'll get it done or let you know as soon as we know differently.

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

Here Come The Blog Cops! December 1 FTC Changes

Ken Cook, FHA Home Loans 678-439-8683 — Mon, 09 Nov 2009 11:37:58 -0600

December 1st, The FTC, Testimonials and your Blog/New Media

December 1, 2009 is the date your blog and all new media advertising meets new enforcement and scrutiny. Meet the Federal Trade Commission 16 CFR Part 255 "Guides Concerning the Use of Endorsements and Testimonials in Advertising". Much of the "guide" applies to celebrity endorsements and the use of "disclaimers" such as those which say "results not typical".

The word "endorsement" is used 188 times in 16 CFR 255 and the word "testimonial" is used 92 times. Where the real danger comes in, of course, is if someone complains to the FTC about something they read on your blog, Facebook, Posterous or any other New Media outlet. You and I, reader, both know there are "testimonials" even here on AR which are not even from real customers or are using real customer's names but they have no idea those testimonials exist. That is the focus of 16 CFR 255 in addition to endorsements and testimonials on late night television.

It has been noted that it is difficult to determine how much deception actually occurs from false testimonials and I am sure it would be very difficult and costly to prove a violation of FTC regulations on a small basis for individual blogs. The best way to avoid violations is to solicit testimonials from your clients that you can keep on file or to use a third party company like iKarma for example.

Thanks to Jeff Link for pointing out the more English short segment FTC REVISED Guides Concerning the Use of Endorsements and Testimonials in Advertising.

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

Housing prices and interest rates are extremely low - so what?

Ken Cook, FHA Home Loans 678-439-8683 — Sat, 07 Nov 2009 13:16:32 -0600

Obviously, from the market numbers, people do not get as excited about "historically low interest rates and low home prices" as they do low rates and rapidly escalating values. My numbers show it, your numbers show it and the national reports show it. Oh there are a few people "doing better than they ever have" but I'm a long stretch from generating the 400-600 loans a year I enjoyed in 2004 through 2007 - cue Archie and Edith singing "Those Were The Days". So if we thought low cost of money and low housing prices were fueling the business obviously we were wrong.

We didn't think that, though. We thought the fact that almost anyone could buy homes as primary residence or investment properties was driving the market. However, there are some very important figures to note: Interest rates are lower than ever and housing costs are extremely low.

As you can see from this chart of actual data this is THE point of lowest average interest rates since 1971. With rates in the high 4s and low 5s for prime borrowers and the 40 year average at 9.024 percent I would encourage everyone to think how it may be possible to buy that new home or first home now. I have never said, "right now is the best time to buy" but if that time has ever come it is very likely right now.

There is no way interst rates are going to hold this low for a myriad of reasons including inflation and dollar devaluation. Right now the government is spending your future income as fast as they can pass Bills and Resolutions into law. You can have whatever political bent you care but the facts are the facts and those are the facts. The national debt will soon cause interest rates to begin to rise. They may not rise as quickly as they did back in the late 70s when inflation was out of control thanks to massive government misspending but rise they will and I have not found one economist worth their weight in salt who think the rates will not reach double digits in the next 3 to 5 years.

Compare those interest rates to the Robert Schiller hosueing data set from Irrational Exhuberance and you have a very unique picture:

That top red line "Home Prices" really tells a story. If we combine the two we see housing prices back down to almost 1980 levels and interest rates lower than any other time in this history.

Does this mean now is a good time to buy? The best time to buy?

Only if you need to. If you do not need to buy then no time is a good time to buy - that includes for investors. In fact investment money is much more difficult to find overall than it has been since the mid 90s. Oh, I'm sure someone will disagree but the facts are the facts - just because Joe Smith in Montegumma has been able to borrow the money to buy 10 homes in the last 12 months doesn't do a thing for Bob Davis in Roswell. I'm sure Joe Smith will be more than happy to sell you his book for $29.95 or his seminar for $199 if you know what I mean.

As always if you are in the southeast and you need answers never hesitate to call me on my cell at 678-439-8683 whether you are an agent, seller, builder, buyer, or home owner. I will be more than happy to answer your questions and provide services where I can.

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

Let's Explore Sect 11 of HR 3548 The Extension and Modification of the FTHB Tax Credit

Ken Cook, FHA Home Loans 678-439-8683 — Fri, 06 Nov 2009 15:49:06 -0600

HIGHLIGHTS ONLY - I don't want to distribute incorrect information so if you have a viable correction please make it known in the comments.

HR 3458 "The Worker, Home Ownership and Business Assistance Act of 2009"

While it is called an "Extension and Modification of the First-Time Homebuyer's Tax Credit" it really is an extension and overhaul or re-construction. Modified doesn't seem to cover it. If you are interested the full text of the Resolution signed into law is found at this link on Thomas Library of Congress. (This is also based on S 1678 dated September 16, 2009 and passed unanimously in the Senate.)

All the good stuff related to the Tax Credit seems to be found in Sections 11 and 12. I am not interested in sharing my political opinion in this post (had to clarify this post) but working with you to develop a fuller and more accurate understanding of this new law. We know the second version of the First Time Homebuyer's Tax Credit was scheduled to end with homes purchased, and closed on, before December 1, 2009. The key word at that time was "closed". The newest version has a different twist which we will examine. So, here we go line by line where application matters to our common clients:

Section 11(a)(1)(A) extended to May 1, 2010

Section 11(a)(2)EXCEPTION IN CASE OF BINDING CONTRACT - if the binding contract is entered BEFORE May 1, 2010 then the closing must occur BEFORE July 1, 2010

Section 11(b)(6)EXCEPTION FOR LONG-TIME RESIDENCE OF SAME PRINCIPAL RESIDENCE - if the person buying the primary home lived in their primary residence for "any 5-consecutive-year period during the 8 year period ending on the date of [qualified] purchase" they also qualify for the credit under SEC.11(c)(1)(D)

Section 11(c)(1)(D) sets the maximum credit for long-time residents to $6,500

Section 11(c)(2) sets the maximium individual AGI to $125,000 and the maximum married couple AGI to $225,000

Section 11(d)(3) sets the maximum purchase price [not loan amount] to $800,000

There are other subsections specific to military personnel who are deployed found primarily in Section11(e)(E)

Section 12 is also pertinent but contains mostly clerical changes and restates the recipient of the credit must be at least 18 years of age at the time of purchase of the home.

