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Credit Scoring 1of4

By 
texasbestloans
 on June 10, 2010
 in Credit Reports 
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Credit Scoring

Part I: Good Credit Translates into Lower Rates for the Consumer

 
In the 1960s, Fair Isaac Corporation started working on a system lenders could use to evaluate the likelihood of receiving repayment on loans. Prior to that, it was really a matter of trusting an individual to be a “man of his word,” so to speak. Fair Isaac sought to take human error out of the equation with a reliable system that could determine whether or not consumers were truly worthy of credit, and thus FICO was born. This evolved to become the standard for lenders by the 1980s.

Credit scoring has an enormous impact on a borrower’s ability to purchase a home. It can mean the difference between getting a good interest rate and the home of their dreams, or whether they even qualify at all. For this reason, it is important for borrowers to understand the credit scoring process, and to know what their credit score is when they look to obtain mortgage financing.

What the credit scoring model seeks to quantify is how likely the consumer is to pay off their debt without being more than 90 days late on a payment at any time in the future. Credit scores can range between a low score of 350 and a high of 850. The higher the client’s score is, the less likely they are to default on their loan. Only a rare one out of approximately 1300 people in the United States have a credit score above 800. These are the slam-dunk clients that walk away with the best interest rates. On the other hand, one out of eight prospective home buyers are faced with the possibility that they may not qualify for the loan they want because they have a score between 500 and 600.
Stay tuned for Credit Scoring, Part II: The Five Factors of Credit Scoring

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Is PMI tax deductible

By 
texasbestloans
 on June 4, 2010
 in Mortgage News 
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Congress Makes PMI Tax Deductible
Millions of Borrowers Will Benefit

The federal government’s Private Mortgage Insurance legislation is great news for the real estate industry! Enacted on January 1st, 2007, the bill makes Private Mortgage Insurance (PMI) tax deductible for borrowers whose personal adjusted gross income is $100,000 or less. For millions of home buyers, the bill creates an amazing opportunity to finance a more expensive home or potentially obtain a lower payment for the same-priced home, while reducing annual income taxes by hundreds of dollars.

What is PMI?
Designed to protect lenders from defaults and foreclosures, Private Mortgage Insurance is required for loans exceeding 80% of the property’s value or sale price. Prior to the legislation, PMI was generally viewed with contempt by home buyers because of its perceived high cost and the fact that it was not tax deductible. For many borrowers, PMI was the only means available for financing their mortgage.

It wasn’t until the 1990s, when lenders began allowing “piggyback” financing, that homeowners and home buyers had an opportunity to finance a home without PMI. Under this scenario, buyers would take out two loans to cover the total amount borrowed. The first mortgage accounted for 80% or less of the purchase price or appraised value of the home; and the second mortgage, or “piggyback”, covered the remaining amount required to fund the transaction.

Reconsidering PMI
Now, thanks to Congress, potential borrowers may want to reconsider their aversion to PMI. After all, PMI makes it easier for some borrowers to qualify for a loan. Consumers should be aware that when the primary loan is accompanied by a Home Equity Line of Credit (HELOC), the approval of the first loan is contingent upon the approval of the second. In most cases, the approval requirements for the second loan are more stringent than those for the first. Alleviating this obstacle may enable buyers to consider a more expensive home or the purchase of preferred upgrades today rather than years from now.

It’s also important to remember that PMI doesn’t last forever. If a home appreciates at a rate of 4% annually, borrowers will be in a position to remove PMI within four years, resulting in an automatic reduction in the mortgage payment.

What to Do Now
Whether consumers are considering purchasing a new home or restructuring their finances, the first thing they should do is call a mortgage professional. There is a wide variety of options to consider, beyond those that have been presented here, and a mortgage professional will help them to determine which scenario best fits their needs.

If you would like to discuss how your clients can take advantage of the benefits of PMI, please call me! I would welcome the opportunity to speak with you.

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Texas Interest Rate Outlook

By 
texasbestloans
 on June 2, 2010
 in Mortgage Rates 
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Treasuries and mortgages opened a little better this morning with the key stock indexes slightly better at 9:00; the DJIA +31, 10 yr note +2/32 and mortgage prices +1/32 (.03 bp). No economic data this morning until 10:00 when April pending home sales hit, but the Challenger report said job losses are mitigating but still no strong new hiring. Later this afternoon (2:00 pm) May auto and truck sales. At 9:30 the DJIA opened +45, the 10 yr -1/32 and mortgage prices at 9:30 -2/32 (.06 bp).

