Chris Thomas

Electronic signatures on real estate sales contracts are becoming common, but there are a few things that you need to know to make the financing go smoothly when electronic signatures are involved.

• For VA loans, electronic signatures are not allowed. Everything must be signed with a pen.
• For FHA loans, electronic signatures are allowed by HUD (which makes the rules for FHA loans), but not every lender will allow them.
• Fannie Mae and Freddie Mac allow electronic signatures, but again, not every lender will allow them.

Typically, an underwriter will allow everyone to re-sign the contract in pen at the closing, but not always. Sometimes (almost always with VA loans), the underwriter will require the contract to be signed in pen before issuing the final loan approval.

The main thing to keep in mind is that it does not matter what the real estate contract rules are. If the buyer is financing the house they are purchasing, the companies that are providing the money (the lenders) get to make the rules.

GMAC just raised their minimum credit score for FHA loans to 600. They were the last holdout at 580. Most lenders have been at 620 for months.

This means that credit scores are more important than ever, but what can you do if your buyers have scores below 600? Here are the two most important things you can do to raise your credit score, and the three most important things that you should NOT do.

Things to do:

• Pay your bills on time.
  • Every time you pay a bill 30 days late, it lowers your score. The more recent the late payment is, the more that late payment lowers your score.
• Keep balances low on credit cards and other revolving credit accounts.
  • If your balance is more than 70% of the credit limit, it lowers your score the most.
  • If your balance is 50% - 70% of your credit limit, it lowers your score a bit less.
  • If your balance is 30% - 50% of your credit limit, it lowers your score even less.
  • If your balance is below 30% of your credit limit, it will improve your score.

Things NOT to do:

• Do not close old accounts.
  • The longer your accounts are open, the higher your score will be.
• Do not pay off old collection accounts.
  • If you pay off an old collection account, the "date of last activity" will be the current date, and your score will go down.
• NEVER pay anyone to "repair" your credit or to remove old derogatory information from your credit report.
  • This is a rip-off -- 100% of the time! You can fix errors on your report by yourself - for free.

Our new class schedule is now available on our web site. Here's the link:

http://www.mtgsupportservices.com/uploads/Class_Schedule_updated_5-20-09.pdf

If you need Continuing Education Units (CEU's), then sign up for one of our FREE classes. At the moment, we have classes scheduled on the following subjects:

- FHA Loans - if you're staying away from FHA, you're losing money - these deal are easy, easy, easy

- VA Loans - always the best way to go for someone who has served our country

- Automated Underwriting Systems - learn what goes into a pre-approval (or what is SUPPOSED to go into a pre-approval)

We also have classes at Colorado Free University that are open to the general public. Tell your prospects about these and look like an expert:

- How to Choose the Right Mortgage - no hype, just the facts about every kind of loan that's available

- How to Read a Credit Report - what to do and what not to do to raise your credit scores - if you've ever lost a deal because a client's credit score was too low, this class is a must

- How Not to Get Ripped-Off When Buying a House - learn all the ways a lender can rip-off your buyers - send your prospects to this class and they will love you forever

Confused about the new appraisal rules? Here's what you need to know:

Beginning May 1, 2009, all conventional (non-government) loans that are going to be sold to Fannie Mae or Freddie Mac require compliance with the Home Valuation Code of Conduct (HVCC). The HVCC prohibits mortgage brokers and bankers from having any direct contact with an appraiser. All conventional appraisals must now be ordered through an Appraisal Management Company (AMC). The lender no longer gets to choose the appraiser.

Lenders are forbidden from having any contact with the appraiser, even if the underwriter needs something changed, such as another comp, correcting a typo, etc. Here is the new process:

-- The lender orders the appraisal from an Appraisal Management Company (AMC).

-- The AMC orders the appraisal from one of the appraisers on its list of approved appraisers.

-- AMC waits to hear back from the appraiser to see if they want to do the appraisal. This could be hours or days, depending on the contract the AMC has with its appraisers.

-- If the appraiser is busy or not able to do it, he notifies the AMC.

-- The AMC orders the appraisal from another appraiser on their list.

-- This is repeated until one of the appraisers accepts the job.

-- The appraiser does the inspection and prepares the appraisal report.

-- Appraiser sends the report to the AMC.

-- The AMC sends the report to the lender.

-- The lender sends the appraisal to the underwriter.

-- If the underwriter has any questions, he contacts the lender and tells the lender what needs to be corrected.

-- The lender calls the AMC and tells them what needs to be corrected.

-- The AMC calls the appraiser and tells him what needs to be corrected.

-- The appraiser makes the correction and sends the updated appraisal to the AMC.

-- The AMC sends the updated appraisal to the lender.

-- The lender sends the updated appraisal to the underwriter.

This all needs to be done online, also. No more picking up the phone and getting things done in 5 minutes. Remember that lenders cannot contact appraisers any longer.

The purpose of the law is to prevent lenders from ordering appraisals from appraisers who will give a property whatever value is needed to make the deal work. We all know inflated values cause foreclosures eventually (like now), so in one respect this is a good law. However, it will slow things down and in most cases will raise the cost of an appraisal because the AMC wants to get paid for their work. In that respect, this is a horribly executed law. VA already has an online system in place to prevent appraisal fraud, but I guess no one thought about using the system that was already in place.

The bottom line is that this is going to slow down your deals. It's probably not going to go away, no matter how much anyone complains because it does help to prevent appraisal fraud, so everyone needs to get used to the new rules.

The main thing to remember at the moment is that conventional appraisals MUST be ordered this way or the deal will not close.

There are new rules regarding insurance coverage for attached condominium projects. For all loan applications dated on or after March 1, 2009, lenders are now required to verify that hazard insurance covers fixtures, equipment, and other personal property inside individual units.

If the master insurance policy provides this type of coverage, then the borrower does not need to purchase additional insurance. The master insurance policy is the one that is included in the HOA dues. Most master insurance policies for condos DO NOT include this type of coverage, so the borrower needs to purchase additional insurance before the loan can close.

This type of insurance is known as "walls-in" coverage, commonly referred to as an HO-6 policy. The HO-6 policy must provide coverage for no less than 20% of the condominium unit's appraised value.

What this means for real estate agents and mortgage brokers is that there is now an additional cost to the buyer if the master policy does not provide the "walls-in" coverage.

The cost of the coverage is NOT escrowed, like hazard insurance for a single family residence normally is. However, a full year's payment must be made at closing.

Make sure you tell your buyers that they need this new coverage if the master policy doesn't provide it.