Mortgage Types category archives

According to the BAI survey, the perception is:

• 31% of the consumers thought it was harder to get a mortgage.
• 5% thought it was easier.
• By default that means that 64% thought it was about the same as 6 months ago.

What do I think?

If you have good credit, can document your income and assets, have enough assets for a downpayment, and are working with a MORE THAN competent mortgage lender who knows how to navigate the complexities of today’s market, then it’s no harder now than it was 6 months ago.

If your credit is struggling, you can’t document your income (sorry – self employed people who write everything off are out of luck) and don’t have either equity or a downpayment or you’re working with a lender who isn’t on top of things, then it is harder.

So, tell me – what’s the perception that you’re seeing?

31% of BAI Survey Respondents Find Mortgage Access Worsening : HousingWire || financial news for the mortgage market

Financial services information and intelligence provider Bank Administration Institute (BAI) launched the BAI & Finacle Banking Confidence Index, which tracks the effect of upheaval in the financial services industry on consumers’ views.

The index measures consumer views across five areas: financial stress and the economy, access to credit, fees and disclosure, managing personal finances and consumer trust.

The index’s findings, released Tuesday, indicate one-third of consumers feel their financial situation has deteriorated in recent months, but few expect conditions to grow even worse.

Of those surveyed, nearly one-third — or 31% — indicated access to mortgages is worse now than six months ago, while only 5% said it improved. The projections indicate 12% of respondents expected access to improve in another six months, while 15% expect access to worsen.

“In today’s fast-changing scenario, consumer opinion counts more than ever before and technology has made the consumer highly empowered,” said Haragopal Mangipudi, global head at Finacle, a solution from Infosys (INFY: 46.39 -1.70%). “Presented with diverse and ever-dynamic consumer segments, banks need to anticipate changing requirements and fine-tune business strategy.”

In today’s economy, many first-time home buyers find it challenging to make a hefty down payment towards a new home loan. Luckily, FHA financing is available for conforming loans (less than $417,000) with down payments as low as 3.5%.

Loans made by FHA (the Federal Housing Administration) haven’t always been applicable to every home on the market because of longstanding guidelines and restrictions. For example, if you wanted to sell your condo to a buyer ready to bring 3.5% down, that buyer couldn’t obtain an FHA loan if your condo bylaws gave the board the “right of first refusal.”

But now, FHA is making it easier to obtain approval for condos. They’re allowing lenders to determine project eligibility, review project documentation, and certify federal compliance for condo projects.

In accordance with the 2008 Housing and Economic Recovery Act (HERA), FHA is implementing a new approval process for condo projects to insure mortgages on individual units closed as of October 1, 2009.

Now, the right of first refusal is permitted - unless it violates discriminatory conduct under the Fair Housing Act. Eligible spheres include projects with 2 or more units carrying hazard, liability and flood insurance. For these projects, no more than 25% of the units can be used for commercial space – and no more than 10% of the units can be owned by more than one investor. Additionally, 50% of the units must be sold and owner-occupied. Projects listed as “Proposed / Under Construction,” “Existing Construction” or “Conversion” are also eligible.

Ineligible Projects include Condotels, Timeshares or Segmented Properties, Multi-Dwelling Units, and Commercial Properties.

So what does this mean for you?

As a buyer
Buying a home is a big investment - and saving for a down payment can be a tough proposition, especially when you include closing costs and tax escrows. FHA is making condo purchases with 3.5% down even easier. Look for FHA-approved buildings (or buildings with pending FHA approval) - and talk with your mortgage consultant to see if you qualify for a low-down payment loan through FHA.

As a seller
Your condo association or developer can work with a lender to get your building pre-approved for FHA loans. This allows for more flexible compensating financial factors for potential buyers (i.e. cash reserves, credit scores, etc.) and attracts more buyers, leads to more saleability, and greater home value appreciation.