IN SUMMARY

You must close before May 1, 2010 (so no later than April 30 2010), if you are not a "first time home buyer" (defined as someone who has not owned a primary residence during the last 36 months prior to the closing date) you must have lived in your primary residence at least 5 continuous years out of the 8 years preceding the closing date unless you enter into a binding contract before May 1, 2010 then you must close before July 1, 2010. Individuals may take advantage of the tax credit if you earn no more than $125,000 per year Adjusted Gross Income and married couples may not earn more than $225,000 AGI. Your sales price may not exceed $800,000 and you must be 18 years of age.

BIG DISCLAIMER: I AM NOT A TAX ATTORNEY OR ACCOUNTANT and everything you just read is my opinion on what the law says. Do not make any decisions based on the content of this blog post. Seriously, do not use this as a substitute for tax advice or legal advice.

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

Clark Howard You Were Wrong ... Again

Ken Cook, FHA Home Loans 678-439-8683 — Wed, 04 Nov 2009 09:27:12 -0600

Clark Howard I think you do a great service to the public at large when exposing scams and ripoffs*. Still I'm calling you out Clark and I hope you actually take this to heart - this time. Not to tear you down or make you look bad but to keep you from confusing your listeners with (a) incorrect information and (b) misapplied information.

For those of you who don't know Clark he apparently was quite a successful travel agent (made millions and millions so I have heard) back in the 70s and 80s and is now a syndicated radio personality. I neither dislike Clark nor wish any malice upon him and hope he continues to enjoy success in whatever he does. The trouble is he knows just about enough about mortgages to screw you up if you trust him at his every word. He knows most of the words and the correct correct definition of them but invariably I cringe before he finishes talking about them. Why should I have expected today to be any different? Back when I did a lot of radio advertising I constantly had to battle the "but Clark Howard says ..." callers. What a nightmare that could be. Clark likely has no idea of the confused aftermath he sometimes causes for his listeners who actually believe he knows more about the inner workings of home finance than we seasoned, trained and educated professionals who may have closed thousands of loans.

The call in to his show on Tuesday started out innocently enough and I was driving back to my office, where I work as a mortgage banker which I have done for the last umpteen years, so I listened. I did not hear the caller's question but I heard Clark say something similar to, "then you will have 25% of your debt at over 7% interest and that's not good". Agreeable - that probably is not good but I never give financial opinion without knowing the full story. That scenario may be good if she currently has 75% of her debt at 25% interest, know what I mean?

Then Clark started talking about "no cost mortgages". He even said, "many lenders will tell you there is no such thing" but goes on to talk about them as if they really exist. He must not remember the FTC cracking down on those ads which came even from giants like Countrywide for advertising "no cost loans". I'm assuming he has read my blogs in the past as I continue to tell the truth "there is no such thing as a no cost loan" or "there are closing costs and you pay for them".

Clark, there are no "no cost" or "zero cost" loans. They don't exist on the real planet where Jane and John Homeowner depend on the services of dependable mortgage professionals. If those are no cost loans then I should be able to sell you a $100 suit for $500 and tell you the shoes I included are "no cost".

Sure, the broker or lender can make it so that the borrower does not have to bring any money to the closing table and if the home owner only plans to be in that home or that loan for about five years or less it may make sense. But they are not "no cost loans". They have a cost and that cost should be explained in detail to the borrower and the alternative comparisons demonstrated. An informed and properly educated consumer is our best client.

The other thing Clark was wrong regarding (that made me actually look at my phone and think of calling in as though I had an ice cube's chance in getting through to him) was very misleading and will cause someone harm if they believe it. He was doing the right thing about talking about the power of 5/1 ARMS. Then he should have hushed because he started dancing in territory he had no business in - talking about rates and closing costs at particular lenders.

In his defense he probably just looked at some website to get the rate for a 5/1 ARM and he said "ING has it for 4% and there closing costs are generally lower than the other lenders who offer the 5/1 ARM." That was more than he had business or knowledge to say and I challenge him to present actual figures to back it up. Also, if you think ING is offering a good price send me your GFE and TIL and let's see just how good it is.

First of all the rate changes all day every day. I quoted 4% on a 5/1 ARM on Monday and it went up to 4.25% by mid-day on Tuesday and back down to 4.125% by mid-afternoon. PLUS Clark has no idea what anyone's rate is because it is based on many things including credit score, loan amount, appraised value of the property, type of property, geographic location of the property, term of the loan, purpose of the loan, and more.So, his statement is misguided and quite possible dangerous.

When we as lenders, bankers or brokers advertise a rate we are required, by federal law, to also tell the APR of the rate and the terms of the loan in an equal presentation of the rate. In other words if we say 4% and the APR is 4.285% we are required to say it in the same voice and publish it in the same font on the same line. What Clark doesn't get, and obviously doesn't care about, is you hearing him say "4%" and you automatically assume you're qualified for it and it applies to the loan you are seeking. Then you wear some poor loan officer out arguing with her because your rate is 5.125% (or whatever) but you stick to it that Clark Howard Said ... like he's some financial god or something. He's not. HE'S A RADIO SHOW GUY. He has no known formal education or experience in mortgages, okay?

He continuing digging a trap by saying ING's closing costs are "two to three thousand dollars lower than their competitors". I wish I had that noisy alarm he plays when he does his scam alert. Do you know sometimes closing costs are not even two thousand dollars on a loan? In fact many times the total closing costs to the lender are much less than two thousand dollars especially on loans under $150,000. So that's a BIG RED FLAG.

What Clark gives is neither rock solid professional advice nor accurate commentary. He's like other radio show/journalists who have dabbled in tertiary understanding of mortgage finance and real estate who should offer the disclaimer that their information is basically not much better than (or as good) bar-room chat. What Clark did on Tuesday is not unlike what Clark has done many times over the years and that was quote an interest rate and insinuate that interest rate was available in conjunction with a "no cost loan". Wrong on almost every case. When you want the truth and accurate information turn off the radio, get away from the misleading commercials and call me on my cell at 678-439-8683 (Clark you can call me too. I don't dislike you. Come buy my brunch and we'll talk about golf. My office is on Johnson Ferry.)

*I think Clark Howard does a tremendous amount of good for people by exposing scams and ripoff and giving great travel advice. I also know I have wasted hundreds of hours over the years re-educating people from what they have heard from Clark and other people like him who really do not need to be quoting rates and closing costs so freely.