At 10:00 April pending home sales, expected to have increased 5.0% motivated by the rush to secure the expiring tax credit, increased 6.0%. Yr/yr sales increased 22.4% frm Arp 2009; the NAR saying 1 million home sales resulting from the tax credit. NAR is concerned that problems with closings by the June final cut may cause some sales to evaporate and is going to ask Congress to extend the closing deadline. The stock indexes got a slight bump higher, interest rate markets no change on the initial reaction to the report.

The stock market was doing well yesterday, quiet through most all of the session—-until—the Justice Dept said it was launching criminal investigations over the oil spill. That hit at about 3:25, after that energy stocks fell and took the DJIA from +30 when the news hit to close -112.61 on the day. BP stock fell hard and is now down 40% from the levels prior to the spill. This morning in the absence of any other news most of the chatter was about the spill and the implications for BP and future off-shore drilling in the US.

The euro currency continues to drive US markets; this morning it is weaker again, but only slightly, and in turn the stock market is starting better, but like yesterday the trade is thin with little enthusiasm in either direction. Trading or tracking the stock market these days all comes down to the final hour; everything between the open at 9:30 and until 3:00 we consider subject.

The May employment report on Friday, always the key data point of each month, is the main focus for the rest of the week. Estimates are for an increase of 540K jobs; most of which will be temp census workers. The estimate for the unemployment rate is 9.8% down from 9.9% in April. Markets won’t be too consumed with the big increase unless there is a substantial number of new private jobs. Tomorrow the ADP estimate on private jobs is expected to be an increase of 56K.

Nothing new; the rest of the day for the bond and mortgage markets will focus on the equity market movement and how the euro currency trades. As long as the euro continues to decline the stock market will struggle on concerns that Europe’s economy will slow and take away some of the export business from US companies.

A double dip, or a normal correction? The debate continues. Presently whichever side you take there are valid points; until markets develop a consensus the stock and interest rate markets are likely to churn in a narrow range with a momentary bias on the bearish side. Friday’s employment report may provide enough evidence to set the next direction in stocks and in the bond and mortgage markets.

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Texas Interest Rate Update

By 
texasbestloans
 on June 1, 2010
 in Mortgage Rates 
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Tuesday’s bond market has opened fairly flat following a calm open in stocks and no major surprises in this morning’s economic data. The stock markets are close to Friday’s closing levels with the Dow down a couple points and the Nasdaq nearly unchanged. The bond market is currently up 2/32, but we will likely see an improvement in this morning’s mortgage rates of approximately .125 – .250 of a discount point due to strength late Friday.

The Institute for Supply Management (ISM) said late this morning that their manufacturing index rose last month to a reading of 59.7. This was slightly higher than revised forecasts, meaning manufacturer sentiment was a little stronger than thought. That is negative news for bonds, but it was not enough of a variance to heavily influence trading or mortgage rates this morning.

There is no relevant data scheduled for release tomorrow, so look for the stock markets to help drive bond trading and mortgage rates. I f the major stock indexes remain calm, mortgage rates should follow suit.

Overall, will likely to be the most important day of the week for mortgage rates with May’s Employment report being posted. The rest of the week’s data could also lead to noticeable changes in mortgage rates and we also need to watch for stock market volatility. I suspect this will be a fairly active week for rates, but most of the changes will probably come the latter part of the week.

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Restoring American Financial Stability Act

By 
texasbestloans
 on May 28, 2010
 in Legislative Updates 
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On May 20, 2010, the Senate approved the Restoring American Financial Stability Act of 2010 (introduced as S3217) along basically party lines. The next step is to appoint a Conference Committee compromise and reconcile the two bills into one. According to information received by IMMAAG on May 25th, House and Senate Leadership will likely announce appointments the week of June 7th after next week’s Congressional recess.

Since the Senate replaced all of the language of the House version of the bill with the Senate’s language, the conference must consider both bills in their entirety. Rules do not allow adding amendments or changing language during conference. In spite of the rules there will likely be wrangling at the line item level to change some of the language while we will also probably see entire sections of the bills up for grabs for inclusion or exclusion from the compromised version.

