Applying for mortgage? Starting June 1, you could face another credit screening

If you're thinking about applying for a home mortgage, here's some important news: Beginning June 1, your lender is likely to order a second full credit screening immediately before closing.

The last-minute credit report will be designed to find out whether you have obtained -- or even shopped for -- new debt between the date of your loan application and the closing. If you've made applications for credit of any type -- for furnishings and appliances for the new house, a car, landscaping, a home equity line, a new credit card, you name it -- the closing could be put on hold pending additional research by the lender.

If you've actually taken out new loans that are sizable enough to affect the debt-to-income ratio calculations used in your original mortgage approval, the whole deal could fall through. The added debt load could render you ineligible for the mortgage because you suddenly appear unable to handle the payments without a strain on your household budget.

The June 1 changes are part of a new effort by mortgage giant Fannie Mae to cut down on slipshod underwriting by lenders and fraud by borrowers. Fannie's "loan quality initiative" will require lenders not only to pull two credit reports for each mortgage transaction but to perform additional verifications of borrower occupancy plans for the property, Social Security numbers and Individual Taxpayer Identification Numbers.

"There's an almost irresistible urge" for many mortgage borrowers, said Don Unger, chief executive of Advantage Credit of Evergreen, Colo. "The lender says, 'Okay, you're approved for the loan,' and you immediately think about shopping for all the things you need for the house. You go to Home Depot" or other major retailers, "and you put in an application."

In the past, that might not have raised an eyebrow -- or even been detected. But under the new double-check policy, when the Home Depot application shows up as a "hard," or borrower-initiated, inquiry on a credit report, Unger said, the lender "is going to have to contact" the merchant and determine whether credit was extended, in what amount, and how this might affect the applicant's home financing transaction.

Marc Savitt, president of the National Association of Independent Housing Professionals and a mortgage broker in Martinsburg, W.Va., said it's not an uncommon scenario. "Most often the new debt involves furniture or other goods for the house," Savitt said. "However, we have seen debt for new cars and other major purchases."

Terry Clemans, executive director of the National Credit Reporting Association, recalls one case in which the home buyers "went out and gorged on $40,000 worth of new furniture and all types of stuff" after their loan approval -- incurring monthly payments far beyond what they could possibly afford. Under the new policy, they would likely be shot down before closing.

Fannie Mae spokeswoman Janis Smith said lenders "will have to look for things like new credit accounts, increased credit lines, increased balances on existing accounts, undisclosed or newly recorded liens, second mortgages -- anything that may have changed since initial application that might impact a borrower's debt-to-income ratio."

As a practical matter, some lenders are likely to ask their credit reporting vendors to perform the actual investigations when new debts or inquiries pop up on borrowers' files. Fannie Mae's instructions say that "lenders must determine that all debts of the borrower incurred or closed up to and concurrent with the closing" are considered in the final loan analysis.

Unger, however, said all this may not be as straightforward as it sounds. For example, if the credit report is pulled immediately before closing to comply with the "up to and concurrent" requirement, there may not be sufficient time to check out inquiries -- especially those in which no actual drawdown of debt has been reported to the national credit bureaus. He also questioned whether entire loan packages might need to be re-underwritten -- a time-consuming process -- based on credit data discovered at the eleventh hour.

In that event, poof goes your closing.

How should home buyers and refinancers prepare for the new credit check procedures? Lenders and credit reporting company executives say everybody needs to follow just one basic rule: abstinence. Between your application for a mortgage and the date of closing -- which might be a span of 45 to 60 days or more -- resist the irresistible.

Don't apply for new credit unless you discuss it in advance with your lender and get a green light.

By Kenneth R. Harney

Fannie Mae Cuts Waiting Period for New Mortgages

Borrowers who previously experienced a deed-in-lieu of foreclosure will not have to wait as long to get approved for a new mortgage loan. Mid April, Fannie Mae changed it required waiting period to reflect the current market conditions. In the past, borrowers had to wait four years after a deed-in-lieu of foreclosure to get approved for a mortgage with Fannie Mae. That time period has just been reduced to just two years. The maximum loan-to-value is limited to 80% and after four years the maximum loan-to-value raises to 90%. Pre-foreclosure sales and short sales will also have a two year waiting period with the same loan-to-value requirements.