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

I Will Not Do Your Loan Unless You Consult With "My Preferred Agent"

Ken Cook, FHA Home Loans 678-439-8683 — Sat, 31 Oct 2009 09:02:02 -0500

Even if you have been working with your favorite real estate agent for the last 9 months, even if you have already looked at 20 homes with your favorite agent, even if you have already had the home builder install your favorite colors and appliances, I will not do your loan until you call Tommy T Thomas over at Big Builder Incorporated and speak with one of his agents. Now you do not have to buy one of Tommy T's homes but you do have to go look at one and let the sales agent check your contract with the home you think you want to buy.

Sounds ridiculous doesn't it? It would be an insult to you as an agent or builder for me to require "my preferred agent" to read over the contract would it not? Even if I said, "You have to do this but you do not have to use my agent. They are only involved as a safety net to make sure if you can't get it done they will step in and make it happen."

There is no difference when you as a builder, agent or real estate broker demand my client, with whom I have been working for months, in a business I am as good at as anyone in the nation, speak with some other lender. Especially when that lender is my direct competition. You think I don't remember that the next time I think about referring one of my hard earned clients? How would you like it if I kept a list that I gave to my preferred agents and said, "Never show any of these homes from this builder or agent because they pull this monkey business."

Yes, monkey business. The reason they give is to "make sure in the event the current lender can't get it done 'thei' lender can". Okay, that's insulting. If I can't get it done THEN you defer to someone else IF my client, the one I created with my hard work and advertising who may not even originally have been interested in purchasing a new or additional home until they spoke with me as a result of my efforts.

What if you went to Snarky's Department Store and pulled out your trusty credit card to pay for your purchase and the sales clerk handed you an application for a Snarky's credit card and said, "We can accept your major credit card but first you have to apply for our Snarky's card"? Or what if you actually spent all of your time driving around to business association meetings and loan officer's conference handing out your cards and sending greeting cards and newsletters and doing free workshops to generate prospective clients but when you went to present a contract to the listing agent they said, "We'll accept this after our inhouse agent has a chance to sit down with the client and review your contract and make sure you've done it right?"

Oh, I know, you've got the hammer of threat of law under the buyer-broker agreement. How nice. Now you're going to tell me about the time your clients were pre-approved with so-and-so and how the pre-approval wasn't worth the paper it was printed on. Be careful what you say, I've been in this business for a long LONG time and I have a lot of horror stories that fly in all directions.

Yesterday, a client I have known all my life, working with an agent whom I have known all of her life, called and said, "The seller won't accept the offer until they get me pre-approved with their bank." My first thought was, "well it's a bank owned property and some banks work that way." In that case I really didn't have an objection but when I found out it was the LISTING AGENT and not the SELLER and the LISTING AGENT/BROKER required the pre-approval from a CORRESPONDENT LENDER and I work for a DIRECT LENDER I definitely took note of it. I took note of the listing broker's name and the listing agent's name for future reference when I have clients who are shopping.

Think about it, comment about it or state your case. I know what you may say your reason is but I will remind you what an insult it is to a consummate professional who generates their own leads and refers them to local agents. It really just confuses and concerns the client and if that's how you want to treat your clients you can know what they think of it - they do NOT like it. Clients are very careful with choosing with whom they share there very private and confidential information and being forced to do so does not make them happy. I know it doesn't because even when they are not my client I have had them call me for my professional opinion on this specific activity. And do you know what they suspect you of? That's right ... under the table agreements with the lender to get an illegal kick-back.

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

Closing Points, Origination Points, Discount Points ... What are points?

Ken Cook, FHA Home Loans 678-439-8683 — Thu, 29 Oct 2009 22:38:02 -0500

"I'm not paying any points!"

Well, okay then. I guess you're paying cash because everybody who borrows money from a broker, lender or bank (regardless of their misleading advertisement) pays points. Simply defined the word points means a percentage. What they are a percentage of is the next question. And, in this case, they are a percentage of the loan amount.

For example if we are talking about $100,000 and we say "one point" we mean "one percent" or $1,000 (one thousand dollars). If we say "two points" we mean "two percent" or $2,000 (two thousand dollars).

Since we know what a point is (1 point = 1 percent) and we know what it is based on (the loan amount) why exactly are points charged and why is it a good or bad thing? To the mortgage insider there are lots of points. There are origination points, there are discount points, there are yield points and there are service release points. Some of those points are directly visible to the borrower(s) and some are not so let's take them in order.

Origination Points - this is your loan officer's paycheck. She does not get it all (usually) but rather splits it with other people. Even if she does keep it all she has some other fees to pay out of it to her broker or lender. When people say, "this is a no point loan" they are not talking about this fee. They are talking about ...

Discount Points - this is the fee to buy the interest rate down. In plain language if you are offered an interest rate of 5.5% and you want the interest rate at 5% you will pay discount points or buy down points. On a purchase loan this may be paid by the buyer(s) or the seller(s) where permitted. Again 1 point = 1% of the LOAN AMOUNT. This is the fee almost everyone except mortgage industry participants are talking about when they say, "I'm not paying any points!"

The tricky part about "discount points" is it costs more than 1% of the loan amount to "buy down the rate" 1% - so you don't pay 1% of the loan amount to go from 5.25% to 4.25%

An example of discount points not intending to confuse: Say your loan amount is $100,000 and the interest rate is 5.25% but you want a rate of 4.625% - every loan officer will know exactly what these numbers mean. If they don't then they are not, in fact, a real loan officer. But I digress. The RATE column is obvious. The 25d column means once that rate is "locked" the file MUST be closed in 25 days or a rate lock extension must be purchased.

RATE 2d 10d 25d 40d
4.250 3.375 3.500 3.875 4.000
4.375 2.500 2.625 2.875 3.125
4.500 2.000 2.250 2.500 2.625
4.625 1.625 1.750 2.125 2.250
4.750 0.875 1.000 1.375 1.500
4.875 0.375 0.500 0.750 1.000
5.000 -0.125 0.000 0.375 0.500
5.125 -0.500 -0.375 -0.125 0.125
5.250 -1.500 -1.250 -1.000 -0.875
5.375 -2.000 -1.875 -1.625 -1.500

The -1.000 in the 5.250 row and 25d column means there is a cost to the borrower of -1% of the loan amount. Since the cost is negative one percent that means one percent comes back. Generally that would be shown on the mortgage broker's HUD1 as 1% of the loan amount in YSP. So if it is a $100,000 loan that would be $1,000 to the mortgage broker. You won't see it at all if it goes to the bank or lender.

