The future of loan originators and housing recovery is hanging by a credit thread. According to the Federal Housing Finance Agency (FHFA), the credit composition of originated loans within the Government Sponsored Enterprises’ (GSE) portfolio is showing a tightening trend. From their latest press release: “The increase in the number of loans with 660 or higher credit score and decrease in loans with less than 660 credit score at origination reflect actions taken by both Enterprises (FN/FRE) to increase the credit quality of new business and continues a trend seen over the past year.
The trend is in response to rising delinquencies. The delinquencies are forcing the GSE’s to cut back on taking any loans on their books that do not meet high credit standards.
Where will this push borrowers? Well, if borrowers cannot get a conventional product due to credit issues, they will likely head towards FHA. Can FHA handle any more of the ‘uglier’ side of the mortgage market? According to recent reports of FHA’s struggles to stay out of default, the answer would be “no.”
There have long been discussions on fair and proper credit reporting. With such a large portion of the borrowers now making late payments or defaulting on debts due to unemployment, underwater house values, and general stresses, there will need to be a new FICO model. Without changes in credit measure, there will be exponentially fewer Americans qualifying for credit. The current credit restrictions are putting up roadblocks for many borrowers. Fewer borrowers, means even slower economic growth. *
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The Tax Credit extension was officially signed into law over the weekend. With over 36% of all home sales in 2009 involving the tax credit, proponents assume that the extension will continue to drive home sales. Realtor® Magazine went as far as to estimate that the extension will drive another $22 billion into the economy. Over 2 million people have used the tax credit so far.
The new deal: Contracts have to be signed by April 30 and close by June 30, Income limits have been increased to $125k for individuals and $225k for couples, homeowners who have been in one home for 5 out of the last 8 years are eligible for $6250, home price cap is $800k, and first-timers still qualify for $8k.
For more information you may visit this useful link below:
One of the many questions that clients ask when attempting a short sale is, ‘how long is it going to take?’ The short answer is that short sale processing time is different from one bank to the next. The answer requires a detailed analysis of the bank’s process system. There are hundreds of banks in the world we are going to examine just a few of the major ones in order to demystify the process for distressed homeowners.
Since Bank of America (NYSE:BAC) is one of the more popular banks it seems fitting to start an analysis with them. If the Bank of America short sale process could be summed up in one slogan it would be, “Catch-22”. BOFA, tends to be pretty economical when considering to approve a short sale or not. They are not the most generous bank in regards to requests for seller/buyer credits and second lien payoffs. However, they are not the greediest bank either. If Bank of America’s short sale process could be compared to a financial savings instrument it would be considered a bond. The process is less volatile in the long run than some of the other banks (i.e. few quick approvals, but also few high payoff demands).
The catch with their short sale process is that because they are such a large bank they handle a lot of short sale requests. The massive amount of recent short sale requests has made the approval process slow. During the process the file is assigned to several different, “negotiators”.
1. The first phase negotiators are the data collectors. They are responsible for making sure the file is complete before being submitted to upper management. During this phase an appraisal should be ordered if needed.
* Times vary during this phase. If within 15 days there has not been any progress it can be moved to a new negotiator. Escalating the file may or may not be in the best interest, it could cause a new time limit to apply,which would extend the short sale process. * Once the phase 1 negotiator approves the file it’s passed to a 2nd phase negotiator
2, Phase 2 negotiator; Sometimes this is the same person as Phase 1. During this phase the file is reviewed and any extra data that might be needed is collected. (i.e. updated bank statements, paystubs, etc…). After this phase of the negotiations are completed the file is passed to a third and final level of approval.
3. An estimated 15 day wait period is again applied when the file moves to this level before escalation can be considered. A general rule with BOFA is that every time a file changes hands 15 days must pass before the file can be brought to a supervisor. The third negotiator (upper management) double checks all the figures and puts the stamp of approval on the file. Usually, once this level approves the loan the automated BOFA status line changes. The status can be changed to approved without an actual short sale letter being issued. This phase negotiator has about 3 weeks altogether to actually stamp approval on the package and send out a letter.
In terms of communication most of the time the negotiators will not even talk to you. E-mail may work, but it’s not unusual to go several weeks without hearing any news. The actual approvals are mostly specific to one buyer. If you were thinking about substituting a different buyer into the transaction after the approval letter has been generated you will need approval from BOFA management.
Typically, if a new buyer is brought in on the file while the property is in phase 1 the process resets. If the file has progressed to certain levels of phase 2 there is a higher chance that a new buyer may successfully be brought into the transaction without the process resetting itself. If a new buyer(s) have to be substituted you will want to do it at this phase.
