Sue's News and Views - Mortgage Blog

A friend of mine in Maryland was sent the following by a fellow employee of his yesterday. They both work for Mason Dixon Funding, a mortgage company. Brad Cohen sent this as a letter to the editor of the Washington Post newspaper. It hasn't been printed yet but he (Brad) told me that I was more than welcome to share it on this blog with you! I think it makes a lot of valid points that the Government needs to address, as do the banks and investors and servicers of mortgages. Please comment on this and let me know your thoughts - I will be sharing them with Brad!

Sent to the editor at Washington Post yesterday. Ken harney

Good Morning Ken,

My name is Brad Cohen, and I have been a loan officer at Mason Dixon Funding Inc since July 1997. I was recognized as #94 in the country, for loan originators, last year by Mortgage Originator magazine. I have looked forward to your column every weekend as you give your readers the truth about what is happening in the world of Real Estate and Mortgages. I would love one day to speak with you in person or on the phone, but I know you must be the 2nd busiest person in America, as the rapid changes in our industry have you working around the clock to stay on top of it. Henry Paulson, in my opinion, is the busiest, as he is constantly using smoke and mirrors to keep the truth away from the American people. J

As an American, I am embarrassed and disgusted with our leadership in this country and I know we must be mocked around the world as we cannot get our hands around this mortgage meltdown and real estate crisis. The problems are a result of greed on everyone's part. The banks have been downright nasty and unwilling to help struggling homeowners out, as they have made this problem not only limited to subprime, but now every person who owns a home a victim. Last summer, when the Fed repeatedly said this was going to be contained to subprime, was when I knew Bernanke and crew were so far behind the 8 ball as subprime represented such a small portion of the loans in our industry. I knew the negative amortizing loans done by WAMU, Indy Mac, Countrywide, World Savings (purchased and now owned by Wachovia), and Chevy Chase bank were the most toxic loans ever created. Where are these banks now? Chevy Chase's days are numbered in my opinion. These loans, typically given to good borrowers, had low start rates and they had pre pay penalties for anywhere from 1-3 years that forced a borrower to stick with it as the deferred interest mounted. There was a fantastic article on Sept, 11, 2006 in Business Week about "How Toxic is your Mortgage" and I knew somebody else agreed with me that the phantom profits for these banks would come to an abrupt end.

I am regularly featured on Channel 9's Mind Over Money and the callers I hear from constantly tell me that their banks won't help them modify their loans because they owe more than the houses are worth. The pain I hear in these callers voices is quite troubling as the banks making these decisions are again, greedy and looking for the most return on their money. If they had started modifying loans last year when this started, we would be in a much better place now. If a bank modified someone's loan and dropped the rate, and not reduce the principal balance even with the negative equity, they would receive monthly payments and would not have the potential of a house going to foreclosure, losing the monthly payment revenue, and now the bank is left paying the utility bills, taxes and maintaining the property all while they have instantly dropped the price of the house usually hundreds of thousands of dollars to move it off their balance sheet. If they dropped the rate, and the payments dropped $400 per month, they would miss out on $4800 per year. Why not go down that path rather than write off $100K or more in a short sale or a foreclosure? The numbers make total sense. Keep the homeowner in the house and the values will stop freefalling. I cannot tell you how many people I speak to that actually think that the foreclosures have not affected the values where they live. They say that the comps are low because "they went to foreclosure", when the reality is the comps are all made up of foreclosures and short sales, that is the new value PERIOD!! Also, when people are foreclosed on, they do not usually leave peacefully, as I have seen massive acts of destruction as walls are kicked in, appliances removed, paint spilled on walls and carpet, and people leaving their last thoughts as the banks have taken their homes from them, even the ones that tried desperately to work out a plan and stay.

When Fannie and Freddie tightened guidelines last year, I told our rep that they have just guaranteed that housing will plummet due to the tighter restrictions. If you qualified to buy your house with an IO payment, and now you need to qualify using the Principle and Interest payment, nobody will qualify anymore as they stretched themselves in 2004-2006 to just be able to buy in what was a crazy market. The fact that you need a 740 credit score to get the best rate and if you have lower than 680, will cost you dearly, does not promote home ownership, but curtails it significantly as the average person has a 695 score. Another absurd guideline is the 4 financed property rule. You cannot buy a house if you already have 4 financed properties. Basically, they are guaranteeing investors that they cannot scoop up the inventory and fix them up and resell them which, by the way, creates jobs. The 25% down payment is a bit excessive but not totally, as having skin in the game makes you more responsible and less willing to walk away. The rates though on these have jumped to almost more than 1% over owner occupied where they were only .25% to .50% higher previously. Now is not the time to tighten too much as you need to create a stimulus to buy.