Time to take a look at the second installment in the 7 things series.   If you recall, last time, we looked at the fact that, in a rapidly changing market like we are, 6 months ago is ancient history.    What someone paid 6 months ago…… Well, just read about that at 7 Things – Part 1.

So what’s Part 2 about?   Here’s what I wrote last time:

2. Don’t worry so much about what you paid for your house. Instead, look at the difference between what you can expect to sell your house for and what it’s going to cost you to buy the new one that you want. I expect you’ll find that those are much more important numbers (unless you end up without any equity, in which case you don’t sell).

There are a couple of things that I think still hold true and one big thing that I think doesn’t hold true any more.    First the things that hold true:

• If you are selling one home to buy another, the most important number is not what you paid for the existing home, the most important number is the difference between the two homes.   If the value of your home has fallen by $40,000 but you’re in a situation where you can buy a newer home with less maintenance and 1000 square foot bigger for a “net” difference of $20,000, then it might very well be a good deal.   
• If your family situation has changed (i.e. – We got married and are expecting our second set of twins in the last 2 years! – Yikes!) then what you paid for your house doesn’t matter.   I’ve got a client who is negotiating on a house where the seller has to sell within the next three weeks but they are “hung up” on what they paid for the house.   If you need to do something, don’t worry about what you paid for your house, just focus on what the financial and logistical aspects and make the move.    I’m working with a client who is relocating for a new job.   His new position is a nice enough “step up” from his current position that they sold their home for approximately 20% less than they paid for it and still be able to buy a new house.   He told me that while he didn’t want to sell his house for less, the overall picture of the move is “the right thing” for them at that point.

Now, the one big thing that has changed since last year.   Let me lay it out this way:

• On March 4, 2009, Bloomberg reported that More than 8.3 Million Home Owners were underwater. 
• On October 20, 2009, I was on a conference call where Dr. Nouriel Roubini said that if housing prices drop another 7 to 10% over the course of the next year, by the end of 2010, there will be 25 million home owners who are under water.   Oh and he said that it’s almost guaranteed that they will drop because of the imbalance between supply and demand.   There already is too much inventory, credit is still tightening, foreclosures are still climbing and jobs are still getting eliminated.   That means the inventory problems aren’t going to go away any time soon.

Let me make that perfectly clear.   There are approximately 51 million home owners in the United States who have mortgages on their homes.   By the end of 2010, almost half of them will owe more on their homes than what they are worth.

If you’re sitting in a coffee shop reading this on your laptop, look at the guy at the table next to you.   Now look at the guy on the other side.   1 out of the 2 of them owes more on his house than what it’s worth.    Ouch.

That means a number of things that are different than last time:

• There will be sustained upward pressure on foreclosures. 
• There will be marked lack of geographic mobility.   A lot of people who would consider and/or actually relocate to get a job/a better job won’t be able to because they can’t sell their house.   Or they’ll relocate, give the old house back to the bank (lots of credit ramifications – topic for some other time) and rent.
• Over the years, the “old rule of thumb” was that the average home owner would move every 7 years.   Now with almost 50% of the homeowning population “trapped” in their homes, we’re going to see people staying in their homes a LOT longer and we’re going to see a lot less move up buyers, a lot less move “over” buyers and a lot less downsize buyers.    That’s going to accentuate the inventory problems and keep downward pressure on house prices.
• That also means that there will be a lot less opportunities for builders, Realtors and lenders because of the decreasing mobility of the American population.

So, on the one hand, things are similar to what they were last year in that if you are going to make a move, what you paid for your house isn’t that important, it’s the difference that matters.   But, for more and more people, the changes in the market since last year mean that if they want to move, they have no good options.   They can stay put or they can do the short sale/foreclosure/rent for a long time option.

The market is different than it was in the summer of 2008.

P.S. Stay tuned for Part 3 – Is this the market for Do It Yourselfers?

