Realtors....ever have a great deal, one that looks like a slam dunk, only to have it fall apart once the file hits an underwriters desk? Absolutely you have, because it is unavoidable in some cases. A good loan officer should do their best to ask the right questions at the initial loan application, but you never know what can rear its ugly head during processing. Here are some common issues we see and hear about:
1. TAX RETURNS, TAX RETURNS, TAX RETURNS: everyone wants to pay Uncle Sam as little as possible. I get that. What I don't get is why you think you should be able to qualify with more than you tell Uncle Sam you made. For example: if you take unreimbursed business expense deductions (the worst is mileage and car expense, especially for W2'd sales reps), the amount you deduct will be taken out of your W2 income for qualifying purposes. The underwriters will look at two years of your tax returns and average the deducting. That is the amount they will "hit" against your income. It does not matter if you "aren't going to do it again this year (wink,wink)", the underwriters will assume you will until they have proof. This has killed many of deals in the past, and will continue to do so in the future so be careful.
2. SELF EMPLOYED BORROWERS: same issues as above. If you write down all of your income to help you on the tax side of things, get ready for a difficult underwrite. The only line item you can add back to your bottom line for qualifying is depreciation. So, if you take a huge write off, better hope it's depreciation if you want to buy a house. Also, you need two years self employment history in 95% of cases. If your company W2'd you, and then switched to 1099 recently, you will have difficulties.
3. Have a debt that someone else pays? Better have 12 months of cancelled checks to prove it. If you co signed on a car for someone, and they pay you, and then you pay Ford Motor....fuggitaboutit. That debt will be factored into your dent to income ratio.
These are just a few issues that can pop up from time ti time. We are only as good as the information the borrower gives us. So if they think they can not be honest with us on the forefront, it will be figured out, and usually not at the best time (i.e. well on down the road).
If you have a unique situation, call us and we can guide you through the process!
Thursday, April 29, 2010
Thursday, April 15, 2010
Having Appraisal Issues? Here's why...
HVCC, a.k.a. Home Valuation Code of Conduct. This may be one of the most absurd, pieced together, least thought out rules to ever materialize in the mortgage/real estate business. The funny thing is...IT IS NOT EVEN A LAW!!!
HVCC was a settlement to a lawsuit filed by the Attorney General of New York, Andrew Coumo, against Fannie Mae and Freddie Mac. The idea behind HVCC was to help ensure appraiser independence and to protect the integrity of the appraisal valuation process. HVCC was a settlement. Instead of the NY Attorney General suing Fannie Mae, Freddie Mac, WaMu and First American’s e-Appraise-it appraisal management company, we ended up with HVCC. Sounds like a decent idea on the surface.
However...here is the issue. Appraisals used to cost about $380 for a standard lot/block appraisal. The cost has not changed. What has changed is the amount the appraiser actually receives out of that $380. Now, because of HVCC, all appraisals must be ordered through an appraisal management company, or AMC. The AMC contracts out the appraisal job to the lowest bidder and pockets the rest. Therefore you have appraisers viewing property for pennies on the dollar for what they are used to, and have no incentive to spend the time and put in a quality report. They have to see twice, maybe even three times the number of properties to make the same amount of money. You cannot see properties when you are analyzing comparables at a computer. Thus enters LOW APPRAISAL VALUES, HORRIFIC COMPS, and the exit of customer service.
While not all appraisal reports are coming back low, a lot of them are. What do you do in this case? What recourse do you have? HVCC forces appraisers to respond to comments and additional comp suggestions regarding the appraisal report in question. If you have a low appraisal on your deal here are the steps you and your lender/real estate agent should take:
1. Get the agents together and come up with three new comps for the home under contract. Make sure these homes truly are comps (i.e. less than 5 miles away, sold in the last 6 months, similar square footage and amenities). If additional comps are outside of these listed areas, your not going to like your results.
2. Have your lender submit the comps to the appraisal management company for review and comment. Usually the AMC will give the appraiser 24-48 hours to make any changes. CROSS YOUR FINGERS. Appraisers do not like to be told how to do there job.
3. If the appraiser does not adjust the value, have your lender take the appraisal to the appraisal review board inside of the lenders offices. Sometimes they will override an AMC appraisal but you need strong compensating factors (large down payment, typically 20%, great credit, cash reserves). Lenders want that type of paper and don't want to lose it to a bad appraisal.
If that does not work...get ready to renegotiate the contract. There are a lot of movements underway to repeal this aberration and hopefully it will be repealed soon.
