Kurt Satchfield

Please take a moment today to remember all those who lost their lives in the 9-11 attacks. Also remember the thousands of soldiers who have lost their lives and those still fighting two ways as a result of this day.

Is it acceptable to work for an FHA approved company and have a real estate license at the same time?

It depends. (That sounds like an underwriter answer, doesn't it?) I get variations of this question all of the time, and there's a lot of misinformation out there that I'd like to clear up. I will start by quoting the HUD Handbook 4060.1 REV 2, Chapter 2-9G.

G. Full Time, Part Time and Outside Employment. A mortgagee may employ staff full time or part time (less than the normal 40 hour work week). They may have other employment including self-employment. However, such outside employment may not be in mortgage lending, real estate, or a related field.

Therefore, if an individual works for an FHA-approved lender, that person may not engage in the practice of real estate, but there is nothing prohibiting him/her from having a real estate license. Another example is an appraiser. It is acceptable to hold an appraisal license, for instance, yet not to engage in the practice of appraising while working for a company that is FHA approved.

The same hold true for any employment that is mortgage or real estate related. It is up to the lender to have controls in place to ensure that the employee is not actively engaged in any of these other activities. HUD does not require that the individual's license be put into an inactive state, but the lender may require it as a quality control feature.

That said, there is an exception. If an individual is employed for an FHA approved company yet not involved in FHA loan originations whatsoever - it is acceptable to participate in other real estate activity (i.e., real estate sales) as long as the FHA-approved company has procedures in place to ensure that the individual is not involved in the origination of FHA loans. At all!

Keep in mind that these are HUD requirements, and state laws vary about what is and is not acceptable.

I also want to clear something up. I hear all of the time that FHA "looks the other way" when individuals originate FHA loans and practice real estate at the same time, (as long as it's not on the same loan). This is absolutely NOT true. If you know it is happening with a specific company somewhere - they just haven't been caught. Yet.

Written By: Anna Bahney, USA Today (Published in USA Today on 8-4-2008)

The deal was to close on June 27.

Drake Paul, a pediatrician, entered into a contract at the end of May to sell his two-bedroom, one-bath newly renovated house in Sparks, Nev., for $170,000. The buyer had lender approval, the appraisal was done, and the inspection checked out.

Then the lender called: Mortgage requirements had tightened, and the buyer no longer qualified for the 5% down payment for which he was approved. Only 48 hours before he was to sign the papers and get the keys, the buyer learned he would need to put down 20%, jacking up the initial payment from $8,500 to $34,000.

"Who can afford that?" asks Paul, 37, whose property is now back on the market after the deal collapsed. "A person that can afford a $170,000 house does not have $34,000 in cash. It just doesn't work that way."

Both buyers and sellers, such as Paul, are being caught off guard by a rippling wave of mortgage changes. Lenders are responding to the crisis in their industry by suspending mortgage products, raising required down payments and imposing a premium on loans in regions they deem to be "declining" markets. Even when they announce the changes, the message sometimes doesn't get to the mortgage broker until nearly the last minute.

"The underwriting has really tightened up," says David Olson of Wholesale Access Mortgage Research and Consulting. "Before, if you could fog a mirror, you got a loan. Now, that's not the case."

In Olson's estimation, at the peak of the housing boom, roughly 20% of the mortgage market was sub prime, and nearly 20% was "Alt-A loans" - or "A-minus" loans, typically for those with good credit but with high debt-to-loan ratios or little or no proof of income. Both categories are now nearly extinct. That means about 40% of the residential mortgage market has all but disappeared.

A wave of lending changes

"I don't have the hours in the day to read all the changes that come in every day," Olson says.

In recent months, lenders have become more thorough in verifying income and scrutinizing the ability of borrowers to afford the mortgage, taxes and insurance, says Bill Gehan, an agent at Gibson Sotheby's International Realty in Boston. "I think these new regulations are largely common sense and perhaps long overdue," he says.

That doesn't make them easy to follow. The continually updated new rules are leaving people bewildered. "Why is it OK for the bank in the 11th hour to change what they had agreed to?" Paul asks.

Real estate agents say they're fielding a wave of questions from their clients about financing. Their clients' fears are no longer only about falling prices, a swelling supply of homes for sale and rising foreclosures. Increasingly, they're worried about financing. Those concerns have escalated following news of failing banks, stricter lending rules and the plunging stock prices of mortgage giants Fannie Mae and Freddie Mac.

"I don't have the hours in the day to read all the changes that come in every day," Olson says.

In recent months, lenders have become more thorough in verifying income and scrutinizing the ability of borrowers to afford the mortgage, taxes and insurance, says Bill Gehan, an agent at Gibson Sotheby's International Realty in Boston. "I think these new regulations are largely common sense and perhaps long overdue," he says.

That doesn't make them easy to follow. The continually updated new rules are leaving people bewildered. "Why is it OK for the bank in the 11th hour to change what they had agreed to?" Paul asks.

Real estate agents say they're fielding a wave of questions from their clients about financing. Their clients' fears are no longer only about falling prices, a swelling supply of homes for sale and rising foreclosures. Increasingly, they're worried about financing. Those concerns have escalated following news of failing banks, stricter lending rules and the plunging stock prices of mortgage giants Fannie Mae and Freddie Mac.