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Avoiding Foreclosure

By 
texasbestloans
 on May 28, 2010
 in Mortgage Resources 
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Avoiding Foreclosure

Few things are as devastating as losing your home. Sadly, it’s not always inevitable. In many cases the foreclosure could’ve been avoided with some outside help.

You are in a unique position to advise your clients in financial matters. If you know that clients are on the path toward foreclosure, take the time to show them how it can be avoided. First, remind them of some of the hidden difficulties that will arise if foreclosure occurs.

Finding a new home. Don’t let your clients believe that it will be better to let the foreclosure happen, because after they lose their home, they will still need to find a new place to live. All too often, the price they will need to pay in rent will be almost as high if not higher than their current mortgage payment. Remember: The owner of the property needs to make his mortgage payment, too, so he’s going to charge a rental payment that’s higher than his mortgage costs.

Deficiency judgment. It’s not uncommon that the sale of the home is insufficient to cover the remainder of the mortgage. When the property has been damaged, or market values have dropped, the owner may end up with a bill in the tens of thousands for the difference.

Despite what many people think, most lending institutions are not anxious to foreclose. It’s a last-ditch effort to recover their money and minimize their losses, and it’s an incredible hassle. Most lenders would rather avoid it, if possible. There are multiple sources for help that your client should be aware of, and most lenders will be happy to hear that their clients are going to try to keep their home rather than just await a foreclosure.

Housing Counseling Agency. The US Department of Housing and Urban Development maintains a list of HUD-approved counseling agencies. Have your client call (800) 569-4287 to find the agency nearest them.

FHA-Insurance fund. FHA borrowers may qualify to have HUD make a one-time payment to bring their mortgage current. See www.hud.gov/foreclosure for more information on the requirements to qualify.

Different mortgage program. Have them talk to a loan officer about the possibility of refinancing their mortgage to a more affordable program.

Special Forbearance. Many borrowers can qualify for a new payment structure if they’ve had an increase in their cost-of-living, such as unexpected medical expenses, or a decrease in wages. This payment structure will allow the owner to repay the lender in a given time frame.

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Texas Interest Rate & Market Update

By 
texasbestloans
 on May 27, 2010
 in Mortgage Rates 
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The euro currency is stronger this morning and is providing a solid lift for the US stock market. At 8:45 this morning the DJIA futures was +162, the 10 yr note -24/32 at 3.27% +8 BP; mtg prices -5/32 (.15 bp). Stock market around the world last night and this morning in Europe. High market volatility continues; the US markets have moved to extreme over-extended levels and are way overdue for a big correction in interest rates and in the equity markets.

At 9:30 the DJIA opened +140, the 10 yr note -32/32 at 3.31% +12 bp, mortgages being hit, down 10/32 (.31 bp).

Two days ago the 10 yr note yield fell to 3.09%, the same rate that it hit back in Oct 2009; it held and now rates are edging up a little but with both eyes focused on the stock market. The stock market has been beaten back on an overdue and somewhat expected 10%+ correction many were expecting. The trigger for the turn down in stocks was (and is) the debt issues in Europe and the perception that Europe’s economy will weaken and in turn will soften the US economic outlook.

At 8:30 this morning weekly jobless claims were reported down 14K to 460K, about in line with what was anticipated. Continuing claims were lower, at 4.607 mil from 4.656 mil in last week’s report. Also at 8:30 the second look at Q1 GDP; the preliminary report had Q1 at +3.0% growth, down from +3.2% originally reported on the advance look a month ago. Neither report had any impact on the markets. That is it for data today.

This afternoon at 1:00 Treasury will auction $31B of 7 yr notes; yesterday’s 5 yr and Tuesday’s 2 yr auctions were OK but markets have raised the bar on auctions as over the past year the demand for US notes and bonds has been very strong, now what used to be good is seen as disappointing. Neither of the previous auctions were busts and had little impact on markets; today’s 7 yr will likely be the same, a little disappointing but not a bust. Thoughts that yields being so low will lessen demand for today’s 7 yr and the strong opening in stocks along with a little firmness in the euro currency is adding pressure in the rate markets this morning.

