It doesn’t snow often in Eastern North Carolina. Today is one of those exceptional days. . I can’t remember exactly when it last snowed, but it seems at couple of winters ago.
When it snows here, it becomes almost like a holiday. We are not really adept in navigating around. So we tend to just stay home.
It hasn’t always been this way for me. I lived in Oklahoma for 12 years and saw plenty of snow. I can even remember one year there, I did not see the pavement on my street for six weeks. You could not afford to shut down or you would probably die.
This morning I got up around 5:00 AM and the snow was just staring to come down. The worst was I 
awoke about a 100 miles from my office. I just decided to stay put. I think I’ll fight my way back tomorrow.
I did get to watch the inauguration, something I may not have done if I had gone to the office. I watched history develop. May God’s blessings be upon our new President.
All in all, it has been a nice unexpected pleasure. I think we need to take advantage of unexpected pleasures when they “fall”.
Jay Williams
Since December 2008 the Federal Reserve and the Treasury Department have been purchasing Mortgage Backed Securities on the secondary market. This has served to push mortgage interest rates down to historically low levels.
Why have they been doing this? What I’m about to say is strictly my 
musing. This is based on sheer speculation. I have no proof. Just my opinion, if you will.
To put this in context we need to look back to the September-October 2008 timeframe. You remember, about the time we suffered a near financial collapse.
There is an accounting principle called “mark to market”. This was enacted with Sarbanes-Oxley, legislation enacted after the fall of Enron and others a few years back. The Europeans advised us not to do it, but it is now the law.
Mark to market requires publicly held companies to value their financial assets based on the current market value.
As we entered the close of the third quarter there was almost no market for mortgage backed securities. No one wanted them, at almost any price.
Mortgage loans are packaged and sold as mortgage backed securities. These are bundles or pools of mortgages. These pools may contain loans from different geographic areas, different types of loans, loans with various credit underwritings, loan to value, documentation requirements, etc.
The issue became serious as the “market” for these assets dried up. No one wanted to purchase these assets. What was the value of these assets? Where were these loans generated? How were they documented? What was the credit standing of the borrowers? What was the original loan to value? What is the current loan to value, in a declining real estate market?
Too many questions and not enough answers, these securities had little to no value, there was too much unknown. Since the value was limited, the financial corporations had to write those assets down to “market value”. This greatly impaired the capital positions of these companies. Viola, the financial collapse of 2008.
However, there is value there! As an example, supposing there is a $1 billion mortgage pool which the market is only willing to pay $100 million for the asset. Are the underlying mortgages really only worth $100 million? Probably not, the problem was no one knew for sure.
This brings me our current point in time and what the government is up to. I think that the government has been purchasing these assets, forcing interest down, because they want everyone that can refinance to refinance their mortgage.
Why you ask? First, for each individual loan that refinances the pay off to that mortgage backed pool is not 10 to 20 cents on the dollar, but 100 cents on the dollar.
I’m not representing that these figures are accurate, but am using this to serve as an illustration.
If it is your mortgage in the pool, and let’s say your owe $100,000, and you refinance the payoff is 
$100,000. If the government had only paid $20,000 for your mortgage, guess what, they just made $80,000.
Your new, refinance mortgage goes to a new pool of mortgage backed securities where the valuation is more certain.
Second, if the Fed/Treasury is successful in flushing out all of those that are eligible to refinance, the individual loans that are left will represent the loans that may be a problem. Are the remaining loans in default? Are the borrowers unable to refinance due to debt-to-income or credit? Is the borrower upside down, owing more than what the property is currently worth?
Once the Fed/Treasury flushed out the pools of mortgages they can more accurately identify the problem areas. Then strategies can be developed to address those problems.
Mortgage rates are artificially low due to this action. Once whatever the Fed/Treasury has accomplished what they want to do the game will be over. Interest rates will go back up.
If you can refinance, refinance now. If you are considering purchasing a home do it now. The opportunity is here before us and it may not last long. Take action now!
I welcome your thoughts and opinions as to the current Federal Reserve and Treasury Department action. What do you think has been going on? What do you see happening ahead?
Jay Williams
This week we want to outline the types of repair/rehabilitation 
improvements that are eligible under the FHA 203(k) program.
Last week we discussed the types of improvements that are required under the program. For information concerning this, click here, for a review.
Let’s begin! First let me draw your attention to a distinction between the Streamline 203(k) and the Traditional 203(k) programs. The Streamline program is limited to repair/rehabilitation cost not exceeding $35,000. There are other restrictions which we will try and address in this post on eligible improvements.
Eligible Improvements Under Both Traditional And Streamline 203(k) Programs:
Additional Eligible Improvements Under The Traditional 203(k) Program Only
As you can see, there is quite a list of eligible improvements. Get with you contractor to develop your estimates for the work to be done.
Tip for real estate agents and contractors: review listed properties needing repair/rehabilitation; develop the estimates for work to be done; partner with a knowledgeable and trusted lender familiar with the FHA 203(k) rorgram; have a turnkey project list to share with prospective buyers
I am interested in hearing from you as to your experiences with the FHA 203(k) program
Up Next
Ineligible improvements
Related Posts for 203(k) Program
FHA 203(k) A Loan Program Poised For Revival
You Want To Buy A Fixer-Upper---OK---FHA 203(k)
FHA 203(k)---OK—What Improvements Are Required
Jay Williams
Most of you are aware that we are in the midst of a refinance boom. The basic mortgage interest rate has been below 5% for about a month now. Interest rates will vary for each client depending on a variety of factors.
This week, the week of January 12-19, 2009, I characterize as the week of the fence sitter. I know this must be true, not only in Eastern North Carolina, but elsewhere. I’ve read a couple of posts this week along the same subject line.