No it’s not some sort of new, high tech way to search for homes or anything like that.   It’s the latest “enhancement” in Freddie Mac’s refi program.   Let me give you a few details:

• If your loan was sold to Freddie Mac originally.
• If your loan doesn’t have mortgage insurance right now.
• If you don’t owe over 125% of what the house is worth (in today’s market, not what you paid for it).
• Then you can take advantage of the Freddie Mac Open Access program.

Now you’re probably thinking - so what’s new?   That’s been in effect since like February or March?

Wrong - until now, you’ve had to work with the lender who wrote your loan.   If your loan was bought by Chase, you needed to work with Chase.   If it was bought by Bank of America, well, you get the picture.

Not any more.   Now, for any loans that don’t have mortgage insurance and were sold to Freddie Mac, you can go through any lender that has been approved to do Freddie Mac “Open Acess” loans.   That’s right, you can actually choose which lender you want to do your mortgage with!  (As long as they are approved to do these loans.

In July of 2008, I wrote a piece as a guest post on Paul Kedrosky’s site, Infectious Greed.    I called that piece The Top 7 Things Every Home Buyer Should Know.   The piece got a lot of “press” and actually got me interviewed by the New York Times.    I was talking with the reporter who I’ve gotten to know at the New York Times about a month ago and we realized that it was almost exactly a year since he had ran the piece, “Considering the 7 Year Plan.”    He made a comment at that point, “It would be interesting to see what, if anything, has changed over the last year in your opinion of what a home buyer needs to think about.”     I agreed and decided at that point to do that.

So this is the introduction to what will be a 7 part series over the course of the next week or so.   I’m going to take each item, one by one, and look at what my view was in July of last year and then factoring in what I think has or has not changed over the last 15 months.

Here’s a hint for you – out of the 7 parts, I think that we’re going to find that at least 3 or 4 of them have changed substantially.

I’ll have the first one up in a day or two.

President Barack Obama recently proposed that all lenders offer “plain vanilla” mortgages so consumers could understand the loan terms and the risks associated with the mortgages.  The proposal includes creating a Consumer Financial Protection Agency that would be responsible for these and other laws that help consumers make better decisions.   This proposal met strong opposition by the lending industry for trying to impose too many rules and limiting the flexibility of lenders.

“Under Obama’s plan, a new government agency would be established to monitor the fine print on such products as mortgages and credit cards. The Consumer Financial Protection Agency would require that lenders be up front about the cost of their products and offer customers a standard low-risk alternative.“

On Zillow Mortgage Marketplace we focus on consumer advocacy in a slightly different way.   Instead of limiting what lenders can do, our goal is to educate borrowers on the risks and benefits of each loan program so they can make the right decision themselves.  We have created a number of tools to educate consumers on how to compare mortgage types, analyze the risk associated with different loan programs, and find a trustworthy mortgage lender.

Here are some of the tools we built and why we think they are important:
•    Monthly Payment Graphs – each quote has a graph showing what the monthly payments will be over the life of the loan.  For adjustable rate mortgages, we always show the worst case scenario so borrowers can clearly see any risks associated with the mortgage.
•    True Cost – this calculation shows the interest and fees costs of all loans over any time period.  This helps borrowers compare prices for quotes across all of the different loan programs.
•    Comparison Page – compare all loan details in an apples-to-apples fashion across multiple quotes in one place.  Quotes are completely accurate and show all ARM details including margins, caps, and index.
•    Cumulative Costs Graphs – these graphs show the total cost of the loan over time so you can see how much you will end up paying in interest, insurance, and fees.
•    Lender Ratings – every lender on Zillow Mortgage Marketplace is held accountable for their actions and customer service through borrower ratings.
•    Mortgage Calculators and Help Articles – we created a whole library for consumers so they can figure out how much they can afford and the best way to repair their credit.

Helping consumers make better choices is extremely important to us.  If you have ideas for other tools or features that you think would help educate consumers, please let us know.

Good question posed by 1samtheman in Zillow Advice:

Do Lenders Still Do 80% Loans With Another 10% Loan if I Put 10% Down?