The 2.125 in the 4.625 row and 25d column means the rate of 4.625% will cost 2.125 percent of the loan amount PLUS the 1% of the loan amount the broker won't be making. So in this case it will cost the borrower 3.125% of the loan amount to "buy down the rate" to 4.625% (there are many other ways to slice this pie but you don't have the patience and I don't have the time for the full book version :)

In the above example on a $100,000 loan to "buy down the rate" from 5.25% to 4.625% would cost the borrower $3,125 - on a refinance this could come from the new loan and on a purchase it can be paid by the seller or the buyer depending on loan guidelines.

Yield Points - called Yield Spread Premium, are probably the most maligned and possibly misunderstood "fees" there are. Funny thing is it's not a fee. What many bankers, bloggers and ill informed talk show hosts (plus a so-called "Real Estate Expert" on About.com) either do not understand or simply choose to lie to you about is these are the only "back end points" ever revealed to the borrower. Has YSP been abused? You bet! But bankers abuse rates and never tell you how much profit they are making. I know, I are one. I have also been a broker. If your rate is competitive you really should not care at all about these points. If you disagree or do not understand call me and we can chat.

Release Points - called Service Release Premium, are the most ignored points even though they are virtually identical to Yield Spread Premium listed above. For secondary marketers and mortgage bankers there is a huge difference between the two but to the end user really the are very similar. Both affect the interest rate paid by the borrower and the profit made by the lender/banker/broker. What should matter to borrowers is 5% 5.5% 6% - whatever the rate is and your other closing costs.

One of the big problems with mortgages is so many people have no idea how to shop for one. They think if they know the words, "points" "rate" and "closing costs" they know everything needed to know. What they really do when they ask those questions in the wrong manner is tell a savvy loan officer just how little they know. They would be better served by saying, "tell me about your mortgages and all the costs associated".

You are going to pay points one way or another. Either you are going to pay a higher interest rate, your loan amount is going to be increased or you are simply going to pay them exactly as they are.

Let me interject a note about "hidden fees". It is not that hard to have "hidden fees" on loans but even with "hidden fees" you can still shop if you look at the three most important numbers: How much money you have to bring to the closing table, your total loan amount and your monthly payment (and whether or not that payment can ever change). For example if your loan is $100,000 and you have to bring $10,000 to the closing table and your monthly payment is $500 for one loan but for another loan of $100,000 you have to bring $20,000 to the table and your monthly payment is $550 - YOU have to decide which one works for you. A true mortgage professional can advise you. Don't fall for some hopped up claims like, "all of our fees are up front" or "we have flat rate mortgage fees". So? So what? That in no way qualifies that company as more honest or trust worthy.

If you want to know how to shop for a mortgage, even if you are not in my market area, I will be happy to speak with you. Just give me a call and ask! Maybe I should write another post about how to compare mortgages ...

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

Rate, Price, Costs - Today is Awesome - Is tomorrow too late?

Ken Cook, FHA Home Loans 678-439-8683 — Wed, 28 Oct 2009 17:44:09 -0500

I watched in amazement for the last 48 hours as 30 year mortgage bonds reached their lower resistance point. I suppose we always have the greastest hopes that the reversal from down to up will result in an incredible jump sending mortgage rates into the basement. When lower resistance on mortgage bonds is coupled with sinking employment a flat dollar, a drop in the stock market and fuels along with excess housing industry, you could have Goofey and Pluto as president and vice president and interest rates would STILL go down!

That's what happened today. I watched all day and called every pending client resulting in 3 "let's do it" responses and one of my clients headed out with local agent Lane Bailey and resulting in an offer made all today. Tomorrow who knows what will happen - that's the thing about mortgage interest rates, they always change.

If I were in the buying market and using mortgage money I would be very interested in springing today. I mean - TODAY. It's still "possible" (but growing less likely every day) to close on a home before the first time home buyer's tax credit ends. That's a nice bit of change to skip on if you're going to be buying in the next few months anyway. Then again I've only been doing this for the last several years so maybe I'm wrong and you can sit around and wait until homes are free and the banks pay you for borrowing their money.

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

How To Help The Loan Go Smoother and Faster

Ken Cook, FHA Home Loans 678-439-8683 — Tue, 27 Oct 2009 17:26:55 -0500

It's easy to complain about how long it takes a loan to close - even loan officers do it. The truth is if everything is in order and the property is acceptable the loan should close within 21 to 30 days of the receipt of all documents by the lender. This is not 21 days from application date nor is it 21 days from contract date. It is exactly as stated: 21 to 30 days from the date a full application is received.

The tug-of-war between agents and loan officers can be turned around if both remember to stand on the same side of the mud puddle. Generally the agent needs to realize they do not know as much about the actual workings of the mortgage industry as the loan officer and the loan officer needs to realize the same and not leave the agent in the dark and don't use insider terms to explain everything. I understand Active Rain participating agents are more well informed than others because we all swim in this same pool!

Almost every loan application has some similar needs. If the agent knows what these are and can help prep the client to get these together quickly and accurately then the agent and the loan officer can start out by standing on the same side of the mud puddle and pulling the same direction on the rope. These are not absolutes and are not carved in stone but at least 9 of 10 loan applications need most of the following:

For W2 Employees

Two years of tax returns, all schedules, signed by the taxpayers. This will be verified by the IRS so go ahead and feel free to ask the home buyer if these are the same tax forms they sent to the IRS for those tax years.
Two months of bank statements all pages including blank ones - front and back (checking and savings if they are used on the application as assets). Look at the documents and find every page. If the first page says 1 of 15 we'll be looking for 15 pages.
One month's coverage of pay stubs showing deductions and year-to-date income. If they get paid weekly this would be four pay stubs. If they are paid bi-monthly this would be two pay stubs and so on. If they get paid by a handwritten check (like some small businesses do) we're going to have some challenges verifying income according to document requirements so brace for impact.
A clear photo-copy of a government issued ID (driver's license, passport) showing the current address. If the current home address is different than the address on the ID we may need a letter of explanation.
A clear copy of the social security cards. Photo copies are okay and scans are best.
A fully executed sales agreement signed by all parties and legible. If it has been faxed back and forth we cannot read the words or even the signatures. If your great-grandad cannot easily read the contract in low light it's not good enough. Send us the unexecuted (unsigned) contract along with the best possible signed copies.
If it is a condominium we need the condo questionnaire completed (you can get that from me or whoever your lender is - each lender has a different one) and insurance information.
We need the insurance information for the buyer's preferred home owner's agent.
If there is a gift of funds from an acceptable member (pretty much limited to a direct family member like a parent, child, sibling or spouse) we need a gift letter which you can get from the loan officer.
If the home buyers have not been in the same line of work for 2 years that could be an issue so be prepared to face that challenge.
If the home buyers have a gap of more than a couple of weeks between jobs a good letter of explanation will be needed.
If the home buyer is receiving Social Security Income or Disability we will need the award letter and it will need to be continuing for three years after the closing date.
If the home buyer does not have a checking account they need to go get one. It's very difficult to get a file closed for someone without a checking account.
If the home buyer has student loans which are deferred we need the letter of deferment and it needs to be good for at least the next 12 months.
If the home buyer is receiving maintenance from another person we need the court order and if it is for child support we need the birth certificate of the children. (We are not permitted by law to ask if the applicant wants to use child support as maintenance.)
If the buyer has another home and it is for sale we may need a copy of the listing agreement.
If the buyer recently sold a previous home and are using the proceeds for the down payment we need to see a copy of the HUD1 from that closing.
If the property is new construction we will likely need a termite free letter.
If the property is in a flood zone there is a brand new set of requirements.
If the property was purchased by the seller within the last 6 months and has increased in value more than 5% have the seller be prepared to show documented upgrades, repairs and other investments into the life and value of the property.

Seriously, this is a partial list. There may be this many things again especially if the buyer is self employed or a legal resident alien. If you are aware of these and the buyer and seller are aware of these and we work together to get them then at least the first 10% of the work required to get the loan into underwriting for approval has been addressed. There are at least this many items which are addressed by the lender which also have to be completed before the application can even be submitted to underwriting.

It may be that the lender will not need all of these documents but they will need most of them. How many times have you spoken with a loan officer and they said, "I'm still waiting on the ...." If that is one of the things on this list you should already have prepped the home buyer(s) to know they will need to supply these. The longer they take to get it in the longer the loan will take to get closed.

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

Interest Rate and Annual Percentage Rate (APR) - What you need to know.

Ken Cook, FHA Home Loans 678-439-8683 — Tue, 27 Oct 2009 14:38:52 -0500

Every loan officer who has done their job for more than a week or so has heard the question. Some loan officers avoid it altogether by simply not sending the Truth In Lending (TIL) until they absolutely are required by law to do so. Why? Because in the top left corner in prominent font is a number that confuses almost every borrower and non-financial insider - the Annual Percentage Rate (APR).

The APR disclosure requirement was sort of a good idea when it came out back in 1968 when there was pretty much just one type of home loan: a 30 year fixed interest mortgage. With time and exotic mortgage solutions the APR became highly obfuscated and even a tool of obfuscation.

Recent changes to the RESPA laws and the injection of the Mortgage Disclosure Information Act (MDIA - call the Mediah by insiders) was supposed to fix what has been broken for years. What it is doing, however, is bottleknecking the process for almost everyone who is using a mortgage to purchase or refinance a home.

The main problem and fault with the APR for the last several years has been the ease of manipulating it by how closing costs and other mortgage related fees can be hidden in the loan or rate to obfuscate the APR. The idea behind the forced disclosure of the APR was to give an apples to apples comparison of mortgage costs. It doesn't work, hasn't worked and another ignorant piece of legislation designed more to give the appearance of help rather than actual help like MDIA is just another road block to home ownership for home buyers.

If every mortgage was exactly the same, all closing costs had to be line itemed and there were no variations in terms them APR would be a more valuable but still useless tool. Here again the intelligent homebuyer is punished because of the few ignorant ones who refuse to take a moment and look at what is really important about home finance. Am I bitter? No. I'm still going to be making home loans and my clients are still going to be paying for them. It's just that sometimes it will take them longer to get to the closing table if anything changes with the loan post application and prior to close - in some cases.

In a nutshell the MDIA law says if the APR changes more than .125% (an 1/8th of a point of interest) then the disclosures must be resent and a period of no less than 3 business days must expire. This means changes to any of the APR tracked fees or loan amount. The law does not say whether or not this applies if the APR decreases or increases just if it changes. Some lenders are redisclosing in both directions other only if the APR increases more than .125%

A quick definition of the APR is the actual interest rate plus the other mortgage associated costs expressed as a percentage of the loan amount over the life of the loan. For example if you have a $100,000 loan and your APR included costs are $3,500 you would first find out what percentage of $100,000 is made up by $3,500. This one is simple it's 3.5% but that has to be annualized so divide it by 12 to get .29% and add that to your initial interest rate - let's say 6% to get 6.29%. So in this scenario our interest rate is 6% but our APR is 6.29% - so you can imagine why people see that TIL and call immediately and say, "I thought I was getting a 6% loan!" When you indicate that is correct they invariably say, "But this paper says 6/29%" When explained to the masses they simply say "oh" and just forget about it!

So what fees affect the APR? I'm so glad you asked. But the answer is variable by the state wherein the property is located. I can give you the ones for Georgia as a reference but your state may be different. Remember all of these fees may not actually be on your loan but if they are they are to be added to the APR.

Georgia APR fees include: processing, underwriting, origination, discount points, broker fees, commitment fee, lock fee, attorney's fee, wire fee, disbursement fee, warehouse fee, amortization schedule fee, copy fee, fax fee, courier fee. There are other fees that may be charged but these are the fees that affect the APR. (These fees may even change from lender to lender believe it or not.)

If you are an agent, home owner or home buyer with questions about APR feel free to call me anytime on my cell at 678-439-8683 and I'll be happy to help you as much as possible.

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

When Should You Get Pre-Approved For A Purchase Loan?

Ken Cook, FHA Home Loans 678-439-8683 — Sun, 25 Oct 2009 10:13:05 -0500

This one kind of goes along with "When Can We Close?" from a couple of years ago and another "How Long Does It Take To Close Today?" from a few weeks ago. It is further inspired by feedback from many agents and clients over the last many years.

