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Are you working at a non-depository financial institution?

Starting at :38

We will be providing a mechanism for putting non bank financial institutions out of everybody’s misery.

[Is Secretary Geithner smiling?]

There will be death panels enacted by this congress.
But they will be for non-bank financial institutions that will not be considered too big to die.
And I say that because we have this euphemism that we are going to be resolving these institutions. It has not been my experience that when someone says that they are going to resolve something, they kill it. We are talking about dissolution, not resolution.

We are talking about making it unpleasant for the entities…

Note: The underlining emphasis and [commentary] was mine of course.

I don’t know for sure what the future will hold, but it sure seems like the winds of change are starting to blow when it comes to how mortgages are originated.

Hat Tip Rob Chrisman (by far one of the smartest mortgage people I have ever followed) for sharing the video.

I am working on a deal that was originally with another lender as a purchase 203K, the other lender ended up dropping the ball to the point the borrower switched lenders in the 11th hour to close the loan on time as a regular FHA loan.

The borrower purchased the home and has started the renovation on his own, mainly demolition (I don’t recommend doing this prior to closing on a renovation loan).  So few lenders are actually doing these renovation loans….. he ended up back with the original lender trying to do the 203K loan as a refinance. 

While going through the process he came across some of my posts and blog on Zillow.com (thanks for the referral Zillow) and reached out to me.  Because he was so far along in the process I answered a few questions and coached him a little as to how to deal with the current lender to try and expedite his loan closing.  Three weeks go by and he is no closer to closing than he was when I spoke with him originally.  So he decided to apply with me.

I was walking through the project with him when I noticed the house was going to need to be painted and also knew that the proposed budget only had about $250 in it for minor painting.  I knew by looking at it that it was going to cost more than that!  I have to admit that I don’t go out and see every house I write a renovation loan on, although I do need to have a complete understanding of the project so I can spot potential hiccups and delays and address them up front.

Having done these loans for years I have a ton of experience with them and my customers get the benefit of that experience.  It is really tough to explain all the benefits of experience.  Much of what we have learned through experience is 2nd nature and you just do things differently. 

I have a three year old daughter and I am amazed almost moment to moment as I watch her develop.  It is the things that we take for granted I find the most interesting, the way she eats, gets dressed, walks up and down the stairs, climbs over under and on whatever gets in her way, and a zillion other things.  At some point we learn what works best.  We learn that walking around the table, although it may take a little longer than going over or under (or not), may be the most efficient way to get to the other side.

When working with an experienced lender and or experienced renovation lender their experience will make your experience much less stress full!

Below are some of the things I try and walk around:

1.      Self Help – These are almost always a recipe for disaster and I really discourage anyone from attempting to do these projects as self help

2.      Streamline Renovation – 203K streamline although less expensive by about $800 in costs, I have seen too many issues arise as a result of half the funds being disbursed upfront and contractors disappearing or demanding additional payment upfront to finish. 

3.      Cutting corners – eliminating $5,000-$15,000 from a project because you are spending more than you want.  The difference in your payment is usually minimal, and to go through a renovation project and settle for less than what you want tends to do nothing but generate regrets.  If you are going to do it…do it right!

4.      Hud Consultant - Make sure you are working with a good 203K consultant.  I have been working with AM Consults in Malden MA for well over a decade and am extremely hesitant to work with any other consultant.

5.      The Loan Officer – Choose a loan officer that has the experience actually writing these loans rather than the loan officer that just has access to the program.  The loans are more expensive than a standard loan so expect to pay a slightly higher premium for the loan, but don’t get taken advantage off.  I have seen on more than one occasion an LO charge a ridiculous amount for these loans…The Mind set being if the customer is willing to pay that amount I’ll figure out how to write the loan…They may figure it out but you don’t want to over pay to be a guinea pig (sorry animal lovers).

I got an e-mail yesterday asking: What is a 203K loan?  Every once in awhile I need to remember that I sometimes use acronyms and assume everyone knows what I am talking about.  The reality is…in many cases the acronyms do more to confuse folks than to clarify.  So I am going to take a step back and explain a little about the “203K” loan.