Jason Sardi, from Allentown, PA was one that I read and another was written by Jeff Belonger of Cherry Hill, NJ. This makes me believe this phenomenon stretches across many markets.
What’s up with the fence sitter? This is someone that just can’t make the decision to pull the trigger and initiate their refinance. They think rates may be going lower. Someone told them so, or rates ticked up for the last day or two and surely they will go back down. They need to talk to upteen lenders to find the, to the penny, best deal. If you are evaluating a refinance, you are working with someone you trust, and the refinance is of benefit to you---MAKE THE DECISION! Note: If the refinance is not of benefit to you and you are working with a trusted advisor they will advise you not to go forward.
What are the consequences of sitting on the fence?
You can get off the fence! Make the decision and don’t look back. It is impossible to purposefully pick the moment in time that has the lowest ever rate. Rates have been very volatile, changing often four and five times a day. Make the decision---get off the fence!!
You can fall off the fence! For this particular week Wednesday, around midday, was the lowest rate point for the week. Nothing but upward movement for the remainder of the week. Will rates go back to where they were Wednesday morning? I honestly don’t know, maybe or maybe not. I was working with two separate clients Wednesday morning, neither made a commitment.
Both were sitting on the fence and they fell off. If we don’t see rates go back to where we were discussing they missed their chance. If they do go back down to that point, well that will be great, but we just delayed completing their refinance and the benefits accruing to them.
The fence can break! In my opinion, this recent downward move in interest rates, down to 40 year lows, 
has been driven by the Federal Reserve and Treasury Department buying mortgage backed securities. This has artificially driven rates down. When the government quits playing the game rates will go back up. They will probably go back to what has been the natural equilibrium of the past six to seven years, if not higher. Game over the fence will be broken. Note: look for an upcoming post on my opinion as why the Fed and Treasury have been doing this.
Are you sitting on the fence? It is time to get off! You don’t want to fall. Once the fence breaks the game is over.
Please share your comments and opinions of our current environment. Dissenting opinions are welcome.
Jay Williams
As I sit down to write about this section of the 1003 (huh?) it strikes 
me that several post can be written about income analysis. The primary purpose of this post is to discuss, in general terms, how lenders review income for mortgage applications.
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W-2 Income |
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Source of Income |
How Reviewed |
Exception/Warnings |
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Hourly |
Averaged for the last two years. This average is compared to the latest 30 day pay period |
If the current number of hours worked has increased as compared to the two average, this is generally a good thing. Although underwriting may confirm that the increase in hours will be likely to continue. On the other hand if the current number of hours shows a decline this is generally a negative. Underwriting may validate your income based on the lesser hours. Increases in hourly pay are considered. |
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Salary |
Straightforward, what is your current gross income |
If salaried income has been declining then the continuation of employment may be in question. |
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Overtime |
Averaged over the previous two years |
The same as applies to hourly pay as noted above. The regular occurrence of overtime is important. As an example if you have only been receiving overtime for the last six months the continuation of overtime will need to be justified. The opposite is true if recently overtime has been declining or is no longer existing then it may be that no history of overtime may be counted. Be prepared to justify fluctuations in overtime pay. Changes in employment will be scrutinized. |
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Bonus |
Averaged over the past two years |
Similar to concerns expressed for hourly and overtime. Changes in employment will be scrutinized. |
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Commission |
Averaged over the past two years. Two years of self employment in the same line of business in the same location is the standard requirement. |
In addition to items expressed above, tax returns will be analyzed for “Form 2106” deductions filed. Unreimbursed employee expenses will be averaged for a two year period and subtracted from gross commission income. |
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Self Employed Income
Two years of self employment in the same line of business in the same location is the standard requirement. Two years tax returns with supporting schedules will be analyzed. Look for additional post regarding analyzing tax returns for the self employed borrower.
1099 Income
Treated the same as the verification of income for the self employed. One example of this type of income will be many real estate agents. Beware if you have moved to another location you may not qualify without a history of earned income.
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Other Sources Of Income |
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Type of Income |
How Reviewed |
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Interest |
Must have been received consistently for three years and assets will be reviewed to determine the likelihood of continuance. |
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Dividends |
Must have been received consistently for three years and assets will be reviewed to determine the likelihood of continuance. |
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Capital Gains |
Must have been received consistently for three years and assets will be reviewed to determine the likelihood of continuance. |
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Alimony, Child Support, Separate Maintenance Agreements |
Documentation will need to be provided proofing the commitment of the receipt of this income. Proof that payment has been received for at least one year. Documentation will need to be provided that this obligation will continue for at least three years. |
Net Rental Income
Gross rental income is reduced by 75% to account for potential vacancies. Any mortgage principle, interest insurance and taxes is then subtracted from the vacancy discounted income.
As indicated in the opening paragraph this is a general overview of income considered for mortgage loan applications. Look for additional posts regarding analyzing income for a home loan application.
Combined Housing Expense
Your present housing expense will be compared with the proposed housing expense resulting from the new home loan. Housing shock, which is the percentage increase from the present to proposed housing expense, will be reviewed. This may be a critical analysis if debt to income ratios is high and/or if reserves are low.
Feel free to comment on experiences or difficulties you’ve had with the income analysis of your client’s home loan applications.
Stay tuned
Your Home Loan Application----Series 5---- Assets and Liabilities
Related Posts
Your Home Loan Application----Series 1----Property Information and Purpose of Loan
Your Home Loan Application----Series 2----Borrower Information
Your Home Loan Application----Series 3----Employment Information
Jay Williams
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Integrity is the cornerstone of my business. I believe a mortgage should be about building relationships, and helping my costumers achieve their home financing goals, not just a transaction.
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