Paul Warkow

In an important move, borrowers will know if their credit score impacted their mortgage rate.

The FTC and Federal Reserve want consumers to be informed if they’re receiving higher interest rates as a result of their credit history. Beginning in 2011 (no, not 2010), consumers will be notified if they receive less favorable terms on their mortgages because of credit imperfections, according to a notice from the Federal Reserve and FTC.

Consumers with less-than-stellar credit will receive “risk-based pricing” notices when applying for mortgages and other types of loans, assuming their credit scores adversely affect the terms and/or interest rate they ultimately receive.

If you’re subject to risked-based pricing, the borrower will also have access to a free credit report so you can determine what negative information pushed your rate up. And more importantly, if it’s accurate.

It seems like a good way to empower consumers who often don’t know why they’re receiving interest rates significantly higher than those advertised on TV or the Internet.

Having a better understanding of how your mortgage broker or loan officer came up with your interest rate is definitely a positive for mortgage shoppers, and should make the process all the more transparent.

On November 6th, HUD released two new condo guidelines. The first set (2009-46A) is their temporary guidelines take affect on December 7th, 2009 and expire December 31st, 2010 include extending the spot check process through February 1st, 2010 as well as a lenient project approval process. The second set of guidelines 2009-46B) are stricter guidelines that will replace the lenient guidelines that will be in place for 2010.

Before I dive into the details, I want to first press some urgency here. First, if you’ve given up on a spot check transaction, the last extension allows you to do start a spot check transaction as late as February 1st, 2010. You only need to have a FHA case number issued which is typically done at the beginning of the transaction. This means you can close after February 1st, 2010 as long as your lender has begun the process and has at least ordered the FHA case number. As a quick reminder, spot check FHA transactions are FHA loans issued on condos that do not have a FHA warranty.

Second, it’s very, very, very important that all condo communities who do not have a FHA warranty do everything they can to obtain a warranty during 2010 while the guidelines are more lenient. Did I say it’s important? Let me say it one more time…IT’S IMPORTANT! I can’t stress this enough, get your warranty! Many condo projects are a form of affordable housing which is commonly sold to first time home buyers. FHA represents approximately 50% of the financing for first time home buyers and more move-up buyers are using FHA . If the project does not have a warranty, you are eliminating nearly 50% of all the first time home buyers from buying your condo and any other home buyer who was planning on using FHA financing to buy. There is a reason HUD extended the spot check deadline 3 times and made a temporary, lenient set of guidelines.

Okay, let’s take a look at the key changes to the temporary guidelines. For anybody who has attempted to get their condo project approved and was denied, look at the reasons why and see if the new guidelines fit your community.

TEMPORARY GUIDELINE CHANGES

• Owner occupied units is being decreased from 50% to 30%. This means only 30% of the units need to be occupied by the homeowner and the rest can be rented. This is easily the biggest change.
• FHA concentration is increased from 30% to 50% with a provision that can be as high as 100% . FHA concentration is the percentage of homes in the complex that can have FHA financing.
• Vacant and tenant occupied units do not count as rentals in the owner occupancy calculation. This is crucial because HUD used to count vacant units as rentals. These units are to be removed from the calculation all together. For example, if a project has 50 units and 2 are vacant, the project would need to 30% of the 48 occupied units to be occupied by the homeowners and not renters. For communities that have many vacant units, this is very helpful.
• One-year waiting period for condo conversions is eliminated.

PERMANENT GUIDELINE CHANGES

• Owner occupied units will increase to 50% from 30%.
• FHA concentration will decrease to 30% from 50%.
• One-year waiting period for condo conversions remains eliminated.
• Homeowners must obtain HO-6 Walls-in insurance

As you can see, it is important to obtain condo project approval before the end of this coming year. Between the spot approval process and the temporary guidelines, now is the time to get a condo project approved.

At this time of year, our thoughts and prayers go out to the men and women of our military and the sacrifices they make. As way of recognizing their sacrifice, the VA loan was established. After almost 70 years, VA mortgages are still providing loans to members of the military. In fact, this year, loan volume was up 80%.