As we all know, times have changed in the mortgage world on the types of loans you can get. A couple of confirmed lenders from Zillow Mortgage Marketplace have chimed in, but we need to hear from more lenders on what is happening with 80/10/10 loans.

I had a great comment on my blog about shorts sales.  I felt both the questions and answers deserved their own blog post.

Question: How much was paid to the homeowner to contract the rights to buy a house facing foreclosure to try to pre-sell it to someone else for profit?

Answer: Why do you assume that the homeowner was paid anything?  When a Realtor negotiates a short sale placing the home in a listing agreement, what do they compensate the homeowner?  To the best of my knowledge the compensation is simply getting out from underneath the house without having the home foreclosed on.

Question: By marketing houses at a higher price then that required by the bank they are increasing the chance that no buyer will be found and the house will foreclose.? The compensation to the homeowner for this is?

Answer: Why would marketing the house at or below market value increase the risk of foreclosure?  LMSG is negotiating the short sale based on their cash offer.  If they cannot get the bank to accept a cash offer for below market value then no short sale occurs, no different than when a Realtor takes a listing in hopes of negotiating a short sale.  If the bank won’t accept the offer the sale doesn’t go through.

Question: Technically, contracts are legal and binding if they offer a benefit to both parties. A normal RE agent contract for a short sale covers listing and bank negotiation processes. What is the compensation to the homeowner for contracting LMSG to have rights to sell their property and is the compensation fair relative to the increase risk of foreclosure?

Answer: I am not an attorney…nor did I sleep at a Holiday Inn express last night (anyone think I can get paid for product placement on my blog?).  But my understanding of a binding contract is that it consists of 3 elements: competent parties, consideration and mutual assent.  Your questions seems to revolve around what the seller gets in return for the services provided by LMSG and I see no difference between what the sellers receive from a realtor that lists and closes a short sale.  They get out from underneath the mortgage.

Question: Aren’t there laws in effect about presenting all sales offers to sellers (and selling banks) and not hiding some for personal gain?

Answer: Again I am not an attorney, so without a doubt, consult one…but the seller not the bank is the owner of the home.  The seller has accepted LMSG’s offer to purchase the home in a short sale, provided one can be negotiated.  I don’t see why the bank would need to be made aware of any offers made to LMSG to purchase a property that neither currently own.

Question: My experience is that most times banks do not allow compensation to the homeowner in a short sale.

Answer: You seem to be looking for a smoking gun….in that the seller is being compensated in some way other than simply getting out from underneath a mortgage they cannot afford.  I have been doing the same thing since the first deal was brought to my attention.  I am a skeptic at heart but can’t find the problem with the business model.

You’ve probably heard of the car companies that are offering job-loss protection to induce new car sales: buy a car and if you lose your job in the next few months you can return the car. Some homebuilders have offered job loss payment protection plans too, offering employment assurance programs to spur sales. Now Uncle Sam is thinking about getting in on the act, and is considering leaning on lenders to allow homeowners who lose their job skip some monthly mortgage payments.

With unemployment now above 12% in states like California, Nevada, and Michigan, it’s easy to understand the political appeal of such a proposal. It’s less clear why loan servicers would be willing to do this. After all, they have a contract with the borrower which says they’re owed their monthly mortgage payment. From the lender’s perspective, it’s not their problem whether or not the borrower has a job. As one of Tony Soprano’s guys might say when collecting a debt: “Tell it to someone who cares.”

Alas, despite what you may have read, lenders aren’t bad people. They empathize when their borrowers hit hard times. However, it’s not altruism that’s driving their interest in this potential program. It’s the realization that banks don’t want to foreclose on any more homes than they have to. A bank would much rather have their borrower fall a few months behind on their mortgage, or modify the loan, than foreclose on the home. It’s still too early to know whether the proposals being considered will go into effect, but the advice for now is clear: if you hit hard times and are struggling to pay your mortgage, pick up the phone and call your lender. It’s a difficult call to make, but it just might allow you to keep your home.