I have been saying for the last year, to drop everyone's rates to 3%-4% and reward all homeowners, not just the ones who had late payments as you are rewarding poor performance. We do not need to teach people that being irresponsible will be rewarded in lower payments and reductions in principle. I do not agree in reducing anyone's balance, but if you drop the rates and extend the terms, you would put a floor under the housing market. I cannot believe that Paulson, Pelosi, Reed, Cox, Dodson, Frank and President Bush have not done more to help our country. They are so far removed from Main Street and they try to act like they care. When you come up with stupid programs like FHA Secure which has supposedly helped only 4000 homeowners since it began in 2007, and hope for homeowners again with lower than dismal performance, you are not doing what you can to help. When the foreclosures went to 81,000 in September, and then 85,000 in October, a light should be going off to say "Hey Washington, It Isn't Working!" Why are these supposed leaders not consulting with Mortgage Experts? Real Estate Experts like Barry Habib, Donald Trump, Robert Toll, and Barbara Corcoran. To have the $700 Billion deal try and get rushed through in one weekend with people at the helm with NO REAL ESTATE backgrounds was astonishing. The plan was flawed when Paulson yelled fire in a crowded room and the markets plunged from that point on. Every time Paulson speaks, the market sells off as he has no credibility and certainly no charisma to give the American people hope. We all need hope and faith and our leaders have let us down yet again, and not one time have I heard anyone say "I am Sorry." It blows my mind that not one person has taken responsibility for this, and they all point the finger at each other. Republicans, Democrats and everyone in between are responsible, and should act like people of character, and take ownership and show leadership to this problem and move on.

As a country, we cannot wait for Obama to get in office and start getting us out of this as everyday, the ship is sinking further. We need action now, and Paulson should listen to Sheila Bair, as she knows about banking and she knows the current plans are not working and will not work. We are basically throwing a cup of water on a burning building. I wonder if they will get it when we cross the 100K mark for foreclosures in November. When it was announced that the foreclosures by Fannie and Freddie would cease until after the holidays, I said whoopee, let's give another 40 days of unresolved solutions. We need to create a stimulus for housing again and give homeowners a real tax credit( and not a loan over 15 years) of $10,000-$25,000 depending on sales price as people who own homes spend money furnishing them and making them theirs. The spending stimulus will save this economy from the greatest depression we will ever see. I appreciate your time and look to you as the voice of reason and hope.

Sincerely,

Brad Cohen

HUD had announced a program that was to start on October 1, 2008, to help those homeowners who are  (a) past due on their mortgages and/or (b) upside down (owe more on their home than it's worth).  Without going into details, this program was to help keep people at risk of foreclosure in their homes.

The national training was held a couple of weeks ago in Atlanta.  My partner attended.  The training was on Thursday and Friday, all day each day.  Mike, my partner, called at about 10:30 on the first day to tell me that he was leaving.  He had asked some questions and found out that (a) at this point, it isn't a program that any investors are willing to do, (b) in its current form, the Wall Street securitizers aren't willing to purchase this loan as there are too many ways that fraud can be committted and (c) unless Congress passes additional legislation, this program won't ever bgin.

We have now gone back to find other ways to help those who called us for the H4H program.  We had gotten applications on a large number of people but hadn't put them into process nor pulled their credit.  We had to try to figure out options for these people, which we have and are still working on.  However, it did cause me to try to figure out how homeowner's can be helped and I wanted to share.

A business associate that I did a conference call with last week, Jeff Misaud of fhasuccessdesk.com, told me about 'the Three Stages of a Foreclosure" that an owner goes through:

1. Denial - most people avoid dealing with the fact that they are already late or that they won't be able to make their mortgage payment.  If mail comes to them from their mortgage company, they lay it aside and never even open it.  They think that if they avoid it, it will go away.
2. Disgust - this is the phase when a large number of people start experiencing depression.  In many cases of married people, fighting amongst themselves begins.  Financial stress is probably one of the number one causes of divorce and it is at this point that the reality is starting to hit and people realize that they are going to literally lose the roof over their head.
3. Destruction - many people who are being foreclosed upon cause damage to the house in retaliation of the foreclosure.  We have seen holes punched in the walls, cabinets and fixtures removed, appliances taken, and in one case, someone took the entire stairs out of the interior of the house.  There is nobody to blame for what has heppened so people blame their mortgage company and feel that in damaging the house, they are causing the mortgage company to have to pay out money, which evidently makes them feel better, at least temporarily.