However, more needs to be done when it comes to making our veterans aware of this program. Only a fraction of the nation’s 24 million veterans have used their VA entitlement to buy a home. What’s worse, studies have shown that about 20 percent of veterans don’t even know there’s a program dedicated to helping them purchase or refinance a home.

Right now, millions of veterans and active-duty members can qualify for this program. VA loans come with some significant benefits, including no down payments on homes worth up to $417,000 (and even more in costlier parts of the country) and no private monthly mortgage insurance.

The VA Loan Guaranty Program has guaranteed more than 18 million home mortgages since World War II. These loans are a lifeline for a group of people who can struggle to build a solid financial profile because of frequent moves and deployments overseas.

Please take a moment this week to make sure the service members in your life are at least aware of the VA’s lending and refinance programs. If you are showing a home to potential buyer, ask if they are a veteran. After all, this program was established as a small way to thank those who have given so much.

Under the new RESPA rules, starting January 1, 2010 lenders are going to be required to give borrowers a HUD booklet within 3 days of applying for a mortgage. Here is a link to see a copy of this booklet. To call this a booklet is totally misleading. Now a borrower will be handed this 49 page HUD publication that is supposed to make things easier for the borrower. Keep in mind that it is not required that the real estate agent give it out, just lenders and mortgage brokers.

I do not see how giving a borrower a 49 page epic is going to make things clearer or simpler for the borrower. They might as well call it the “Tree Killing Act of 2009”. All we are doing is pushing more paper in the name of consumer protection. For comparison, HUD used to have a 3 x 8 pamphlet that was 22 pages to explain the home buying process. It now is required that the consumer receive a 49 page epic on 8 x 11 paper.

Here are some of the highlights. It takes 9 pages to explain the new 3 page GFE that was once one page. It also takes 9 pages to explain the new 3 page HUD-1 which was once two pages. Does any one rationally believe that anything that takes nine pages to explain is going make things easier to understand? Just so real estate agents do not feel left out of this tome; there is a short section on the role of broker. It contains this gem, “…state laws usually require that you are treated fairly.” Wow, I would not have known that unless HUD told me that in this epic. The good news is that HUD included a 12 step purchase time line and step number 2 is finding a real estate agent.

I guess I will have to start ordering in bulk from Kinkos to give my clients more reading material which they will not read or if they do read, will just add to the confusion.

Effective January 1, 2010 FHA is changing the requirements for ordering appraisals. It is some what similar to the Fannie HVCC but not quite. Here are the highlights:

• Cannot accept appraisals prepared by an appraiser who is selected, retained or compensated in any manner by a mortgage broker or any member of lender’s staff who is compensated on a commission basis tied to the successful completion of the loan
• Lenders must ensure that if an Appraisal Management Company (AMC) is used, the AMC fees must comply with the following:
  • FHA appraisers are not prohibited from recording the fee the appraiser was paid on the report
  • FHA appraisers are compensated at a rate that is customary and reasonable for the area
  • The fee for the completion of the appraisal may not include a management fee or any other activity other than the performance of the appraisal.
  • Any management fee charged must be for actual services rendered to ordering, processing or reviewing appraisals
  • AMC fees must not exceed what is customary and reasonable for the market area

• There are also new rules with assigning appraisals when the borrower switches lenders
  • When there is a new lender, the first lender must at the borrower’s request transfer the case number to the new lender
  • FHA does not require that the lender name be changed on the appraisal when it is transferred
  • The lender is not permitted to request that the appraiser change the name of the lender on the appraisal unless it is a new assignment
  • It is specifically not permitted for a lender to order a new appraisal just to get a higher value or get around repairs. (Do not be fooled by a new loan officer who claims that a new appraisal can be done).

The new rules are not quite as bad as HVCC. There are limitations put on AMC that might discourage them from getting into the FHA appraisal business. These rules seek to make it easier to transfer appraisals.