I will keep you updated with more information as it comes along. Thanks!
HVCC was a settlement to a lawsuit filed by the Attorney General of New York, Andrew Coumo, against Fannie Mae and Freddie Mac. The idea behind HVCC was to help ensure appraiser independence and to protect the integrity of the appraisal valuation process. HVCC was a settlement. Instead of the NY Attorney General suing Fannie Mae, Freddie Mac, WaMu and First American’s e-Appraise-it appraisal management company, we ended up with HVCC. Sounds like a decent idea on the surface.
However...here is the issue. Appraisals used to cost about $380 for a standard lot/block appraisal. The cost has not changed. What has changed is the amount the appraiser actually receives out of that $380. Now, because of HVCC, all appraisals must be ordered through an appraisal management company, or AMC. The AMC contracts out the appraisal job to the lowest bidder and pockets the rest. Therefore you have appraisers viewing property for pennies on the dollar for what they are used to, and have no incentive to spend the time and put in a quality report. They have to see twice, maybe even three times the number of properties to make the same amount of money. You cannot see properties when you are analyzing comparables at a computer. Thus enters LOW APPRAISAL VALUES, HORRIFIC COMPS, and the exit of customer service.
While not all appraisal reports are coming back low, a lot of them are. What do you do in this case? What recourse do you have? HVCC forces appraisers to respond to comments and additional comp suggestions regarding the appraisal report in question. If you have a low appraisal on your deal here are the steps you and your lender/real estate agent should take:
1. Get the agents together and come up with three new comps for the home under contract. Make sure these homes truly are comps (i.e. less than 5 miles away, sold in the last 6 months, similar square footage and amenities). If additional comps are outside of these listed areas, your not going to like your results.
2. Have your lender submit the comps to the appraisal management company for review and comment. Usually the AMC will give the appraiser 24-48 hours to make any changes. CROSS YOUR FINGERS. Appraisers do not like to be told how to do there job.
3. If the appraiser does not adjust the value, have your lender take the appraisal to the appraisal review board inside of the lenders offices. Sometimes they will override an AMC appraisal but you need strong compensating factors (large down payment, typically 20%, great credit, cash reserves). Lenders want that type of paper and don't want to lose it to a bad appraisal.
If that does not work...get ready to renegotiate the contract. There are a lot of movements underway to repeal this aberration and hopefully it will be repealed soon.
I will keep you updated with more information as it comes along. Thanks!
Tuesday, April 6, 2010
What is Good Credit anyway?
The definition of good credit has changed rapidly over the last 2 years. Ever since the "Mortgage Meltdown" (I hate that term), there has been a fast and furious tightening of underwriting guidelines. One of the major components of loan underwriting is a potential borrowers credit score, and what the credit report says about their past borrowing history.
Let's time travel back about 24 months, or 10 years in the mortgage years, when loans could be had by stating your income, or basically proving that you could fog a mirror. Back then Fannie Mae/Freddie Mac had allowances for credit scores down to a 580. Yes 580! You still had to receive an Approve/Eligible response form Fannie Mae/Freddie Mac, which was unlikely on that credit score. However 620 scores and up usually received the approval. That means a 620 score received the same rate as someone with an 800 credit score. NOT ANYMORE!
Fannie Mae/Freddie Mac have implemented loan level pricing adjustments (called LLPA's). These are nothing short of bumps to your interest rate depending on what your credit score is. In today's world, you need a 740 or above if you are looking at conventional loans to not get an LLPA attached to your loan. If you have a 700-739, the hit to your rate is not that bad, but some days may be as much as .125% on a 30 year note. Credit scores below a 700 get hit much harder. Expect about .25% higher of an interest rate than current market if your score is a 680-699, and as much as .375 if your score is 660-679. If you have score that low, you better have 20% down or you must go with an FHA loan. I'll talk more about that at a later time.
Just because you have a credit score in the range I just discussed, does not mean you can get approved. It is also important to look at what is on your report (i.e debt ratios, late pays, etc.).
If you are thinking about buying or selling and are not sure what your credit reports says, or are unsure about the credit score, call a mortgage professional today. Do not go the free credit report websites as they are not always the same as what a mortgage company will pull. Lenders eventually need their own credit report anyway, so you don't want to base a loan approval off of a credit report the lender did not obtain.