The first thing a person needs to do when they realize that they can't make their mortgage company is to CALL THEIR SERVICER (the company to whom you make your payments).  Now is NOT the time to avoid what is happening - you must be proactive not reactive.  Keep in mind that your servicer does NOT want to take your home in most cases!  If you ignore the problem, it will still be there and the best way to help yourself is to contact your servicer right away and explain what is happening.  In a lot of cases, they will put you through to other individuals or organizations that may be able to help you.

If you are upside down and/or late on your mortgage, there are FREE housing counseling companies that may assist you.  A list of these can be found at http://portal.hud.gov/portal/page?_pageid=73,1827662&_dad=portal&_schema=PORTAL. At this same webpage is a list of other ways to avoid foreclosure and keep your home. It is suggested that you contact one of these counselors and ask them to assist you (they are paid by the Government from money appropriated by Congress when they passed HR3221).

If you are finding it difficult to make your mortgage payment, you will need a new, tightened budget.  Prioritize your bills and pay those most necessary for your family: food, utilities and shelter.  Failing to pay any of your debts can seriously affect your credit rating, but if you stop making your mortgage payments you could lose your house.

A homeowner should know the statutes pertaining to foreclosure in their individual state.  Contact an attorney, if necessary, and you may find that there are ways to either prolong or completely cancel a foreclosure action!  This additional time will allow you, perhaps, to sell the house and avoid the foreclosure or, in extreme cases, to have the foreclosure overturned and never filed again.  It's certainly worth the time, and in some cases, expense, of finding out.  There are financial and legal services that are available to you to assist with these statutes.  You can check out this webpage, http://www.hud.gov/local/fl/homeownership/foreclosure.cfm, for additional information on the statues, as well as your rights and/or resources available in any given state in the US.

Be extremely leary of foreclosure rescue companies.  While there may be a large number of them that can and do help, we have found that, for the most part, a lot of these companies are scams and will have you out of even more money with no results.

If you have contacted your servicing company and aren't getting any results, and the housing counselors aren't able to help you, there are companies springing up that are known as loan modification companies.  These companies, for a fee, will work with your investor/servicer to have either the rate on your current loan lowered, either termporarily or permanently, have the term (# of years/months of your mortgage) extended, and/or in more rare cases, forgive part of the debt to help lower your payment.

While there are some excellent loan modification companies, there are some unscrupulous ones who charge you high fees and don't do any work towards modifying your mortgage.  It is very important that you screen these companies or get a referral from someone (we work with a highly reputable company that is getting great results for our clients).  Don't use Google or the Yellow Pages to find one of these companies!

I know that having problems making your mortgage payment can take a toll on you, both physically and mentally.  It's important that you be involved in trying to resolve this and, if you need assistance, you hire someone to help you that has proven results.  This is your home we are talking about......not just a house!

HUD has come out with their maximum loan limits for 2009.  In the state of Florida, the following will be the maximum loan amounts that will be insured by an FHA loan:

2009 FHA Limits - Florida

All areas except those counties listed below:

One-Unit          $271,050

Two-Unit         $347,000

Three-Unit        $419,400

Four-Unit         $521,250

                                                                                One Unit      Two Unit     Three Unit       Four Unit

As a mortgage lender, we are constantly getting updates from Fannie Mae, Freddie Mac, FHA, VA and USDA on guideline changes.

This summer, the "buy and bail" memo was released. This policy dictates the circumstances under which a buyer can convert their current primary home to either a 2nd home or an investment property and how we, as lenders, have to count the payment of the current primary home against them or under what circumstances we can count rental income on the property if they rent it. It makes it tougher to qualify because they fear, and rightfully so in some cases that I have seen, that people may be buying a new property and then "bailing" on their primary home for a number of reasons, the main reason being that they owe more on that property than it is worth and have found that they can get a similar home, or even a larger one, with a payment that may be less than what they currently have.