Once the file gets to phase three substitution becomes more difficult with BOFA. Some of the other banks, that will be the subject of future posts, allow for buyer substitution because approval letters are ‘non-buyer specific’, however BOFA is a bit more strict on the issue. When they issue an approval letter it is actually stamped with the specific buyer’s name
Stay tuned for more helpful hints. As always you can contact Rapid Real Estate Solutions (RRES) for help with your short sale challenges. You may also call 616-328-5127
Attention real estate professionals: No more surprises at the closing table. The new Good Faith Estimate (GFE) of settlement charges and the new HUD1 Settlement Statement will be in effect on January 1, 2010. (www.hud.gov/respa) The new procedures and forms stem from a ruling published January of this year. The changes are in direct response to complaints and confusions shared by borrowers.
HUD pushed for the change due to a measured belief that many borrowers have ended up in default because they did not understand their loan. Under the existing rules, settlement charges vary widely between mortgage providers, borrowers rarely see reduced settlement charges on high interest loans, and in-turn, many borrowers who pay points at settlement often do not benefit from lower interest rates. In efforts to preserve homeownership, HUD wants borrowers to be given time and information to shop for loan that best meets their needs and affordability.
The NEW rules and standardized forms will make for lower settlement charges, lower interest rates, and better mortgage products. So, say ‘hello’ to buying incentive from another direction.
Not that I believe that the RESPA rules were the cause of the collapse in housing. The cause is clearly the government itself through the actions of the Federal Reserve, Fannie, Freddie and the FHA that got us in this mess in the first place.
But enough of that—here are some key changes:
Apples to Oranges. Shopping lenders by the GFE: The new Good Faith Estimate will better alert borrowers to the cost differences between their choice to pay upfront settlement charges or to accept a different interest rate. There will be a more thorough disclosure of loan terms including possible increases in interest rates or balances and pre-payment penalties. The over-all structure will give borrowers a simple shopping list to compare lenders from the start. No Surprises: Once a GFE is provided to a borrower, there will clearly be three categories with restrictions to changes. Some items will not be allowed to change prior to closing, some will be restricted to no more than 10% difference and will be from a laundry list the seller can change, and some will be mutable only because they are not within the controls of the loan originator or borrower. The HUD1 Make-Over: 1) Borrowers will be able to clearly match-up charges on page 2 to the line items disclosed on the GFE. 2) A new page 3 will contain the “restricted” category items so that a borrower can see if there were any violations. 3) A summary of the final loan terms and monthly escrow will be enumerated on page 3 and the loan originator will be required to complete it.
For further details in your efforts to inform your buyers – go to the HUD.gov’s NEW RESPA Rules Frequently Asked Questions.
In a continuing effort to blunt the impact of foreclosure on families, Fannie Mae has announced a program called “Deed for Lease” (already shortened to “D4L” in industry publications). Deed for Lease allows a homeowner to a guaranteed one-year lease (aka rental agreement) priced at local market rates for voluntarily signing over the property to the lender. The new program improves on a less formal initiative Fannie Mae started last January that let foreclosed homeowners to stay in the house on a month-to-month basis.
The policy is aimed at minimizing the disruption caused by foreclosure proceedings, which put the family out on the street when the property is seized by the lender. With Deed for Lease, the family loses ownership, but can stay in the house. Put another way, they can walk away from the loan without walking away from the house, as they must do in a traditional foreclosure.
"The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for modifications," said Jay Ryan, Vice President of Fannie Mae. "This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities."
The big advantage of the program comes from the money households save when they swap mortgage and other housing expenses for a rental payment. The new program is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification.
Some stipulations of this program are:
The homeowners cannot be eligible for a mortgage modification
The new rent payment cannot be more than 31% of the household’s income
Lease is for 12 months, with the possibility of becoming month-to-month
The questions arise what will happen at the end of 12 months. This does give the homeowner some time to begin to recover financially. On a positive note, it may give the homeowner some time to recover their credit and buy back the property at a reduced price if they can find the cash to make the purchase. Time will tell how this affects our market and if the homeowners who couldn't make the mortgage payment can make the rental payments.
The future of loan originators and housing recovery is hanging by a credit thread. According to the Federal Housing Finance Agency (FHFA), the credit composition of originated loans within the Government Sponsored Enterprises’ (GSE) portfolio is showing a tightening trend. From their latest press release: “The increase in the number of loans with 660 or higher credit score and decrease in loans with less than 660 credit score at origination reflect actions taken by both Enterprises (FN/FRE) to increase the credit quality of new business and continues a trend seen over the past year. 
