Mortgage rates have plunged to the lowest levels in more than a half-century, but we are not seeing a surge in refinance applications as one would expect.
The average national 30 year fixed rate conventional note fell to 4.57% this week according to several online sources. The National Bureau of Economic Research says FHA-insured mortgage rates averaged 4.56% in February of 1955. To read about the economy in 1955, click here.
With rates this low, you would expect the refinance applications to be skyrocketing, but, as noted above, they are not. It seems that we have a nation full of people that have self-underwritten their loans and, in turn, denied themselves the loan before ever talking to a loan officer. This is the case mainly because the media would have them believe that even those with great credit, great income and great equity are getting denied. This simply is not true. In fact, I rarely am burdened with telling someone that they are not approved for a loan once they have made an application.
Freddie Mac’s Chief Economist issued a note this week aptly names, “Where Have All the Originations Gone?” In the note, he says that the following has affected originations:
Bottom line: If you are guilty of self-underwriting, please call me for a free consult. As a mortgage lending professional, I am much more qualified that your six o’clock news reporters to help you determine whether you are able to refinance; all you have to do is contact me.
FNMA’s (Fannie Mae) HomePath program can be a lucrative deal for any home buyer; private or investor. A successful investor uses a few basic strategies when buying residential real estate:
1. Buy the property at the right price and terms.
2. Buy the property when the market is appreciating.
3. Buy a property that needs some work; thus, with a little sweat you build equity.
Using all three strategies can maximize returns for the most successful investors. But, I wonder, how might the average buyer capture similar success? Here’s one potential, relatively new opportunity in the marketplace, administered by FNMA, called the Fannie Mae "HomePath" program.
Fannie Mae handles thousands of foreclosed properties annually. Their HomePath program is designed to move these properties more quickly by giving lenders and buyers less stringent finance requirements. The lender is offered two incentives by the HomePath program, such as the ability to resell the loan to FNMA and a higher loan volume due to more loans being closable, but the buyer is offered four very important incentives for a variety of property types:
1. No appraisal is required because values are established by the offered prices, thus no appraisal fees
2. Minimal down payments are required – as little as 3 percent – which can be funded by your own savings; a gift; a grant; or a loan from a nonprofit organization, state or local government, or employer.
3. No mortgage insurance is required, in the vast majority of cases, which means less up-front cash from buyers and lower monthly payments.
4. Credit-score requirements are more flexible, especially good for buyers with less-than-perfect credit.
It’s important to note that the last three incentives balance buyer quality with adjustments to either the down payment required or the interest rate. In other words, if a buyer has a low credit score, they may have to put more money down, take a higher interest rate or pay mortgage insurance. These are basic risk adjustments to the pricing of the loan.
In the first investment strategy noted earlier, buying a property at the right price and terms is easier in situations of oversupply. For example, if you are looking for a retirement home or investment property, a recent check of eligible HomePath properties (done 6/17/2010) showed that California had 9,070 houses, Florida 7,512 houses, Arizona 5,436 and Kentucky had 515. This means that, on a per capital basis, Arizona has the highest supply relative to the others with Florida in second place; while this comes as no surprise, these two states happen to be great places for second homes!
Accomplishing the second strategy -- judging when a real estate market will start to appreciate again -- varies with location. The goal is to catch the market just after it begins to make an upward turn, rather than at the absolute bottom. For example, while 5,436 eligible Fannie Mae homes in Arizona sounds excessive, it breaks down to 1,235 in Phoenix, 423 in Tucson and 183 in Scottsdale. Market conditions can be assessed only at the local level, so buyers need to take time to research and seek local professional help. If you need help finding a buyer's agent, please contact me as I have plenty of contacts that I would be happy to share.
In some cases, the HomePath program also helps with Strategy 3, because some properties might need repairs and will qualify for the HomePath Renovation Mortgage. This program lets you buy a house and finance minor repairs, typically determined by a home inspection.
On that note, it’s highly recommended that all homes should be inspected prior to purchase, and this is especially true with foreclosures, because Fannie Mae will not know a property’s history. Because HomePath properties, as with most foreclosures, are offered on an "as is" basis and appraisals are not required, a home inspection is one way a buyer can have a better idea of potential problems with the property. The standard Fannie Mae addendum to the purchase contract – one that can be completed with the help of your buyer’s agent – gives a buyer 10 days to inspect, so be watchful of the contract dates. If the inspection reveals unacceptable defects, a buyer has only two alternatives: 1) renegotiate with Fannie Mae, or 2) find another home.