This loan program can be used for the purchase or refinance of a property that needs work.  It allows you to borrow the funds you need to purchase and renovate the property.  These loans are not new but took a back seat to other ways of financing the cost to renovate.  With property values no longer increasing by double digits, and with equity loans being capped at 70-80% of current values (rather than 100% you could get just a few years ago), the options for financing renovations are limited.  I started a thread on Zillow asking how folks are paying for home improvements.  Inquiring minds want to know! 

In addition to the FHA 203k program similar programs are offered by Fannie Mae and Freddie Mac.

Today, the Making Home Affordable Modifications report card for the month of August was released by the Treasury Department.

The report shows that loan servicers have extended offers for 571,354 trial modifications, and 360,165 homeowners have begun the process of modification.  In July, mortgage servicers committed to modify more than half a million mortgages by November 1, 2009.  These latest numbers show that they are on their way to meeting that goal. 

Most loans are now covered by the program.  More than 45 servicers have signed up for the Home Affordable Modification Program, including the 5 largest.  Loans covered by these servicers and loans owned or guaranteed by government-sponsored enterprises account for more than 85% of loans in the country. 

Page 2 of the report shows the trial modification activity by servicer, summarized below:

While progress has been made, still only 12 percent of U.S. homeowners eligible for loan modifications have had their mortgages reworked, while 19 percent of eligible borrowers were offered trial modifications, up from 9 and 15 percent in the previous report, respectively.

The government points out that the Home Affordable Modification Program has its limits.  When home values were increasing a few years ago, there were still hundreds of thousands of foreclosures.  So even if the program is a complete success, we should still expect some foreclosures to occur, because some borrowers do not qualify for the program, while others bought homes well beyond what they could afford and are unable to make the monthly payment even on a modified loan.

Visit the government’s official website to determine your potential eligibility in the Home Affordable Modification Program, or call 1-888-995-4673 to receive direct information and assistance in applying for the program and reach a HUD-approved housing counselor.

This was the name of the presentation I was lucky enough to attend today that was presented by Doug Duncan Vice President and Chief Economist for Fannie Mae.

I gleaned a couple of things from the presentation.  As always these are my understanding of his presentation and as he had in his presentation I would also like to add a 10 page disclosure essentially saying that I cannot be held accountable for any of these predictions…If they come true…I accept credit…If they don’t…I was never here and never made these predictions!

1. The economic models we use to predict what we expect to happen are pretty much useless since we have no historical data that is similar to what has occurred over the past two years!  This really supports my theory that no one has a clue about what to expect…Even the folks we think should!
2. The Fed is going to have to start talking about an exit strategy from the credit and MBS markets.  Oh boy…I can only see this adding to the volatility of the MBS Markets regardless of what they do.  Investors don’t like uncertainty. At some point they will have to say how they intend to get out…Investors will have to figure out how that will impact the markets.  I have serious concerns that the unknown will have many investors sitting on the sidelines trying to figure out the new rules of the game before they start playing the game!
3. Rates will be going up.  The conventional rate markets are being artificially held low…when that stops margins and risk factors will likely rise.  I think a better gauge of were rates will be is to look at the real Jumbo Market rates.  Those rates are being set by the market and may paint a more accurate picture of what rates will be adjusting too.
4. The recovery will be SLOWWWWWW.  The majority of Americans’ are way over leveraged and it will take time for this to get back to sustainable levels.

What this all means…I am really not sure…But at least I know folks that are much smarter than I aren’t really sure either!

One of the keys to having good credit scores is to stay way below your credit limits.  This is especially true around the time you are trying to secure a loan for a new home or trying to refinance.  Credit is tight enough in this market that you don’t need to ding yourself in the process.  A few months before you apply for a loan start cutting back your credit card usage substantially.  Ideally, you can even switch to all cash for a few months.  Don’t do this for too long, as in some cases, credit card issuers are starting to close down credit cards.