Prior to these changes, if the buyer could provide a fully-executed lease agreement, we could count rental income that would be generated, or at least 75% of it as they used a 25% vacancy factor. The buyer also had to have 2 months reserves for principle and interest and taxes and insurance on a single family residence and 6 months reserves if they were moving out of a 2-4 family property (ie: a duplex).

Under the new policies, which went into effect on August 1, 2008, the following conditions are required:

• If current home is pending sale but won't be closed before closing on the new property, we must count BOTH payments in order to qualify for the new property.
• If the buyer is going to keep the former primary home as a second home, we must count both payments AND either the buyer must have 6 months reserves (PITI) OR if we can prove they have at least 30% equity in the property (we have to get an appraisal, Automated Valuation Model, or a Broker Price Opinion to do that), we only have to show that they have 2 months reserves.
• If the buyer is going to keep the former primary home as a rental property, we can still count 75% of the rental income with a fully-executed lease, a copy of the deposit check the tenant writes them and a copy of the receipt showing the buyer deposited the funds in their account IF AND ONLY IF we can document that they have at least 30% equity in the property they are leaving, again with either an appraisal, AVM or BPO. If they don't have the 30% equity, we can not count any of the rental income even if they have a lease, AND we have to count both payments against them to qualify them for the new property purchase AND they must have at least 6 months' reserves of PITI for BOTH properties.

There are also limits on how long ago a person can have been 30 days late on their current mortgage payment before they are able to purchase a new primary home. Fannie Mae, Freddie Mac, VA, and FHA have guidelines that are stronger than the ones that are used for a USDA Rural Housing Loan (aka a rural development loan). I have a buyer who is military and sold his home under a short sale scenario (he was never late on his mortgage but he had received orders to move and knew that he couldn't afford his new house, even if he rented and his old house and also knew that if he moved into military housing and his BAH (military housing pay) went away, he couldn't afford his old house. So he sold it for less than he owed. He had a first and a second mortgage on that property and he negotiated the short sale but when it was paid off, the second mortgage holder reported him as being 30 days late.

They have contacted the second mortgage holder and they will not remove this reporting. I spoke with all of my investors (Chase, Suntrust, Amtrust, Wells Fargo, etc. etc.) to see if they would accept a VA loan on him - I had run it through automated underwriting and it gave me an "approve/ineligible" - the ineligible being for having a 30 day delinquency in the last 12 months and the approval meaning that with his credit score, amount of assets, and income, he qualified for this new purchase. Not only would they not allow a VA loan, they wouldn't allow an FHA or conventional loan on him, either, as the first mortgage was reporting that he had facilitated a short sale. We have a copy of his orders and a letter of explanation detailing that he had to do the short sale as he had to move (Uncle Sam said so!) but that didn't matter.

After checking everything I could, I found that we COULD close on a USDA Rural Housing Mortgage for this client, even with the short sale and the 30 day late reporting because we had compensating factors and a letter of explanation in the file.

This client had been denied at 4 other mortgage companies - he was frustrated and wary when he came to me. He is now extremely pleased that he and his family will be allowed to purchase a home and I have created a raving fan of our company!

As I have said in some of my blog entries, the USDA Rural Housing program is one that helps a lot of customers that may not think they can purchase a home to be able to not only buy a house, but buy one that allows them a low monthly payment and little or no money down at closing.

If you are in the market to purchase a primary home, or if you are a Realtor® with clients looking to purchase in Florida, Alabama, Georgia, North Carolina, South Carolina, or Tennessee, please don't finalize your mortgage until you contact me - we may be able to save you thousands of dollars and get you a low, fixed rate mortgage that other lenders may sometimes overlook!

We can offer a buydown on a USDA Rural Housing loan to clients. What this means is that the first year, the rate is 4.25%, the 2nd year, it is 5.25% and the 3rd through 30th year, it is fixed at 6.25%!

This is done by having the seller pay for the buy down. If there is a motivated seller, they can pay points to get the rate lowered the first and second years and then fixed for the remainder of the term. This is NOT an adjustable rate mortgage; it is fixed but just has the feature of having the 1st and 2nd year lower than the remainder of the term to allow a buyer to have a lower payment at the beginning.