First it is important to understand the difference between a pre-approval, an approval and a clear-to-close. That explanation is given here at "Pre-Approval, Approval, Conditional, Cleared - What the ____?!" Let me augment that by saying you, the home buyer, have a lot of power over how certain your pre-approval is.

Pre-approvals are generally good for 30 days. This almost always depends on lender guidelines. To make sure you are getting a real pre-approval listen to how long it takes to get your pre-approval and to what you supply to the loan officer before you receive your pre-qualification letter.

Recently I received a call from one of the largest banks in the world and the phone call started by telling me I had been pre-approved for a very low interest rate to refinance my current home. When I asked the phone bank operator to send me the pre-qualification he said he would have to ask just a few questions first. There was probably only a pre-qualification based on my credit score and estimated property value. Worth nothing.

A real pre-qualification can take as little as a couple of hours and a seasoned loan professional can easily guide you through the process. Anyone who gives you a pre-qualification over the phone without having seen any evidence to prove what you have said is giving you a decision based on credit and payment history with your statements only. This type of pre-qualification is what gives loan officers a bad name.

If you are thinking about going shopping for a new home you should get pre-qualified before you even begin. Unless you have significant income, strong credit and payment history and plenty of cash you need to know what the lender is going to offer based on your specific qualifications. The loan officer will also be able to tell you which property types and costs are okay for which loan products.

To sum it up - get qualified first then start shopping. Otherwise you may be wasting your time and the time of others as well.

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

Pre-Approval, Approval, Conditional, Cleared - What the ____?!

Ken Cook, FHA Home Loans 678-439-8683 — Sat, 24 Oct 2009 13:49:39 -0500

Ancient Mortgage Proverb: No deal is ever 100% certain until the loan is completely paid off.

There exists a chasm in communication, familiarity and point of view between agents and loan officers. Sometimes we try to act like it does not exist and we really wish it was not so. I know this chasm exists, just as you do for many reasons, because I have had real estate agents - very good agents - try to convert to loan officer at my companies and I have seen this chasm immediately appear. Sales are fairly and generally black and white, go or no-go, yea or nay. Either the seller accepts the offer, counters or declines. Every agent I have seen try to become a loan officer has had a difficult time adjusting to the different levels of approval.

There are different levels of approval with virtually every mortgage application to loan process and agents we really need you to do your best accept them even if you don't understand them. Otherwise you're going to continue driving the loan officer (me :) nuts and forcing the weaker ones to lie to you or avoid you. Let me help you not contribute to their delinquency by briefly explaining some of the levels of loan approval and addressing how I handle them individually.

First please recognize the average loan has many human and non-human touch-points. It's not just the loan officer or just the loan officer and the underwriter. There are also as many as dozens of other humans plus automated systems involved. If the loan application is not approved by each and every one of these processes as required by the lending or insurance (mortgage insurance) guidelines the application will be denied and the deal will be done.

I don't care who the loan officer is, where they work or what they say - these are constants and work the same way at every lender/bank/broker unless the person you are talking to has the money in their personal checking account and are personally making the loan - something a loan officer does not have the authority to do for any lender.)

[See the edit notes at the end of this post.]

Application Approval - these are generally worthless. These are generally called a pre-approval and sent on a letterhead from the bank, lender or broker. These are often given only after accepting the application and examining the credit history of the applicant(s). At this point nothing has usually been verified or even documented such as income, assets and job history. (I do give these and I explain this is a CREDIT ONLY pre-approval and I have verified nothing except credit and payment history.)

Credit Only Approval - see above.

Automated System Approval (Application Stage) - this is also generally worthless. The loan officer generally has not verified income, assets and job history at this point. This is where most "approval letters" are issued on that official looking FNMA Pre-Approval sheet. (I give these as well and explain I still need all the documentation and several verifications of documenation from the appropriate source.)

Underwriter's Opinion Pre-Approval - again basically worthless for the same reasons. (I give these ocassionally when there is a borderline issue as in tax returns for example.)

Underwriter's Conditional Approval - this is where the loan officer should have a very good idea if this application will be approved. There can be as many as 3 or more weeks between the Application Approval and this date because this is the first time anyone has looked at the complete application package which will include: income documentation (pay stubs, tax returns, etc.), asset documentation (bank statements, retirement account statements, letters of verification), employment verification, rent/mortgage verification, appraisal, insurance documentation, inspection (if required), fully executed and legible purchase agreement, and whatever else is needed. THIS IS STILL NOT AN APPROVAL! There will be conditions and until the conditions are satfisfied this is not a loan.

Clear to Close (or Cleared to Close) - this is it. This is the first time ANYONE can assure this will be a finalized transaction and it does have an expiration - usually 7 to 10 days after the approval.

-Side note about conditions. I had a first time home buyer ask me about "Conditions" the other day. He's a young and single man so I used an illustration I thought he could easily understand. I said, "Suppose you finally get up the courage and ask that pretty girl out on a date. She tells you she will go out with you if you drive a red sports car, pick her up at exactly 7PM and take her to the most expensive restaurant in town." I needed to offer no further explanation of conditions.

The bottom line is this: If you do your job right, the loan officer does their job right, the title/escrow agency does their job right, the appraiser does their job right, the inspector does their job right, the insurance company does their job right, the buyer's employer does their job right, the buyer's current mortgage company or landlord does their job right, the person giving the gift (if there is a down payment gift) does their job right, the IRS does their job right, the borrower's accountant/CPA does their job right, the seller does their job right, the appraiser does their job right, the HOA does their job right, the inspector does their job right, the processor does their job right, the underwriter does their job right, the closing co-ordinator does their job right, the funder does their job right, the seller's agent does their job right ... that's most of them ... then within a few days to a few weeks we'll meet at the closing table. Until then NOTHING is certain.

Now do you still want my opinion or do you want to wait for the truth?

[Edit notes: When I write the pre-approval is worthless I mean as far as the actual final approval - go to the bank and cash your check. Nobody's pre-approval means the application and entire transaction will be approved. A true mortgage professional will follow protocol and verify as much information as possible before issuing a pre-qualification. I was trained to do it that way many years ago and have trained all my staff members to do so as well. However, there are dozens of moving parts outside of our control. The pre-approval, even the best one, simply means there is no reason at that point in time not to proceed with the process of the application.]

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

The Little Things We Say (That Make The Other's Blood Boil)

Ken Cook, FHA Home Loans 678-439-8683 — Tue, 20 Oct 2009 21:53:45 -0500

"If you don't have anything nice to say don't say anything at all." This could also be titled "The Therapeutic Effects of Active Rain."