"Buyers come in with confidence, and once they have talked with a lending practitioner, it's like they've been hit over the head with a ton of bricks," says Dean Moss, an agent at Keller Williams Fox and Associates Realty in Chicago.

Those who formerly would have been approved for a loan requiring a 10% down payment, Moss says, assume they can easily get the loan they want. That might have been true two years ago. But in declining market areas, these buyers are finding they now have to kick in at least an additional 5%.

The result? Some buyers who planned to take the plunge and buy are heading back to the sidelines.

Moss says that an increased down payment on a typical $400,000 house in Chicago gives buyers significant pause: "Now, you have to put down $60,000. Buyers are like, 'I was scraping to get the $40,000. How am I going to come up with another $20,000?'

"In my opinion," Moss adds, "the only people who have a shot in this market are those with no house to sell, who have a good income - maybe two professionals - and have a good down payment. They can name their own ticket. That's a small percentage."

With mortgage rules evolving quickly, agents report doing much more listening, even emotional counseling, than they used to. Back in the boom days, says Heather Barr, an agent at Thompson's Realty in Phoenix, most buyers and sellers weren't interested in advice. What they wanted was a good, quick deal.

"Buyers at every level need a lot more hand-holding now," Barr says. "People are afraid."

Agents say they worry now that a house won't sell. They're afraid that buyers' financing won't come through. Will they get a good rate? How much will they have to put down?

Buyer anxiety

Not long ago, buyers approached agents with the idea that they could, if they wished, snag a no-money-down mortgage - and it was largely true.

"Now, buyers are not sure they can get a loan at all," Barr says. Some buyers, she says, are reluctant to believe that a loan approval contains an expiration date: "The lending rules do change day by day. I tell my clients, 'If you were approved more than three weeks ago, you need to go back and talk to them again.'"

In some parts of the country, such as Reno, up to one-third of the deals that are in the final stages of closing have still not closed after 90 days - three times as long as closings typically take. The Reno analysis was done by real estate agent Guy Johnson using data from the Northern Nevada Regional MLS who says a greater number of closings are falling through, often because lending regulations tighten up after the borrower has been pre-approved.

"It used to be that if you had the pre-approval, you were good," says Johnson, an agent at Chase International, a regional independent brokerage in Reno. "Now, five days before closing, you learn that the financing isn't there anymore."

It's frustrating for everyone, he says, especially when no one's to blame for a deal's collapse. "What recourse do you have?" Johnson says. "The seller is told the buyer can't get the financing. But it isn't the buyer's fault. It wasn't that they weren't approved - they were. The rules changed."

Johnson urges buyers to ask lenders what kinds of changes they've noticed in the underwriting guidelines. He suggests asking loan officers if there are any additional changes that could affect the loan. Lastly, he asks clients to meet with their lender every few weeks to make sure the loan for which they've been approved is still the same.

"A loan commitment letter," he adds, "isn't really as solid as it once was."

Scenario regarding First Time Homebuyer tax credit:

I recently viewed an example of the tax credit which I thought would help explain the credit. Remember it is an EXAMPLE only:

Home Purchase: Sam, a first time homebuyer closed on a property in May 2008. He used Down payment Assistance and the seller paid closing cost.

2008 income tax return: In March, 2009, Sam takes his folder to his accountant to complete his tax returns. His refund was going to be $1,000 - but because he qualified for the $7500 first time homebuyer tax credit - the refund is $8500.00 The money is in his pocket within a month.

2009 tax returns: Early 2010, Sam takes his folder to his accountant and gets a $750.00 refund. He changed his deductions to pay the IRS less each month since he receives the benefit of his new home interest deduction. Note the recapture for the tax credit has not started yet.

2010 tax returns: Early 2011. NOW, Sam must start the recapture period by "re-paying" the $7,500 back to the IRS at a rate of $500.00 per year. He would have received a $750 tax refund, but now he only gets $250.

Future Tax Returns: He must continue re-paying the IRS $500 per year in the same manner for a full 15 years, or until it is accelerated. If it is accelerated, he may have alarge tax bill that year.

Now Sam could use his $7500 windfall in 2009 to help his brother buy a house . Then his brother will qualify for the $7500 credit as long as he buys before 7/1/2009. The brother can re-file his own tax returns and get the credit refunded immediately and re-pay Sam.

Note: A Homebuyer can borrower from a 401K or other retirement plan, repay it in full with the tax refund. Neither Freddie, or Fannie, nor FHA requires the monthly payment to be included in the debt ratio.

*The assumptions in this scenario are based on the full $7500.00, whereas the credit is 10% of the purchase price when it's less than $75,000.00. Also using normal income limits scenario Single 75k annual, and 150 joint.

This is a one-of-a-kind deal for a * $7500.00 loan. There is absolutely no interest and the homebuyer can take a full 15 years to pay it back. The tax burden is only increased by $500 per year, after skipping a year before repayment starts.

None of the above was reviewed by an attorney nor accountant and the interpretation is not guaranteed. Consult legal and financial counsel for further information.

KS