For more information about eligible HomePath properties go to HomePath.com. For a free HomePath pre-approval – something that is mandatory before you can make an offer on a HomePath home – please contact me. Whether you are looking for a new home, a second house or an investment property, explore all your options, do your homework and follow the basics.
On Tuesday June 1st, Fannie Mae (FNMA) instituted their “Loan Quality Initiative”. This initiative is full of new guidelines that all lenders must meet on FNMA loans; they will undoubtedly affect the timely closings of many mortgage transactions. It’s only a matter of time until they get to Freddie Mac and FHA loans too.
This initiative requires lenders to perform additional QC measures to verify the borrower’s intent to occupy, their social security number and to pull a second credit report just prior to closing to look for new debts.
The last item is going to be the one that will often delay closings and, in some cases, result in loan denial even after your mortgage was originally approved by the underwriter! The new pre-closing credit pull will be to check for new credit activity (new debts); this report will not have credit score. If new activity has been spotted, the lender will then have to pull a full credit report with credit scores. At that time, the new debts and new score will have to be taken into consideration. This can change your approval and your interest rate!
Example: You apply for a mortgage to purchase a home and, between the time of application and closing, you went out and bought $4,000 of furniture for your new home. When we pull the second credit report just before closing, the new debt will show and, in turn, will have to be taken into account. This will affect your debt to income ratio; sometimes bringing a person’s debt-ratio over the limit. Further, because most of these new debts (such as furniture) are revolving debts – the worst kind of “hits” to show on your credit report – it will probably also push the credit score down significantly thereby affecting your loan’s rate and overall approval.
This could easily result in your loan being denied. In the past, this would have never even been detected.
Tips to ensure your mortgage closes smoothly:
Credit Cards / New debt: Once you have applied for a mortgage, do not apply for new debt or credit cards, even if you do not plan to use them until after settlement. When you buy a home, you will undoubtedly buy items for that home; please wait until after you own the home!
Review your credit report: Be proactive in the process by thoroughly reviewing your credit report with me at the beginning of the process and report any inaccurate or missing information so that we can address it accordingly. What is missing on your report today could show up later and derail your closing.
Save everything: Save all of your bank statements, paystubs and credit card statements from time of application until closing. We may need them.
Do not pack your financial papers: Keep all tax returns, W-2’s, paystubs, 1099’s, K-1’s, bank statements etc… in an accessible place – not in POD somewhere in Timbuktu. You never know what you may have to provide at the last minute with the new guidelines. Be prepared!
Gift Funds and Large deposits: Based on the new rules, we will need a more detailed paper trail on gift funds and large deposits that are not consistent with your normal deposit pattern. If you are receiving a gift, we will need to verify that you have received it and that the donor has the ability to give those funds. Large deposits will have to be sourced; be prepared to show and explain where that money came from. If it was from a bonus, have the check ready. If you sold a car, have the bill of sale and a copy of the title transfer.
Changing Jobs: This one may seem obvious, but if you are planning to change jobs during the loan process, please inform me ASAP. If you are forced to change jobs, inform me immediately. You will sign a final application at settlement. When you sign it, you will be verifying the information that it contains. Do not commit mortgage fraud.
Do not move cash around: Lenders must verify all funds for closing and the source of those funds. When you move those assets around, it creates a paper trail nightmare. The best practice is to leave everything where it is. Once we have verified all accounts and given you the ”ok” , then you can commence shuffling funds.
Finally, when in doubt, contact me to ask. Do not take any chances with the approval of your loan. If additional verification is required, it will in most cases, delay your closing.
Contractors, renovators and homeowners should be aware of the new federal Renovation, Repair and Painting Rule, which is aimed at limiting the risks of lead painting in old buildings.
This is particularly important for FHA loans as any sort of peeling and chipping paint must be repaired prior to closing.
Under this new rule, a certified renovator must now be present during the renovation of pre-1979 buildings. "The government is now cracking down and there are substantial fines for people who don't follow the rules," warned BBB's Howard Schwartz. See the video below:
Everything we do as people and as a society is about results.
The first result is one of a person that loves their job; check out the great things being said by others by following this link.
The second result is that of our government’s home buyer tax credit program. Pulled straight from an article by the New York Times (because I am in the throes of the busy purchase season and, in turn, far too busy to author a great piece like this myself) the preliminary results of the tax credit show that the credit may have been successful, but costly. You be the judge…
Source: http://www.nytimes.com/
Home Tax Credit Called Successful, but Costly
By DAVID KOCIENIEWSKI
Published: April 26, 2010
Realtors, home buyers and sellers are rushing to complete sales agreements before the tax credit for home purchases expires this week.