Yesterday there were reports that China was looking at its holdings of euros; markets as nervous as that cat on a hot skillet jumped on the report and assumed China may begin selling euros. China, as we noted yesterday, is the elephant in the room wielding huge power over global markets. China was rattling the cage a couple of months ago, saying it was looking at its US bond market holdings; in that instance it was tit-for-tat with the US making attempts to get China to re-value its yuan and China making threats it might sell US bonds. The news yesterday was another rumor that was completely dismissed by China today, it has no plans to sell its any of it euro holdings.

Is it déjà vu all over again? Yesterday the stock market opened strong but as has been the case recently it didn’t hold and by the end of the day, after being up 120 points early, the DJIA closed lower (-69). This morning already the DJIA was up 185 after the open but by 10:00

Markets remain very volatile and will be that way today. So far the stock market is having the impact of increasing interest rates in treasuries and mortgages. The stock market isn’t likely to do much now until early this afternoon when Europe’s markets close. Yesterday the US markets were looking good until Europe went into their closes and ended the day at the lows of the day, that sent US stock indexes lower, unable to hold earlier gains. Check out Texas Mortgage Rates

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Good News About Short Sales

By 
texasbestloans
 on May 27, 2010
 in Real Estate Information 
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Great News for Buyers with a Short Sale!
New Eligibility Rules Announced From Fannie Mae!

There’s great news from Fannie Mae for home buyers who have experienced a short sale or deed in lieu of foreclosure. To help the housing market’s continued stability, Fannie Mae is changing the “waiting period” (i.e. the amount of time that must elapse after the preforeclosure or short sale event) before home buyers can qualify for a loan.

Several factors will impact these changes, including the required down payment or loan to value (LTV) for the transaction and whether extenuating circumstances contributed to the individual’s financial hardship (e.g. a job loss). The following chart highlights the new rules: Preforeclosure Event Current Waiting Period Requirements New Waiting Period Requirements (1)
Deed-in-Lieu of Foreclosure 4 years

Additional requirements apply after 4 years up to 7 years
2 years – 80% maximum LTV ratios

Preforeclosure Sale 2 years 4 years – 90% maximum LTV ratios
Short Sale No policy currently exists specific to short sales 7 years – LTV ratios per the Eligibility Matrix
Exceptions to Waiting Period for Extenuating Circumstances
Preforeclosure Event Current Waiting Period Requirements New Waiting Period Requirements (1)
Deed-in-Lieu of Foreclosure 2 years
Additional requirements apply after 2 years up to 7 years
2 years – 90% maximum LTV ratios
Preforeclosure Sale No exceptions are permitted to the 2-year waiting period
Short Sale No policy currently exists specific to short sales

(1)The maximum LTV ratios permitted are the lesser of the LTV ratios in this table or the maximum LTV ratios for the transaction per the Eligibility Matrix.

Note that the terms ‘short sale’ and “preforeclosure sale’ are both referenced in Fannie Mae’s announcement and have the same meaning – the sale of a property in lieu of a foreclosure, resulting in a payoff of less than the total amount owed, which was pre-approved by the servicer.

The bottom line: Buyers who have experienced a short sale or deed in lieu of foreclosure may be eligible for financing sooner than previously expected…especially if they have 20% to put down. If you have any buyer prospects who may benefit from this change, I’d be happy to help you put them in a home.

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Appraisal Disputes via HVCC

By 
texasbestloans
 on May 25, 2010
 in Appraisals 
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Recently my folks decided to make a life change and sell their home of 34 years. Not knowing anything about the real estate business they decided to rely on a real estate professional. Since I don’t do business in Utah, they decided to reach out to another Realtor to assist them.

Although their home’s value wasn’t what they expected, they decided they could live with what their agent suggested they would net at closing. After a few months of little activity, they finally received an offer, although less than list price, they determined they could live with the deal. Besides, this was what they have been waiting for ever since they retired, a chance to move south and enjoy life in the warm weather, within a rocks throw from a golf course and a casino.

This is where it gets both exciting and frustrating. So, now that they have a buyer for their home in Utah, they decide to take a trip down south and find their dream home. After a weeks long search they find what they’ve been looking for. They write a contract and head back north filled with excitement and anxiety.

