Wanda Promes

This month in Mortgage--- As published in the Home Ideas Magazine, November 2009-- by Wanda Promes

Most Mortgage Loan Officers have full time jobs just keeping up with the ever changing guidelines handed down by Fannie Mae, Freddie, HUD and new regulations passed down by Congress.

When you apply for your next mortgage loan you may see these changes affecting the application and closing process.

The most recent changes in mortgage lending include the areas of appraisals, the self employed borrower, the need for tax transcripts. These changes have also affected the disclosing process for Good Faith Estimates and Truth-In-Lending disclosures. Changes in minimum credit scores, Debt-to-Income ratios, and the ability to get Mortgage Insurance on your loan are shifting to a conservative level.

Let's talk about some these individual changes.

The new HVCC (Home Valuation Code of Conduct) rules affect appraisals. Along with the new HVCC guidelines that prohibit loan originators to talk with the appraisers prior to the property inspection, the new guideline also requires the appraisal to be delivered to the borrower at least 3 days prior to close.

The new Regulation Z states that a correct Truth in Lending be given at least 7 days before closing. This means that if any of the terms of your loan change, including loan amount, interest rate, fees, your closing may be delayed, as much as a week. This protects you as the consumer from having hidden fees show up at the closing table.

For the Self-Employed; we will have to look at your tax returns and possibly your year-to-date financials. I am asked, "Why do you need so much of my personal information? I have an 800 credit score and 20% down? I could buy this place for cash if I wanted to liquidate my 401k or stocks? Last time I bought a home they just wanted my pay stub, why do you want my tax returns? Are you out of your mind?" My response as a lender, "YES-we are out of their minds, dealing with fraud and new government regulations." This new underwriting guideline was put in place to prevent fraud in the over disclosing of income facilitated by "stated income". It certainly used to be an easier way to go for the self-employed, however, it has also created room for over-extension to non-qualified applicants. Do all self-employed need tax returns? Yes!

A question from the W-2 wage earner- "Do all buyers need tax returns?" Actually YES!!! they do. Here's Why. On almost every file an underwriter is pulling a copy of the borrowers tax returns by using the 4506. The 4506 is a form signed at the application, by an applicant, which allows an underwriter or investor to pull tax records, or tax transcripts from the IRS.

Credit Scores - As minimum credit scores increase, considering credit repair or simply increasing your score. With the minimum credit scores at 620, but inching up to 640, and minimum credit scores for premium pricing at 740, certainly cleaning up items on your credit, or simply making changes necessary to raise your score can have long term benefits. Increasing your score means you can take advantage of the best rates. For instance, borrowers with scores over 750 being offered better rates or incentives because of their high scores.

Extension of the $8,000 tax credit- On Oct. 5, White House Press Secretary Robert Gibbs acknowledged that "there has been quite a bit of success" with the $8,000 tax credit, and added that President Obama is considering extending it to help strengthen the economy and create jobs. There is a push for higher incentives in 2010 for New Construction Homes.-- UPDATE-- Congress passed a bill extending not only the $8,000 tax credit for First Time Home Buyers, but also a $6,500 tax credit for "move up" buyers, Buyers that have owned a primary residence for 5 years that would like to purchase a new home.

More papers to sign, more info required from the buyer.

Very often when I hear someone complaining about the new restrictive underwriting guidelines, I stop and correct the, stating "traditional" not restrictive. That is that the guidelines are closer to what they were years ago.

Lender's may still put you through the heavy wash cycle on high heat before approving your mortgage loan, a shift perhaps necessary to preserve our housing market. On the bright side, we are seeing improvements and stabilization in the housing market. Home ownership is affordable and still a great investment! If you are considering buying a home, talk with your lender and get pre-qualified.

As many of you have heard, the new Worker, Homeownership and Business Assistance Act of 2009 has extended the original deadline for the home purchase tax credit from Dec 1st to April, as well as extending a tax credit to "move up buyers'. This means that potential home buyers other than those that have not owned a home in the last 3 years will also get a tax credit for purchasing a new home from now into June 2010.

Of all the bills that have passed to attempt to stimulate commerce and the economy, I like this one the best because of the trickle down effect of business to others within our industry and downline from the transaction.

With every home purchase, most home buyers employ a Realtor. The Realtor will get a commission based on the purchase price of the home. Commerce has then taken place. The home buyer will then in most cases get pre-qualified for a mortgage loan at their bank for the financial transaction of the purchase. Commerce takes place. The bank in turn will utilize an appraiser to find the value of their property. Commerce takes place, and so on as the bank will also employ a title company to check on potential liens attaching to the property, previous owners, the new buyers. The title company will then guarantee a clean title for the bank on the property by charging an insurance fee. The bank or home buyer may then require or request inspections to be done on the property. An inspector is hired. Inspections for termites may be required. A home warranty may be purchased by the new home owner. If radon is detected within the home, the homeowners will employ someone to install mitigation. If water, termite or other issues arise, the owners or purchasers will employ a servicer to treat or to install new appliances, equipment, repair work, ect. The new homeowner will need homeowners insurance from their insurance agent. An attorney or title company may then close the Real estate Transaction, of which they are paid a fee to facilitate. Commerce takes place again and again.

After the closing you might guess that new Mr. Homeowner will want to make the house "their home", therefore potentially purchasing paint from a paint store, Carpet from a Flooring Company, Window Treatments, Decorations, New Furniture, improvements, purchase of a lawn mower or other equipment, have repair work done, additions, ect. You can see how the trickle down continues to vendors, servicers and retail stores.

I have included an exerpt from the IRS website with some basics on the new Tax Credit for Purchases in 2009 and extending into 2010 below.