I'm sure you have heard it - so have I. A few of you (notice I did not say us) can actually even practice it. My sister, Dr. Carla Northcutt - she can do it and does. Most of us cannot respond with kindness to every single jab no matter how seemingly innocent or accidental. In writing for emails or blogs an additional layer of "mis-communication" can present itself in the form of no audible or visual clues to the intent of the statement.

Offering a cure for the situation is rather one-sided. We cannot control what other people do or say or how they do it or say it. All we can do is control our side of the interaction. Guess what? We can diffuse a potentially nasty exchange with our responses so in a way we can control the progress of the exchange.

How many times on other blogs have you written or commented and someone absolutely ripped your head off (verbally of course)? I am very pleased that it does not happen here on Active Rain nearly as often as it does some other social sites. There are a couple, mentioned here on AR frequently, where I refuse to post or comment because of the senseless flaming. Flaming is a word for when that happens usually online.

The easiest way I have found to diffuse a heated exchange online is to hit that little "x" in the upper right hand corner of your browser. In other words put it to bed - sometimes permanently. The experience I offer is from someone who has a pretty powerful temper but with age has learned to somewhat curb it. I'm not proud of that fact but I am aware of it. All in all I am proud of my progress over the last few years.

Real estate agents, loan officers and buyers can often be under a lot of pressure. Usually even when there is tension it is short-lived and in the end everything works out. Even when we set expectations from the beginning on ourselves and others those expectations can be forgotten or trampled - by words.

I am writing this article for all of us: agents, lenders, buyers, and sellers. Let me implore you to consider all things before commenting on the phone or in email. Take a moment to take a breath. Sleep on it. Walk it off - whatever is appropriate and works. Why sometimes you may want to stop and write a blog post right here on Active Rain before you respond to that so-and-so. Kind of like I'm doing right now? Exactly.

Three Tips I Use For Myself (They lead to success)

1. Stop. Do not reply to that email that all but accuses you of being a slothful liar. Think about the situation from the other people's view. I know, I know - they "could" be wrong. If they are that means you are right so don't be a schmuck. (Preaching to the choir as you remember :)

2. Let someone with less personal involvement read your reply. Seriously email your reply to someone else before you email it or post it online. Don't send it to your friend who can also be a jerk, send it to someone you're reasonbly certain will find it offensive.

3. Drop it. Of course I don't mean ignore an important issue. If (for example) you are a loan officer and the seller's agent sends you an email asking for "some truthful answers" you may not even need to ever reply. You may simply need to come to Active Rain and preach to yourself in a blog while you are calming down.

We are, after all, all human. Some of us are less perfect in one way and the others are less perfect in some other way. Not one of us is perfect in every way. We all have "issues" especially those of us who think we don't - that simply means we have issues we have not yet recognized, admitted and dealt with. Not me baby! I am imperfect in so many ways I need help pointing it out!

A gentle answer turns away wrath, but a harsh word stirs up anger. -Jewish Proverb

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

What Does FHA Say About Foreclosures in Credit History?

Ken Cook, FHA Home Loans 678-439-8683 — Sun, 18 Oct 2009 17:27:50 -0500

Here are the facts about FHA and foreclosures on credit:

If there is a foreclosure on the borrower's credit (any of the borrowers) it must be at least 36 months previous in most cases. There are a very limited number of instances which would allow a foreclosure to have been within less than 36 months (from application date) and the lender may continue to underwrite the application even though it may have not been approved by the Automated Underwriting System (AUS).

Those events are pretty much limited to:

Death or serious illness of a wage earner.

Yes, that's it. HUD 4155.1 REV-5, the guideline from HUD which governs this topic, states:

D. Previous Mortgage Foreclosure. A borrower whose previous principal residence or other real property was foreclosed or has given a deed-in-lieu of foreclosure within the previous three years is generally not eligible for a new FHA-insured mortgage. However, if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower and the borrower has re-established good credit since the foreclosure, the lender may grant an exception to the three-year requirement. Extenuating circumstances include serious illness or death of a wage earner, but do not include the inability to sell the house because of a job transfer or relocation to another area.

So, while it is possible to be qualified for an FHA mortgage with a foreclosure on the buyer's or refinancer's credit within the last 36 months the reasons for making that exception are very narrow. Meanwhile please don't try and qualify your clients yourself as there are many , many caveats which may be overlooked even by the most estudious.

As a seasoned loan officer I don't even deny an applicant just because I see a foreclosure without hearing the full story and submitting the information to the AUS. Then again I like my application to close ratio to stay as high as possible within the lending guidelines available to me.

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Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

Marietta, Georgia - Today Show's Top 4 Pick In America

Ken Cook, FHA Home Loans 678-439-8683 — Sat, 17 Oct 2009 09:36:53 -0500

Looking for a great place to live with some of the best values in America? Look no farther because I am sitting in it right now keyboarding this post to you! On October 6th NBC's Today Show with Al Roker highlighted Marietta, Georgia as the number 4 place in America to buy a home and get the most "bang for your buck".

I happen to agree with them because I live here, have lived here my entire life except a little college stint, and I am very actively involved in my community and lending here. During the boom builders constructed some very beautiful homes which in turn emptied a number of existing homes and left us with a surplus of larger, newer homes. In fact on October the 12th I wrote about "My Home, Marietta, Georgia" which was a featured article here on Active Rain.

We were hit late in the price drops but when we got hit we got hit hard! Sarasota is number one, San Fransisco is number two, is number three is Lansing (another great city), and Marietta (that's me) is number four. By the way, the Gone With The Wind Museum is way down on the list of "pride and joy" of this community. Seriously, only an outsider would say that! Don't get me wrong, it's very cool but the life is in that old town area is very vibrant and that is just one of hundreds of attractions in that immediate area.

You can watch the video here on the City of Marietta's website. When you get finished call me. I'm not a real estate agent - I'm a very seasoned home lender based right here for my entire career in Marietta, Georgia. 3300 homes in the Atlanta/Marietta area have been financed across my desk I have a pretty decent "handle" on the market here.