The average credit card utilization in the US is around 30%.  That means someone is using about $5700 in charges on an aggregate limit of $19,000.  People with fantastic scores are lowering this usage to about 5-10% or $1000-$1900 on a $19,000 combined limit.  This is a good tactic to follow, again, especially around the time you need a loan.

Also, don’t just focus on the aggregate limits.  You need to keep your utilization at 10% on all your individual cards.  If you have a card that is nearly maxed out, that’s the one to pay down first if you are getting ready to purchase a house.

photo credit: Jan Tonnesen

If you have an FHA mortgage and are having trouble making the payments, you may now be able to get help from the government. FHA stands for the Federal Housing Administration, part of the Department of Housing and Urban Development (HUD). FHA provides mortgage insurance on loans made by FHA-approved lenders for home purchases with low down payments. As of August 15, 2009 HUD has made FHA mortgages eligible for their Making Home Affordable program.

It’s called the FHA-Home Affordable Modification Plan (or FHA-HAMP) and it’s designed to permanently reduce monthly payments. HUD Secretary Shaun Donovan announced, “We’re bringing another important tool to the table to help struggling families who are desperate to keep their homes. Tens of thousands of FHA borrowers will now be able to modify their mortgages in the same manner as so many others who are taking advantage of the administration’s Making Home Affordable program.”

Please join me in welcoming Joanne Gaskin as the newest contributor on Mortgages Unzipped.

Joanne is the Director, Global Scoring Solutions of FICO, responsible for the strategic direction of product and alliance partnerships within the mortgage lending vertical.  Prior to joining FICO, Joanne was a Senior Segment Manager for Wolters Kluwer Financial Services where she was responsible for the development of compliance solutions for the mortgage market segment. Joanne has spent more than 20 years working with financial institutions on many of the most important topics impacting the mortgage industry today, including regulatory compliance, credit risk management, data security, emerging markets and e-mortgages.  Joanne has a number of interests outside of work but is especially passionate about cheering her son and his championship soccer team to victory.

We look forward to reading your future posts, Joanne!

Market: We’re flat. Yesterday we were up 34 bps. This is a trend, now, and not a blip. There is consistent pressure for mortgage-backed securities (mbs) to rise to the 100- and 200-day moving averages, which we are sitting on right now. That means rates holding steady at their current very low levels, between 5% and 5.25%. [Disclaimer: YOUR rate might be higher, and it might be lower. That depends on a lot of things, not just the current market. Get a pro to check for you.] [Incidentally, I am a pro. <grin>]

Analysis: As usual analysis is complicated. This morning’s data (ISM and pending home sales) were better than expected, which for months now has meant that mbs would retreat and stock would rise. But for the past two weeks, that has not been so. It’s not the Fed, this time - the Fed is buying mbs, of course, but buying them in ever-smaller quantities, and buying mostly the 5% and 5.5% coupons, meaning that they are providing no pressure for rates to go below 5%. That pressure, what of it exists, is coming from the broader market. And frankly, people, it makes no sense.

There’s no big move to the upside. There is no immediate prospect of rates dropping back into the 4.5% range. But still, there is this persistent pressure on mbs pricing that is holding things right where they are, instead of losing ground, as analysts expected (myself among them). I wrote last week that the only thing I could point to was back-bench sentiment that the economy really wasn’t bottoming out and that there were worse things to come, but as time goes on that argument is less and less persuasive to me. So I don’t know what it is. Ideas? What do you think?

Please join me in welcoming Ken Perlmutter as the newest contributor on Mortgages Unzipped.

Ken founded Chicago-based PERL Mortgage in 1994, and over the past 15 years, has led PERL to become an industry leader.  A regular contributor to national media outlets, Ken believes that honest, ethical treatment of his clients and employees — and continually evolving in an ever-changing industry — will reap the greatest returns.  In his spare time, Ken enjoys golf and traveling with his family.

We look forward to reading your future posts, Ken!