Danell Merren

It's that time of year again. My 1st grader is selling Girl Scout Cookies! Choices include:

• Caramel deLites
• Peanut Butter Patties
• Shortbread
• Thin Mints
• Peanut Butter Sandwich
• Thanks-A-Lot
• Lemonades
• Reduced Fat Daisy Go Rounds

If you live in the Greater Grand Rapids Area and would like to order, please email me your order at dmerren@iccf.org.

Or give me a call at 719-4513.

Thanks!

I receive a lot of calls from potential borrowers who would love to buy a home right now, but for one reason or another, we can't get them approved right now. As the media has made clear, the mortgage industry has tightened their lending quite a bit in the past twelve months, but, in my opinion, the guidelines are by no means ridiculous. A person with a decent credit score can still get approved with low down.

I had the fortunate experience of speaking with a young man late last summer; we'll call him Jay. Jay became the Poster Child of what to do right to get approved in just a few short months. With his permission, I would like to compare his old scenario to his new scenario:

August, 2008

• 600 credit score
• No down payment saved
• Debt load too high (over 55% debt to income ratio)
• Living rent free with relatives

Outcome- Denied for a mortgage, there was nothing we could hang our hat on to convince underwriters that this young man would pay his mortgage on time.

February, 2009

• 642 credit score
• $5,000 saved + $3,000 tax return= $8,000 total saved (he's using $3,200 of these monies for down payment)
• Debt load reduced because we are "short-terming" his car loan (we can exclude his car payment from his debt load because he owes on it for 10 months or less)
• Paying rent on time to an apartment complex, so this is a strong rental reference, and he will have a nominal increase in housing costs

Outcome- Approved for a FHA mortgage!

The moral of the story is of course that things can be turned around relatively quickly. If I have customers who I can't approve right now, I am always happy to walk them through the steps they need to take to get mortgage ready. I explain this to applicants verbally over the phone and then follow-up in writing either via email or snail mail. What it takes from the applicant is a willingness to work hard, take advice, and a little patience. Good things come to those that wait!

Thanks, Jay, for being the highlight of my week!

Over the past few days many of us have been waiting with baited breath to get the details of the revisedfirst time homebuyer tax credit. I was finally able to get updated information from a trusted source.

Highlights include:

1. The tax credit is for first time homebuyers only

2. The tax credit canbe combined with Mortgage Revenue Bond Programs (i.e. MSHDA in MI)

3. The tax credit does NOT have to be repaid (if buyer lives in the home for three years)

4. The tax credit is equal to 10% of the home's purchase price up to a maximum of $8,000

5. The credit is available for homes purchased between Jan. 1st, 2009 and Dec. 1st, 2009

6. Income max is $75,000 for single tax payers and $150,000 for married tax payers.

The chart below will help compare the old credit versus to revised credit:

To learn more details visit:

www.federalhousingtaxcredit.com

Recently many of the banks we broker to have encouraged us to use third party appraisal management companies. In all fairness, with the complete meltdown of the market, speculation about fraudulent appraisals in the past, I thought, who can blame the banks for wanting to go to this system? If this makes the process truly blind, then great. Well, I thought that until I recently ran into two situations where we wanted to order using such a company, and we were told, we must submit a purchase agreement! What?! Where's the neutrality in that?! So, my processor pushed the issue with our bank rep. We had two scenarios in which we definitely did not want to give a purchase agreement:

The first was where our non-profit housing developer parent company had built a home. Three years ago it appraised for 97K, around the top of the market. We have seen countless of these homes sell for $80,000 or less now. So, the appraisal management company said, "We can start it for you, but we won't finish without the purchase agreement." We didn't want to give the PA because we wanted a truly blind appraisal for the client.We didn't want them trying to get to $97,000 which was the original price on the PA. There are a couple of reasons- first, we all know the home is no longer worth that and it wouldn't be ethical to get to that number and, second, the client was no dummy and would likely walk which would not solve our issue of getting the home sold! In the end, we used an appraiser we've used a lot, did not tell him any price, and he came in right at $80,000 just like we all assumed! How would a third party have helped in this situation?

The second situation was a FSBO where a dad bought a home as a rental five years ago for his adult daughter. He bought the home for $65,000 five years ago, and he put over $20,000 into the property. The daughter and I discussed that homes in the neighborhood have been selling for $75,000-80,000. At first, her father said as long as the home appraised in that range, he'd be happy. Then I get a call- the dad will take no less than $84,000. What to do? I explained that just because he put $20,000 into it doesn't mean he'll get it all back, especially in our declining market. And I had a sneaking suspicion that my appraiser of choice would say that every improvement she mentioned would be considered deferred maintenance that add little to no value. So, in this same situation, we opted out of hiring the third party company that we feared would make a goal of getting to the magic number of $84,000. We knew it wasn't in her best interests. Once again, the other appraiser came in at $79,000. In the end, the father came to his senses and agreed on the $79,000 price.

Do I think giving a purchase agreement can be fruitful? Sure. If two parties agree on a price, and the market still holds, yes, many people will argue that a home is worth what someone agrees to pay for it. But you also have to have comps. to support it.

If two parties are still dickering over price and you truly want a neutral opinion, one would hope that an appraiser is confident enough in their work to give a price opinion without a PA.

What do you think?

About every other day I say to myself, I think I've seen it all! And then I seriously kind of chuckle to myself at my desk because I realize, no I haven't, and some crazy thing will happen in the next few days or weeks that I haven't seen before...

We all know that these are unprecedented times in the mortgage industry, and sellers desperately want the buyers to close. My latest horror story- a For Sale By Owner (FSBO) real estate investor referred a couple to me. Their lease was up, and we needed to do a 60 day close, intentionally, because that was how long it was going to take the borrower to save the remainder of her down payment money. The FSBO pushed her and pushed her do something different to close earlier, like get a gift from her parents, and she was simply uncomfortable with this option, wanted to do it on her own, and we explained to him that this is her right and that it probably wouldn't help to keep pushing her. We all know that sometimes with FSBOs they may have less boundaries, perhaps because they just don't know the common courtesies that Realtors give each other. This FSBO called her at all times of the day (when she worked third shift), stopped by her apartment to check in with her/on her, and in general wouldn't stop pestering her. So, about two weeks into the transaction I get a call that he is trying to coordinate her moving in prior to close because her lease was going to be up soon, and he wanted to help her avoid moving twice. I explained to him that first, she could go month to month on her lease so stop worrying about it and two, you CANNOT let her move in before close- if she were to move in, this would require six months of renting from you prior to being able to go FHA (which was her financing). So, he started asking, well, "what if I let her move into one of my other properties? I'm just trying to help her not have to extend this lease." Well, she would still be moving twice, so not a good solution, I told him.

About a week ago, against my advice, he let her move in before closing, and then we get a call, and the first night she moved in, she didn't stay overnight, and she got broken into to! WARNING: DO NOT LET A BUYER MOVE IN BEFORE CLOSE! First of all, doing that is breaking the rules! The lending guides don't allow it. Second, anything could go wrong as evidenced above! In her case, she was moving into what HGTV might call a transitional neighborhood, but it is by no means what most would call unsafe. But a combination of circumstances led to a really really awful outcome. In this case, he was willing to put in glass block windows, a security system, and other concessions, but the buyer was spooked regardless. She asked him to give her the weekend to think about it. And then he took the whole fiasco to the next level! He went door to door asking each neighbor to convince her that the neighborhood was safe! In the end, she decided not to close and forfeited her earnest deposit.

WARNING to desperate sellers, let the parties in the transaction drive the bus! We give you guidance for good reason!