In all cases, borrowers must re-establish their credit, which means they must meet minimum credit scores and eligibility requirements.

Testing for #Chinese Drywall

The first option is a self test. To self test your home for Chinese drywall, first check your copper wiring by removing the covers to your light switches and outlets. Look for your copper ground wire. It should be shiny and copper colored. If it is dark or black, there is a high chance that you have Chinese drywall. NOTE: Exercise extreme when entering these wire boxes. Those wires are live and carry enough electricity to kill. Do not touch the wiring, simply observe it.


Measure up about 49" above the floor, that should be the horizontal joint between the sheets, cut out a piece about 6" above and 6" below that height, for about 4 feet, that should give enough edge to find the name.

Repairing drywall is cheap and easy, and if the piece comes out in one piece as it should, that same piece can be put back in and patched around. Of course, if it is Chinese drywall, put it back in temporarily, but why patch it? All of the drywall may end up getting ripped out anyway.

Continuing with a home test, check the copper pipes leading to and from your water heater. Again, dark colored copper is an indication of Chinese drywall. The advantages of a self test is that they are cheap, pretty straight forward, and you know your own house. The disadvantages are the danger of checking live wiring, and the fact that this only examines the sheets of drywall where the outlets and switch boxes are. This still misses most of the drywall in your house, so you could still have Chinese drywall in your house and not see it with this method.

The second method of testing is to hire a home inspector. There are a plethora of home inspectors that offer Chinese drywall inspection, usually ranging from $150-$200. These inspectors generally perform all the steps you would do in a self inspection, but save you the trouble of doing it. They also take photographic evidence of what they find and supply you with a printed summary a few days after the inspection.

The advantages of a home inspector are that they save you the hassle of inspecting yourself, and keep you away from any dangerous live wiring. They also give you written and photographic documentation of what they find, which allows you to present that material when it comes time to sell your house. The disadvantages are that these inspectors can still miss large portions of your house, since they don't check every sheet of drywall. This means that even if their report comes back clean, you could still have Chinese drywall in your home. Also, there is no federal mandated method of inspecting for Chinese drywall, so these home inspectors all follow their own unique guidelines.

The third option is to send a sample away to a professional lab such as Pro-Lab or Caslab for chemical analysis. These usually cost anywhere from $150 to $500 per sample, and as such are the most expensive option. Also, since the price is per sample, to test every sheet in your home would cost hundreds of thousands of dollars.

The last option is through a do it yourself DIY Chinese drywall test kit. These test kits allow you to chemically test every sheet of drywall in your home for Chinese drywall. There used to be two competing companies that offered DIY chinese drywall test kits, www.InspectorsInc.com and www.ChineseDrywallTesterKit.com, but the first one appears to have since gone out of business. Now only the latter, www.ChineseDrywallTesterKit.com still exists. The advantage of these kits is that you can test your whole house for less than the cost of a home inspection or a lab sample. The downside is that you don't get photographic summary from a home inspector. But you could always take your own photos of the results of the test and have that as proof.

FHA Commissioner: Raising the Down Payment Requirement Would Hurt Housing Recovery

Increasing the minimum down payment required for a Federal Housing Administration (FHA) loan from 3.5 percent to 5 percent could be a double whammy, affecting both potential homebuyers and the economy as a whole according to David H. Stevens, FHA Commissioner. At the same time, a lower loan to value ratio (LTV) by itself is not a particularly good indicator of buyer risk. In a statement prepared for a hearing Thursday afternoon by the House Financial Services Subcommittee on Housing and Community Opportunity, the Commissioner said if the agency raised the minimum down payment to 5 percent "as some have suggested," it would adversely impact the housing market recovery.

 

The agency has conducted an evaluation of the loan files of a large sample of recent loans to identify homeowners who would have been able to come up with the necessary cash for a higher down payment and found that such a policy change would reduce the number of loans guaranteed by FHA by 40 percent or 300,000 buyers while only contributing $500 million in additional receipts to the FHA budget. Such a reduction of mostly first-time buyers, he said, would have a significant impact on the housing market "potentially forestalling the recovery of the housing market and potentially leading to a double-dip in housing prices by significantly curtailing demand."

