Jay Beckingham

I just got done reading a post about HUD regs regarding "flipping" and I couldn't help thinking about how this is hurting first time homebuyers in Southwest Florida.

The general purpose of this reg is to prevent unscrupulous investors from buying a property today and selling it for a substantial profit this afternoon, tomorrow, or next week without any improvements on the property being done. I thought that was capitalism, which is not in vogue right now, but we'll save that rant for another time. Before someone else brings it up I do realize that there was a fair amount of abuse here, but I would like to point out no one else followed FHA with this regulation including two other well know governmental agencies known as the VA and USDA/RD.

I wonder why not?

In Southwest Florida we are finding investors and investment companies that are purchasing foreclosed properties and doing partial or total renovations. In many/most cases the properties are fairly priced and agressively marketed.

The HUD reg locks out the first time homebuyer attempting to aquire FHA financing as the properties don't stay on the market for 90 days!

They appraise okay, and they can acquire conventional, VA, and RD financing (where available).

BUT, NO FHA!!!

How about cuttin us some slack here.

I suggest putting the flipping reg into the hands of the regional FHA offices for evaluation.

There's got to be a better way!

How about if our local politicians get off of their duffs and earn their money for a change. Get to work on this.

All I can say is;

Hey (HUD) help us out here!

Will Ya?

PLEASE!

Way back in February of 2008 I wrote an article entitled "I'm Walkin, Not Payin." Back then that was a fairly new phenomenon. However as time has passed, it has managed to stick around, and now has a real chic label, Strategic Default.

It's basically the same concept as I'm Walkin and Not Payin because my house is worth a lot less $$$$$ than I paid for it, and my mortgage balance far exceeds the value.

I was directed to an article by Kenneth Harney, of the St. Petersburg Times, by Jeff Belonger (thanks Jeff), asking "Who is the most likely to walk away from a mortgage?" He gave a hint in the second paragraph. "It's not who you think."

Here's the result of the research he cited;

In a sample of 24 million individual credit files, homeowners with high credit scores when they applied for a loan are 50 per cent more likely to "strategically default"- abruptly and intentionally pull the plug and abandon the mortgage- compared with lower-scoring mortgage borrowers.

In contrast with most types of delinquencies they often go from perfect payment histories to no mortgage payments at all.

Very Interesting!

Okay is it just a business decision which only effects the existing borrower? Well I think we can rule that out. Defaults of any and all types are raising havoc in the marketplace and the "strategic defaulters" apparently have the ability to pay but choose not to.

Are they just being selfish? Do they not care about the outcome/impact on their own family, friends, neighbors, and you, and I. You need to draw your own conclusions.

There will be consequences for them; bad credit and deficiency balances possibly (they may owe the lender money after the foreclosure). There may be a need to file bankrupcy at a later date. The credit card companies will probably either cancel their cards, or substantially raise their rates. Access to new credit will be extremely costly or not available.

Do you think that they really take all of this into consideration or are they just locked in on their home?

Frankly, I don't know!

Well there may be a nice shiny new term for it, Strategic Default, but any way you cut this pie it still means;

"I'm Walkin, Not Payin!"

Isn't reading a wonderful thing, and I must give credit where credit is due.

That quote comes from a book entitled, "Thank God It's Monday," by Roxanne Emmerich. And while I'm less than 25% through the book already, I'd suggest it, as good stuff.

So what was meant. Essentially this comment was about don't tell me about the work and the difficulties, show me the results.

What she was saying is;

Results Rock!

here's the gist;

Identify unreasonable goals and why they are unreasonable.

Recognize the obstacles and how to overcome them.

Develop a strategy.

Now to borrow another quote, from Nike;

Just Do It!

The obvious is that you will never reach unreasonable goals until you are willing to challenge them, develop a plan to reach the goal, and stick to it regardless of any/all obstacles which present themselves.

So when you've accomplished your unreasonable goal(s);

Don't tell me about the labor pains-show me the baby!

Very often today when I hear someone complaining about the new restrictive underwriting guidelines, I stop and correct them stating "traditional" not restrictive. That is that the guidelines are closer to what they were when people actually paid us back.

First of all I'd like someone to step up and say "I did," and explain what they did.

The question would be who developed the computer approval models and how much mortgage experience did they have?

Personally I liked it better when the decsion was made by well trained, qualified human beings.

On another issue, which many may not be aware of or have forgotten.

When I first saw secondary market adjustable rate mortgages the ratios were 25/33. That's 25% for P&I and 33% for P&I plus debt. That meant 33%, not 33.5%.

You didn't get exceptions!

Government loans were a little more liberal, but if the ratios on an FHA were 29/41 then you weren't going to routinely get approvals with a back end ratio of 48/49%.

Think about that!

That's 48% of the GROSS, not the net. If the buyers gross $4000 monthly and pay 18% taxes, they net $3280. If you use the net they probably don't qualify for the mortgage.

Maybe we should follow the example of the VA and use residual income.

How many of you out there don't know what residual income is. Well the simpliest explaination is that to a certain degree it looks like a mini budget taking into consideration most of you monthly expenses and determining what's left over to live on. It's not perfect, but it's closer to reality.

We didn't have stated income.

How many problems do you think stated income caused. There is neither enough time nor enough room to cover this effectively.

We did have Portfolio loans.

That's where good, established bank customers, who didn't fit secondary market loan criteria could come in and get their needs taken care of. Yes, the rate was a little higher, but they were pretty much guaranteed a loan. It was better than stated income because to a certain degree we just didn't ask any questions about income. We already knew who are best customers were and that we were going to give them a loan. That relationship was worth it's weight in Gold!

Okay so what I'm indicating is quite simple.

It's that some of the solutions to our current problems may be hidden in

The PAST!

Have you ever heard of the FFIEC?

That would be, drum roll please, The Federal Financial Institutions Examination Council

Now that sounds like a truly bureaucratic organization doesn't it?

They are an interagency body empowered to prescibe uniform principles, standards, and report forms for the federal examination of financial institutions by the Board of Governors of the Federal Reserve System, The FDIC, and others.I got that from their website. Pretty much anybody who's anybody. I've got to admit that I'll now sleep better knowing that they're on the job.

In their September release they made available HMDA data from over 14.2 million applications. That sounds like a pretty strong sample. Here's some of what they had to say.

FHA loans rose 169% in 2008 over 2007 levels-their market share went from 5.5% to 19.6%

VA loans increased 48% during the same time frame-their market share went from 1.5% to 2.9%

The HMDA data also draws some conclusions as to who is getting approved and denied and their ethnic backgrounds. I initially found the data interesting until I saw the following. That when drawing conclusions in regards to approval and denials the HMDA data did not take into consideration such "potential determinants" of credit worthiness and pricing as;

the borrowers credit history

debt to income ratio

loan to value ratio

Now I've been a lender well, forever, and I've always taken this information into consideration. It seems rather important to me. So when you see an article stating that more people of a certain race or background were turned down that others, just remember they're not evaluating why.

So,

What does HMDA information really tell us?

I'm not sure!