Let's time travel back about 24 months, or 10 years in the mortgage years, when loans could be had by stating your income, or basically proving that you could fog a mirror. Back then Fannie Mae/Freddie Mac had allowances for credit scores down to a 580. Yes 580! You still had to receive an Approve/Eligible response form Fannie Mae/Freddie Mac, which was unlikely on that credit score. However 620 scores and up usually received the approval. That means a 620 score received the same rate as someone with an 800 credit score. NOT ANYMORE!
Fannie Mae/Freddie Mac have implemented loan level pricing adjustments (called LLPA's). These are nothing short of bumps to your interest rate depending on what your credit score is. In today's world, you need a 740 or above if you are looking at conventional loans to not get an LLPA attached to your loan. If you have a 700-739, the hit to your rate is not that bad, but some days may be as much as .125% on a 30 year note. Credit scores below a 700 get hit much harder. Expect about .25% higher of an interest rate than current market if your score is a 680-699, and as much as .375 if your score is 660-679. If you have score that low, you better have 20% down or you must go with an FHA loan. I'll talk more about that at a later time.
Just because you have a credit score in the range I just discussed, does not mean you can get approved. It is also important to look at what is on your report (i.e debt ratios, late pays, etc.).
If you are thinking about buying or selling and are not sure what your credit reports says, or are unsure about the credit score, call a mortgage professional today. Do not go the free credit report websites as they are not always the same as what a mortgage company will pull. Lenders eventually need their own credit report anyway, so you don't want to base a loan approval off of a credit report the lender did not obtain.
Thursday, April 1, 2010
It is official!
The dreaded day has come and gone. The FED has officially exited the mortgage secondary market and (for the time being) ceased propping up an entire industry. What does this mean for you as a realtor or as a buyer/seller?
First things first. Rates WILL go higher. This is understood. What is not understood at this point is how much higher they will go and how quickly. We at Crystal Clear Mortgage, along with other market participants, expect rates to move upward but not at alarming levels. I expect the best interest rates to be around 5.5% within the next 30 days on 30 year notes. This will scare some buyers but it is our new reality. You snooze you lose.
There will be a tremendous amount of volatility in the near future regarding mortgage rates. Price worsening will be harder to predict. The reason for this is Private investors are now entering the market for the first time in a long time without the security of the FED. They will be in a "feeling out" mode to try and even out supply and demand and the price points that create this equilibrium. It is quite possible that a quote on one day can be .25% better or worse than the day before. Prepare your buyers for this. IF YOU HAVE A HOME UNDER CONTRACT, LOCK IN YOUR RATE TODAY AND FORGET ABOUT IT. BY THE TIME YOU CLOSE YOU WILL HAVE A BELOW MARKET INTEREST RATE. THE TIME TO BEAT UP YOUR LENDERS ON RATE, OR WAIT FOR RATES TO GET BETTER HAS DISAPPEARED.
I am also recommending longer term rate locks for the first time ever. Usually the best rates are had on 30 day locks, with rate adjustments the longer out you lock. If you have a buyer or are a buyer but have a closing 45-60 days away, LOCK. Once again, by the time you close, odds are you will have a below market rate even after taking a slight hit for the piece of mind.
First things first. Rates WILL go higher. This is understood. What is not understood at this point is how much higher they will go and how quickly. We at Crystal Clear Mortgage, along with other market participants, expect rates to move upward but not at alarming levels. I expect the best interest rates to be around 5.5% within the next 30 days on 30 year notes. This will scare some buyers but it is our new reality. You snooze you lose.
There will be a tremendous amount of volatility in the near future regarding mortgage rates. Price worsening will be harder to predict. The reason for this is Private investors are now entering the market for the first time in a long time without the security of the FED. They will be in a "feeling out" mode to try and even out supply and demand and the price points that create this equilibrium. It is quite possible that a quote on one day can be .25% better or worse than the day before. Prepare your buyers for this. IF YOU HAVE A HOME UNDER CONTRACT, LOCK IN YOUR RATE TODAY AND FORGET ABOUT IT. BY THE TIME YOU CLOSE YOU WILL HAVE A BELOW MARKET INTEREST RATE. THE TIME TO BEAT UP YOUR LENDERS ON RATE, OR WAIT FOR RATES TO GET BETTER HAS DISAPPEARED.
I am also recommending longer term rate locks for the first time ever. Usually the best rates are had on 30 day locks, with rate adjustments the longer out you lock. If you have a buyer or are a buyer but have a closing 45-60 days away, LOCK. Once again, by the time you close, odds are you will have a below market rate even after taking a slight hit for the piece of mind.
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