Furthermore, Stevens said, the down payment alone is not the only factor that influences loan performance. He suggested that other changes proposed earlier by FHA are better predictors of risk. The combination of a higher down payment and a higher FICO score, for example, is a much better predictor of loan performance than either component alone. FHA recently announced that it was increasing the FICO score necessary for the 3.5 percent down payment to 580. In reality, most lenders have informally used much higher scores for some time.

 

Instead of increasing the down payment, FHA has decided to reduce the upfront mortgage insurance premium which is, in most cases, financed into the loan balance. The upfront premium was recently increased from 1.75 to 2.25 percent of the loan and FHA is awaiting Congressional approval to raise the annual premium which is now at its legislative ceiling. When that approval is received a portion of the upfront premium will be transferred to monthly payments thus reducing the loan amount and increasing the LTV.

 

Stevens stressed that, in spite of the fact that its secondary reserves had fallen below the required two percent level, FHA is not "the next subprime." Subprime delinquencies are 240 percent higher than FHA's because FHA stuck to the basics during the housing boom and had not dabbled in exotic mortgages and had insisted on verifying borrower income and employment. Stevens will restate changes that the agency is making to shore up the fund including the aforementioned increase in premiums, strengthening risks controls, and stepping up enforcement, and also by increasing staff and technology capacity and efficiency.

 

In his statement, the Commissioner says that, according to the Federal Home Financing Agency index, home prices have been rising steadily since last April. This was in spite of projections from many economists that prices would decline an additional 5 percent during 2009. Stevens said this contradiction is even more surprising since most of the forecasters had underestimated the rise in unemployment during the same period. Home equity has also stated to rise again, increasing by more than $900 billion by the end of September, an average of $12,000 per home.

 

Stevens cited the following accomplishments of his agency over the last year:

• FHA insured almost 30 percent of purchases and 20 percent of refinances.
• More than three-quarters of FHA's purchase-loans went to first time homebuyers and nearly half of all first-time buyers in the second quarter of 2009 used FHA to finance their homes.
• FHA financed 52 percent of African American homebuyers and 45 percent of Hispanic buyers, making it by far the largest source of loans for minority buyers.
• It has helped over 800,000 homeowners refinance into fixed-rate mortgages.
• The Home Equity Conversion Mortgage (HECM) program, a reverse mortgage for seniors, had a loan volume of $30.2 billion in FY 2009.
• The agency has taken fraud enforcement actions against more than six times as many lenders since FY2009 than the agency had brought during the entire period of FY2000-2008.

Stevens said that the FHA budget for FY 2011 represents a careful, calibrated balancing of the agency's responsibilities of providing homeownership opportunities, supporting the housing market, and ensuring the health of the FHA Mutual Mortgage Insurance (MMI) Fund. The agency is requesting $420 billion for new FHA loan commitments for the MMI and General and Special Risk Insurance funds, $88 million for Housing Counseling Assistance, and $20 million for its Mortgage Fraud initiative and implementation of the reforms to RESPA and the Secure and Fair Enforcement (SAFE) for Mortgage Licensing Act

BANK OWNED FORECLOSURE OF THE DAY

Wellington, FL
Lakefront Single Family Home

Expansive lake views from many rooms in this two story home, built 2006. Gorgeous 4 bedroom, 3.5 bath with 2 car garage. 3288 sq ft under air, elegant foyer, formal living room, diagonal tile throughout living areas, wet bar, wine storage, granite countertops. Needs appliances. ID: W3810.

Last sold 2006 for $717,885. Bank asking only $395,010!

***Bank owned properties are extremely competitive in this area and most often have multiple offers the same day they hit the market, sometimes within hours. If you are interested in this property, you need to act immediately. Please call us for details. 561-427-0470.

BANK OWNED PROPERTY OF THE DAY

Palm Beach Gardens, FL
Single Family Home

Beautiful 4 bedroom, 3.5 bath two story home, built 2005, 2755 sq feet under air and 2 car attached garage. Guest suite off garage with private entrance. Private back yard. ID: FB3813.

Last sold 2007 for $650,000.
Bank asking only $329,900.

***Bank owned properties are extremely competitive in this area and most often have multiple offers the same day they hit the market, sometimes within hours. If you are interested in this property, you need to act immediately. Please call us for details. 561-427-0470.