From the IRS Website:

New legislation, the Worker, Homeownership and Business Assistance Act of 2009, which was signed into law on Nov. 6, 2009, extends and expands the first-time homebuyer credit allowed by previous Acts. The new law:

• Extends deadlines for purchasing and closing on a home.
• Authorizes the credit for long-time homeowners buying a replacement principal residence.
• Raises the income limitations for homeowners claiming the credit. Under the new law, For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return.

For the first time, long-time homeowners who buy a replacement principal residence may also claim a homebuyer credit of up to $6,500 (up to $3,250 for a married individual filing separately). They must have lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased.

House and Senate conferees completed work on final elements of the stimulus legislation early this morning. I want to provide a synopsis to provide an overview of what is in the final legislative package, specifically as it relates to the housing community. I hope this is beneficial information for potential new homeowners, Realtors and other Mortgage Lenders.

House and Senate conferees have agreed upon a compromise stimulus package at a total cost of $789 billion. The House is scheduled to vote on the package today (Friday, Feb 13th) and the Senate will follow suit shortly thereafter, with expectations that the legislation will reach the President's desk by Monday, Feb. 16.

There are several provisions in the overall stimulus package that will be beneficial for many of us, and help stimulate demand for housing.

Chief among these is an $8,000 home buyer tax credit for new home buyers. While we are disappointed and would have preferred a more enhanced tax credit like the Senate version, the conferees did retain some key elements from the Senate and made other modifications that are beneficial to home buyers and home builders. For qualified home purchases in 2009, the legislation:

•· Stipulates that the $8,000 tax credit does not have to be repaid, unlike the tax credit passed last summer; currently this is a $7,500 refund for New homeowners and has to be repaid at the rate of $500 per year over 15 years.

•· Keeps the tax credit refundable, or claimable regardless of tax liability;

•· Extends the ending date of the home buyer tax credit from July 1, 2009 until Dec. 1, 2009 so that consumers can utilize it during the critical summer and fall buying months;

•· Allows tax credit home buyers to participate in the mortgage revenue bond program; currently, participants of state bond programs do not qualify for the tax credit; as SD Housing Loans as they are called here in South Dakota

•· Permits state housing finance agencies to help buyers at closing by advancing the credit amount as a loan using tax-exempt bond proceeds;

Income guidelines are $75,000 for a single person, and $150,000 for a married couple.

The tax credit applies to the homebuyer whom has not owned a property in the last 3 years.

This is only a first step in stimulating the housing economy, and I feel, that along with a little better consumer confidence in the job market, this will be effective in spurring new home purchases in 2009.

It is my hope that we will see more folks taking advantage of this new tax break and step out to purchase homes again!

It would also be my hope that we will see interest rates stay low, at least for the next year to help move this entire stimulus bonus for new homeowners along and make it look even more attractive.

I am so glad, that at this time of year, I have seen so many express their Thanks, for what they have, for who they have, for who they are. Thanksgiving, a time to reflect, look inside ourselves. The spirit of this season naturally brings an intraspect to life. Perhaps one positive result to tougher economic times is that people take the time to reflect what is important in their lives. Happy Thanksgiving to all. Peace, Happiness, and Laughter be yours.

Rolling with the changes in Home Financing

Our world is much different than it was 20 to 50 years ago when our parents were busy blazing a trail to the American Dream, and Home Financing is no exception to the changes. With swings in the Economy and Real Estate market in America, the Information Highway coming of age, and the shift in the Socio Economic makeup of our Consumer, Banks and Finance Companies are on a fast paced road to stay abreast of the demands of Home Buyers and competition in the industry.

Remember when our parents had one job, one car, a savings account, Mom stayed home, and one of their biggest financial goals was to pay off the mortgage? They knew Social Security was going to provide some retirement as well as the employer they had been working for the last 30-40 years. That has all changed. In most families today, both parents work, or a single parent juggles the household, sometimes with more than one job; we have two cars, credit card debt, and little savings. Most of us will have a mortgage when we retire, we will have changed jobs 7 times with retirement funds being uncertain.

Consider all the options you now have with Home Financing. Our parents went to their local home town Bank or local Savings and Loan to obtain a mortgage. They did business with their banker on not much more than a handshake. We now have options to go to our local lenders; Banks, Credit Unions, Brokerages; or shop online for our Mortgages. The mortgage products have changed as well. In addition to the traditional Mortgages of old, we can choose an Adjustable Rate Mortgage, Fixed Rate 30, 40 or 50 year Mortgage, Payment Option Mortgage and Equity Loans.

Most of us will stick with someone whom has served us well in the past or whom has been referred to us from a trusted friend or advisor. It may pay to shop around for the best deal. Be cautious of online companies whom you don't know a lot about and don't have to face you at the closing table when things do not go as expected. Many consumers may find that fees or rates were not disclosed accurately or find there are ‘hidden' costs in the incredible offer that was made to you over the phone or the internet. Sitting down with a loan officer you trust and visiting various Mortgage Financing Options makes a lot of sense when it comes to developing financial goals. There are so many products that can help you achieve those various goals.

Take the time to sit down with your lender to discuss your needs. Did you know there are various programs for Teachers and Public Workers? Has anyone offered to help you repair your credit or simply help raise your credit score? Has anyone talked with you about various Mortgage Insurance Options or Secondary financing? Did you know that there is money available for down payment assistance? As a self employed person, have you reviewed your business plan and considered how your mortgage is financed to help you meet your long term objectives?

Ask your Mortgage Professional to explain and explore your options. Consider your financial goals when choosing a Mortgage product and understand industry standards when shopping fees and rates. Work with a local lender and with someone whom has your best interests in mind.