Not realizing the complexities of the real estate transaction, my parents did what anyone would do, packed up and left the work of closing the transactions in the hands of the professionals. This is where it gets interesting. My parent’s get a call from their agent informing them that they have a problem. They are told that the appraisal came in less than the contract price and that they need to make a decision on whether or not they would like to sell for less than they have agreed on or terminate the deal. For purpose of this transaction still out of escrow, I will not provide the financial details of the transaction.

So, here are my parents that were expecting to net a certain amount for their home, which was needed to purchase the home they have under contract, now being told that they will receive significantly less than they were anticipating. Not knowing what to do or how this could even happen, they contact me for answers.

I explained to them that this is a common problem today and that our industry has gone through some major changes and regulation reform. But, I assured them that I’ve dealt with this same issue before and that it can be resolved. After I reviewed their appraisal it was evident to me that the appraiser did not include all their square footage and the comps seemed to be very Conservative and not of similar build. Specifically, split level, which brings more value.

Being familiar with the requirements for disputing an appraisal via HVCC, I advised my parents to have their agent contact the lender and request that the lender dispute the appraisal based on these facts. However, at the request of their agent they order a new appraisal, on their dollar and via their agent (not the lender). Well, just as suspected, the appraisal comes in at the value they believe is accurate, the square footage they believe is correct and better similar split level comparables.

At this point I’m a bit confused and ask my parents “who ordered the appraisal?” They tell me that their agent ordered it and that they were going to see if the lender would be able to use it. I figured maybe things were done different in Utah, since it is in fact, very different! So, I kept tabs on it, hoping for the best. I guess it’s been about 10 days or so since this problem arose. Well, this morning I get word from my mother that the lender can’t use the appraisal and that they’re going to have to sell to the buyer at the original appraised value or walk away from the deal.

At this point there are several options to consider, but there are several parts and parties to this transaction that need to all agree and come together for a successful close of escrow. So, to my parents, I would like to inform you on what your options are at this point and what challenges you will face if you do in fact move forward with your contract.

As a mortgage lender and real estate broker I have dealt with this exact situation more than once. Here is what you need to know about the lender, because the lender is the one that determines whether or not the appraisal that they ordered can in fact be challenged.

1. Do they allow any changes or disputes? Some lenders do and others don’t. My company does and there is a process for making disputes and/or corrections.
2. Do they accept re-measures and/or blueprints? You may or may not have blue prints available showing your floor plan and sq footage.

If the lender does not allow any changes. You have the following option if you and the buyer want to continue with the original contract terms:

1. Have the borrower transfer his file to another lender. Since this is an FHA loan, he will need to request a transfer.
2. Amend your closing date, cause it’s gonna take time.
3. Have the new lender order a new appraisal and hope for the best.

If your buyer has already locked his rate, this is a great opportunity for him to move his file to another lender and re-lock his rate. Rates have come down significantly over the past 2 weeks and especially over the past 5 business days. He could save $1,000′s over the life of his loan.

Since your agent is not familiar with how HVCC works, you may want to educate her on what it is and how it works.

What is the purpose of the HVCC?

Enacted May 1, 2009, the Home Valuation Code of Conduct (HVCC) is a set of rules for the mortgage lending and real estate appraisal industries. The intended purpose of the HVCC is to protect appraiser independence and prevent pressure from being applied to appraisers to produce a desired property value. Ultimately, these safeguards are intended to protect consumers. Even though there has been considerable debate about the unintended consequences of the HVCC, compliance is required for all loans backed by Fannie Mae or Freddie Mac.

What can I expect to change because of the HVCC?

The process of ordering appraisals has changed for banks, however. If you’re a homeowner in need of an appraisal of your home, an attorney needing a property appraisal, or even if you work for a small community bank or credit union and will continue to communicate directly with appraisers, you can order an appraisal directly through an appraiser.

Where did the HVCC come from?

The HVCC was born from an agreement between the New York State Attorney General, OFHEO, Fannie Mae and Freddie Mac. In 2007 New York Attorney General Andrew Cuomo filed suit against First American Corporation and its appraisal management subsidiary, eAppraiseIT, accusing them of enabling Washington Mutual to pressure appraisers to change values, as well as hand-pick which appraisers should be used for WaMu’s appraisal reports.