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

Finance Challenge: Reserves - the right amount, the right type, the right timing

Ken Cook, FHA Home Loans 678-439-8683 — Fri, 16 Oct 2009 21:31:53 -0500

So you have the down payment - sourced and seasoned just like it needs to be. All saved up, stored away nicely in the bank for the last 60 days, and ready to be invested into a home. The closing costs are there, too, and all perfectly documented for the last two months. Great job! Your down payment and closing costs are in order. This is something to be proud of!

It's always something that needs to be covered right up front. When the loan officer is taking the application and they know what it requires for down payment and the approximate closing costs they also need to calculate in the speficied amount of reserves. What are reserves? Straightforward it is enough to conver the principal, interest, taxes, and insurance (at a minimum).

Most loans require two months of reserves on the purchase of a primary residence and as much as six months (PITIA) on investment property purchases. But it's not enough they be available they must also be sourced and seasoned just like the down payment and closing costs.

Here's a little good news, though: reserves don't have to be in cash form. In fact 100% of the following can be counted for reserves:

Stocks, bonds, mutual funds, U.S. government securities, and other securities that are traded on an exchange or marketplace general available to the public (such as NYSE, NASDAQ, Midwest SE, CBOT, or OTC) whose price can be readily verified through financial publications.
Cash-value life insurance (rather than face-value) that is verified. The borrower must be the owner of the policy and not the beneficiary.
Personal IRA and SEP-IRA accounts that are owned by the borrower and verified.
The borrower’s portion of undistributed trust funds.

Additionally a portion of the value of the following may be counted as reserves:

401(k), KEOGH, 403(b) and other IRS-qualified employer plans may be counted as reserves; however, to account for withdrawal penalties and estimated taxes, 70% of the vested amount of the account should be used to determine the borrower’s available reserves. The borrower will be required to provide documentation that the funds are accessible for withdrawal. If the retirement account only allows for withdrawals in the event of the borrower’s employment termination, retirement, or death, these funds should not be considered as reserves.
Savings bonds may be counted at 100% of face value if mature. If the bonds are not mature, the amount counted towards reserves is based on the redeemable value at the time of underwriting.

Ask your Loan Officer about reserves. If you are an agent and want help understanding these please never hesitate to call me or have your client call me. I'm more than happy to help even if I do not have the ability to assist in your area.

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

Construction To Perm: What is it? Who needs it? How do you get it?

Ken Cook, FHA Home Loans 678-439-8683 — Thu, 15 Oct 2009 21:48:49 -0500

You have probably guessed a construction to perm has something to do with, well, construction. You would be correct. In fact it is the term for a type of bank loan. In this case it is bank financing of the construction of a home. If the term perm is confusing it's really quite simple: this loan will financing the construction all the way up until the permanent loan. In other words it's a construction only loan. Sort of.

Construction to perm (CP) loans also will finance the land on which the construction is occurring. If you are an investor stop right here and go no further. This particular type of loan is only for people who are going to move into the property when the construction is completed. What happens when the construction is completed? You get the permanent loan, of course. There may be some private or small lender somewhere still offering a one-time close but I am not aware of them. You would also want to very carefully consider their costs/terms. Historically one-time close loans, when they were widely available, were more costly in interest than CP loans.

The most important thing about CP loans is, and has always been, cost to value. The more cash the home owner has in the property the more likely they are to be approved. Standard lending guidelines today include:

The loan is a purchase transaction of a 1 unit owner-occupied primary residence
The borrower has 6 month's reserves at closing
The LTV does not exceed 90% Loan has received an acceptable AUS recommendation (loan may not be manually underwritten)
Prior to the final construction disbursement, a new residential mortgage credit report or a three-file merged credit report must be obtained and the employment of all borrowers must be verbally re-verified and documented accordingly.

Some things not permitted in CP standard underwriting guidelines are:

PUDs that are part of a master planned community
Condominiums
Cooperative housing
2- to 4-unit housing
Manufactured housing
Investment properties
Tracts of homes
Properties in which the borrower has a development interest (for example, if the borrower is also the builder)

A lender with whom you are familiar may offer a CP loan. Without deriding other people in my industry make sure they have done at least a couple of CP loans because they really are different. If they have not done a CP loan just be prepared for a bumpy ride.

I am always happy to answer questions for anyone: builders, home owners, real estate agents or just interested parties feel free to email me through the system or call my cell phone at 678-439-8683.

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683

Hear Me Clearly: First Time Homebuyer's Must Qualify and Offer NOW!

Ken Cook, FHA Home Loans 678-439-8683 — Thu, 15 Oct 2009 10:27:30 -0500

By NOW! I mean if you have not called a loan officer to get qualified, found a property and made an offer you're dangerously close to missing the First Time Home Buyer's Tax Credit. I know what you hear in your mind, "it's good through the end of November." You would, of course, be correct in so saying. Your correctness would be equivalent to leaving New York City for a trip to Tokyo to see your best friend's wedding which happens at 5PM your time and you are getting on a jet at Noon your time the day of the event. In other words it's "possible" you can make it on time but not very likely with the available equipment.

I know there will be loan officers and others reading this who will say, "shoot man I can close a loan in 8 days". Well, so can I. But it's by far the exception and not the rule. If you are a first time home shopper and you are reading this pick up the phone right now and call your local loan officer. If you just have questions feel free to phone me at 678-439-8683 and I can answer some questions for you.

Here are some pointers to speed the process and hopefully close before the end of November:

Get prequalified right now, today. Not in a minute RIGHT NOW.
Once you are prequalified ask your loan officer for a list of "findings" this will likely include:
- Last two years of tax returns all pages all schedules
- Last two months of bank statements on all accounts all pages (ALL pages)
- One month's worth of pays stubs (if you get paid weekly that's FOUR)
- Name of your landlord and their contact information for rent verification
- Explanation of any credit checks that have been done on you in the last 90 days
- A clear (CLEAR) copy of your driver's license (photo ID) and Social Security Card
- If your down payment is a gift a GIFT LETTER and supporting documentation (the giver's paper trail from their bank to you)
- Name and contact information for your preferred home owner's insurance agent
Be prepared to get more stuff and don't argue with the loan officer or processor - JUST GET IT

If your home purchase closes on or after December 1st, as it stands today and there is no reason to believe it is going to change, you will NOT be eligible for the tax credit. Trust me, there will be hundreds, if not thousands, of people nationwide who think they are going to qualify for the tax credit who do not get it because they started too late. Today is getting just about too late.

So what are you going to do right now? Right CALL A PROFESSIONAL, EXPERIENCED LOAN OFFICER!

Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683