BANK OWNED FORECLOSURE OF THE DAY

Jupiter, FL

Beautiful 3 bedroom, 2.5 bath townhouse with attached 2 car garage in highly desirable central Jupiter community. Built 2006. Pets allowed. Granite kitchen, tile flooring. Seller giving 2 year warranty to owner occupants. ID: FB3812

Last sold 2006 for $337,095, Bank asking only $159,900.

***Bank owned properties are extremely competitive in this area and most often have multiple offers the same day they hit the market, sometimes within hours. If you are interested in this property, you need to act immediately. Please call us for details. 561-427-0470.

Are Principal Reductions the Answer?

NEW YORK – Feb. 15, 2010 – Real estate investors are coming to the same conclusion that housing activists reached at the beginning of the crisis – forgiving principal on underwater loans may be the best way to deal with the problem.

“Principal reduction is the only answer,” says Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group L.P.

Some activists and investors are asking banks to consider principal reductions so that the amount borrowers owe on underwater loans can be sharply reduced. They say this offers the best incentive for borrowers to continue to make their monthly mortgage payments.

Even though principal reductions are complicated transactions for lenders, even the largest of them are beginning to accept the idea.

“Everybody’s realizing there is a place for principal reductions to a much greater extent than before,” says Jack Schakett, a senior Bank of America Corp. executive involved in loan workouts.

Micah Green, a partner at law firm Patton Boggs LLP, who represents some of the largest investors in mortgages, shrugs the idea that write-downs are unfair to those who continue to make their payments. “Everybody’s going to have to give a little for it to work,” he says.

Source: The Wall Street Journal, James R. Hagerty (02/09/2010)

Justices adopt Fla. foreclosure mediation rules

TALLAHASSEE, Fla. – Feb. 15, 2010 – Lenders will be required to pick up the tab for investigating and verifying ownership and then try mediation before foreclosing Florida home mortgages under new rules approved Thursday by the Florida Supreme Court.

The rules are designed to help Florida’s judicial system better cope with a flood of foreclosures. They follow a December administrative order by Chief Justice Peggy A. Quince telling local judges to adopt a uniform mediation program.

Florida has the nation’s fourth-highest foreclosure rate. Almost 400,000 cases were filed in Florida’s courts last year.

The rules and corresponding legal forms were proposed by a pair of Florida Bar panels.

“They found that many cases were being filed by plaintiffs that didn’t’ own the mortgages any more,” said Miami lawyer Mark Romance, who chairs the Civil Procedures Rules Committee.

Romance said other cases were being filed against people who no longer owned the homes.

“I don’t think there was any ill will or intent to harm someone,” Romance said.

The investigate-and-verify rule should help prevent those kinds of errors and give judges greater authority to sanction lenders who do make false allegations, the justices wrote.

“It’s just going to be another hoop to jump through,” said Anthony DiMarco, executive vice president for public affairs for the Florida Bankers Association, which opposed that provision. “It’s making us find a document we’re already supposed to find.”

The decision was unanimous except for a rule that will require prior approval of a judge before a foreclosure sale can be canceled. Justices Charles Canady and Ricky Polston dissented.

Last-minute cancelations have needlessly delayed other sales, again clogging the system, Romance said.

The Bankers Association did not object to that provision, but DiMarco said borrowers and lenders often cannot reach a settlement until just before the sale date.

“It’s the last chance and people get more serious at the last chance,” he said.

BANK OWNED FORECLOSURE OF THE DAY

Wellington, FL

Single Family Home

Huge home for this price! Built 2005, 6 bedrooms, 2 baths, 4353 square feet under air. Needs appliances and minor cosmetic work. Homeowner's association fees only $250 per month. Community offers pool, clubhouse, sauna, tennis, basketball, game room and more. ID: FB3810.

Last sold 2006 for $625,000 - Bank asking only $299,000.

***Bank owned properties are extremely competitive in this area and most often have multiple offers the same day they hit the market, sometimes within hours. If you are interested in this property, you need to act immediately. Please call us for details. 561-427-0470.

 

Andrea DiRico & Peggy Berkoff

Foreclosure & Short Sale Experts - The "Foreclosure Gurus"
North County Properties
19510 US Highway 1
Tequesta, FL 33469
561-427-0470 office
561-427-0522 fax
http://www.ncpflorida.com/

Peggy 561-301-2243 cell
PBerkoff@NCPflorida.com

Andrea 561-543-8715 cell
ADiRico@NCPflorida.com