Attorney General Cuomo then subpoenaed Fannie and Freddie in order to learn more about loans purchased from banks like WaMu and the valuation processes they used. One of the results of the investigation was the HVCC, which was agreed upon and approved by Fannie and Freddie. From May 1, 2009 forward, every loan eventually funded by Fannie and Freddie must be in compliance with the HVCC.

What are the specifics of the HVCC?

The HVCC specifically prohibits any party from coercing, suggesting, or influencing appraisers in any way to produce a specific or desired value for a residential property.

Only the lender or a party authorized by the lender can engage the appraiser and order an appraisal that will be backed by Fannie Mae or Freddie Mac. Mortgage brokers and real estate agents, without lender permission, are not allowed to engage appraisers or order appraisals. Also, internal loan production staff members or any other person who is compensated on a commission basis are not allowed to engage the appraiser or have any substantive communications with an appraiser.

A specific exception has been made for institutions which, because of their small size or limited staff, would be unable to establish absolute lines of independence. These smaller institutions are required to clearly demonstrate that they have implemented “prudent safeguards to isolate its collateral evaluation process from influence or interference from it s loan production process.”

All loans backed by Fannie Mae or Freddie Mac must abide by the HVCC. The code doesn’t apply to FHA and VA insured loans, or to appraisals ordered for non-lending purposes.

Lenders are required to ensure that the borrower receives a copy of the appraisal report at least three days before the loan closing. The lender, not the appraiser, must provide the copy to the borrower, at no extra charge. This allows the buyer to read the report and decide whether to go forward with the purchase.

I hope this sheds some light on what your options are and why you are in this predicament in the first place. It’s to bad that you are involved with professionals that are incapable of resolving this issue the proper way.

Good luck and I love you!

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APR- Explained

By 
texasbestloans
 on May 24, 2010
 in Mortgage Resources 
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Annual Percentage Rate (APR) is a tool that consumers can use as a starting point to compare loan programs. However, it’s important to keep in mind that APR is not a perfect system, and not all lenders calculate APR in the same way. While the Federal Truth-in-Lending Act does require any mortgage broker or lender to disclose APR to the consumer, there is no rule written in stone for calculating this number that each and every lender agrees upon.

The point of calculating APR is to let the consumer know what the actual cost of their financing is in the form of a yearly rate. APR factors in certain closing costs and fees associated with the loan, and spreads this total over the life of the loan along with the actual note rate. The objective is to give the consumer a clearer picture of what their actual costs are, and this inhibits lenders from hiding fees or upfront costs behind low interest rates in their advertising.

Fees that are generally included in the APR calculation are points, pre-paid interest, loan processing fees, underwriting fees, document preparation fees, and private mortgage insurance. On occasion, lenders will include a loan application fee and/or credit life insurance. Fees that are normally not included in the APR calculation are fees from Title, Escrow, attorney, notary, document preparation, home inspection, recording, transfer taxes, credit report and appraisal.

Remember, all lenders do not perform the calculation the same way. Moreover, APR does not consider the possibility of making pre-payments, moving or refinancing. Unless the interest rate is tied to a fixed instrument, APR is even more confusing. Calculating APRs on adjustable rate and balloon mortgages is more complex because we really have no way of knowing what future rates will be.

If all lenders calculated APR the same way, we could make easy comparisons when deciding on what loan program to go with. Since they don’t, the consumer should know that APR is simply a starting point for comparison. They should rely on the skills of a well-versed loan professional to assist them in obtaining the loan that meets their specific needs. The more important things to consider are how long the loan is needed. What are the long-term goals of the borrower? If the home buyer only expects to stay in the home for five years, there’s not a lot of sense in looking exclusively at 30-Year Fixed rates because the APR seems more reasonable. If a young couple is buying a home, knowing they will refinance in eight years to pay for their son’s college education, then once again, APR is not a realistic factor to take into consideration.

The Loan Executive should be prepared to answer questions about APR once the lender provides the Truth-in-Lending Disclosure Statement (Reg Z), such as why the “amount financed” listed in Box C is not the same as the actual loan amount, and why the APR is higher than the interest rate on the loan in most cases. The consumer will get a clear definition about the fees associated with their loan in the good-faith estimate, but the Truth-in-Lending Disclosure is often an area that is confusing to the borrower.

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