Home buyers must have a deal by April 30 and close by June 30 to qualify for the federal tax break, up to $8,000 for first-timers and $6,500 for those merely moving to a different residence.
Though the Treasury Department and the real estate industry have termed the program a success, helping 1.8 million people buy homes, many tax policy experts say it has been singularly cost-ineffective: most of the $12.6 billion in credits through end of February was collected by people who would have bought homes anyway or who in some cases were not even eligible.
The credit has caused a surge in sales and has been widely lauded for helping to stabilize prices. In places like Lafayette, Ind., where the number of homes sold in March was up 48 percent over last year, real estate agents say they have been inundated with buyers like James and Aubrey Green, students at Purdue University, who said the credit had persuaded them to jump into the market.
“We were happy in our apartment, but $8,000 was just too much to pass up,” said Mr. Green, 29, who shopped furiously with his wife for two months before signing a contract in March to buy a three-bedroom ranch.
“We bid on a couple places that didn’t work out,” he said, “but we always made sure we had a backup plan because we didn’t want to miss the deadline for the credit. And when we finally agreed to a contract, it was this huge relief.”
For every home buyer like the Greens, real estate agents say there are at least three others who collected the credit even though they would have bought without it. That means for each new buyer who was truly lured into the market by the credit, the federal government paid more than $30,000.
In addition to legitimate buyers, tens of thousands of people who collected the credit were not qualified. An audit by the Treasury Department’s inspector general released last year found that hundreds of millions of dollars in credits went to people who had not yet bought homes or who were not first-time home buyers, as the program initially required.
Hundreds of others who received the credit were not old enough to sign a binding contract, the audit found, with some as young as 4 years old.
“There’s a political appeal to offering government aid to homeowners because it affects a lot of people,” said George K. Yin, former chief of staff of the Congressional Joint Committee on Taxation, who now teaches at the University of Virginia. “But if you weigh the cost and the results, you have to wonder whether it’s a failure of imagination.”
The home buyers’ credit was actually an amalgam of three separate programs. It began in spring of 2008 as a $7,500 tax credit that taxpayers were required to repay on their tax returns over a 15-year period.
After the financial crisis that fall and taxpayer anger over the hundreds of billions in bailout money being directed to banks and Wall Street firms, a broad subsidy for middle-class homeowners had wide political appeal. So Congress sweetened the plan — dropping the repayment requirement and increasing the credit to $8,000 — and included it in the economic stimulus bills.
Last November, with the residential market beginning to rebound, Congress extended the period for five months and added a $6,500 credit for existing homeowners looking to relocate.
After the number of homes sold in January and February dropped to record lows, sales rose 6.8 percent in March from a year earlier, as buyers raced to cash in before the credit expired. Nearly half of all March home sales involved first-time buyers, according to the National Association of Realtors.
“It’s true that a lot of people who got the credit might have bought without it, but they might have bought in 2012 or 2013,” said Senator Johnny Isakson, a Republican from Georgia, who worked for 30 years as an agent. “This got them to buy in 2009 and 2010, when we needed to shore things up.”
But the program was open to widespread misuse. The first two phases of the credit did not require taxpayers to prove that they had actually bought a house. The Treasury’s inspector general found in October 2009 that the I.R.S. had allowed $139 million in credits to people who had not yet bought homes, and $479 million to taxpayers who were not first-time buyers.
The I.R.S. resisted proposals to require proof that a home had been bought, with officials saying that the additional paperwork would be too onerous because it would prevent returns from being filed electronically. Tighter restrictions were nonetheless enacted: as of last fall, those claiming the credit were required to file a paper return and provide documentation that they had bought a house.
I.R.S. officials say that examiners found more than 70,000 taxpayers who had improperly claimed the credit, but were unable to say how much money had been recovered. Frank Keith, an I.R.S. spokesman, said that given the complexities of the program, “we did an effective job” administering it.
Some tax policy experts suggest that the federal government might have used the money more effectively by creating a program to help unemployed homeowners stave off foreclosure.
“If you tried to address the supply side of the housing market rather than the demand side, you could target your resources more effectively,” said Roberton Williams, an analyst at the Tax Policy Center. “And you’d also have the benefit of helping to keep people from losing their homes instead of subsidizing people who were going to buy anyway.”
But other economists say that, whatever its inefficiencies, the home buyers’ credit had a valuable effect on the psychology of millions of Americans who were alarmed to watch their largest investment lose value.
“The tax credit helped to stanch the price declines, which had substantial benefit for the entire economy,” said Mark Zandi at Moody’s Economy.com. “The home is still the largest asset on most people’s balance sheet, so when prices are falling, nothing works for most families. But now people can take a deep breath and think clearly again.”
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