Because it is a rural housing loan, the buyer can finance any and all closing costs that the seller doesn't pay which means that the funds a seller is willing to pay towards closing can be used to buy down the rate and the buyer still comes out of pocket with no money down for a true 100% financing program!

If you are a buyer and would like to take advantage of this, or if you are a seller who would like to explore this option, or if you are a Realtor® with motivated sellers for your listings, please contact me and we can discuss this program for you!  We are able to offer these rates in Florida, Alabama, Georgia, North Carolina, South Carolina, and Tennessee!

The USDA Rural Housing Mortgage program has very "black and white" guidelines, or so most people think.  They have certain limitations on the debt to income ratio of the borrower (your total monthly debt divided by your total monthly income), they have a maximum income a borrower can make (see prior blog for how that is changing), they have geographical restrictions (which are VERY liberal and won't be changed until at least 2012) and they don't allow in-ground swimming pools.

However, and many people don't realize this, you can ask for an exception if your buyer is purchasing a home that has an in-ground swimming pool.  The appraiser has to give the pool a value on the appraisal and, typically, this amount deducted from the appraised value will hopefully be at least your sales price.  This isn't a requirement, but it certainly helps.

I have a file that I am closing next week that has an in-ground swimming pool.  Unfortunately, it wasn't a question we asked up front and we didn't realize it until the appraisal came in.  We informed the Realtor® after we spoke with our local USDA office that this is an issue but that they do grant exceptions and are pretty liberal in doing so.  In fact, we were told by our USDA office that as long as your appraisal is good, these exceptions are very doable.

We received the exception and the clear to close this afternoon so I can assure you that it can be done!  If you or a client of yours is looking for a TRUE NO MONEY DOWN mortgage to buy their primary home, please do not hesitate to have them call me!  I am an expert with this program and am a national trainer for approximately 20,000 loan officers on this program so you can be sure that the information you get from me will be accurate and we can get you/your client to the closing table.........and they'll even still be happy when they leave the table!!!!

Please read this and forward it to your database.  My daughter

Wrote this.  My son's dog is missing and we really

Want to find him - he's one of our family

And my son is heartbroken.  There are several pictures

Here that can help you to recognize Dupree.

Also, please forward this

To your database and help us bring Dupree home.  Thank

You SO much!  ~~Sue

**Missing**

Dupree

A slat in our fence had broken and we didn't know it.  Dupree got out yesterday, November 6, from our home between Memorial Parkway and Jet Drive in Fort Walton Beach and has been missing since.  He didn't have his collar and tags on, but he is very friendly and up-to-date with shots.  Dupree is my brother's dog, but a true part of our family.  My poor brother is heartbroken.  If you have ANY information on his whereabouts, please call 850-499-4467 or 850-499-2271 or 850-797-3196.

(Also, please feel free to repost this.)

Dupree playing with Joplin

Dupree with JJ

Dupree playing Twister

Please help find my brother's dog...

Today, the final ruling was published to simplify the USDA Rural Housing program's income limit structure for the USDA Guaranteed Rural Housing Program.  These income structural changes will become effective on January 20, 2009, unless they receive adverse comments by January 5, 2009.  They had put an advance notice out about trying to do this on April 10, 2008 and have not yet received any adverse comments so this should be a non-issue.

In essence, the current income limit structure that is based on household incomes from one to eight persons (in the household) would be restructured as follows:

1-4 person households will be qualified using only the 4-person limit and 5-8 person households would be qualified using only the 8-person limit.

What does this mean?  It means that a lot more people will be able to qualify for this program! Currently, most counties in Florida have the following income limits in place:

1 person $49,550   2 person $56,600   3 person $63,700    4 person $70,750

5 person $76,400    6 person $82,050    7 person $87,750    8 person $93,400

Under the new rules, the following would be the norm:

Any household having between 1 and 4 persons living in it would have max income of $70,750

Any household having between 5 and 8 persons living in it would have max income of $93,400

As you can see, this will certainly help to qualify a lot more people into a rural housing loan!

I have had clients that were single that made $54,000 and were only $4,450 above the 1-person limit but because they were over at all, were not able to qualify.

As a buyer, this is an opportunity to buy real estate with NO MONEY DOWN and qualify with higher income limits!

As a Realtor®, this is a HUGE opportunity to sell homes with no money down to people with much higher income levels!

At this point, we are not using these levels but in order for us to be able to use these changes, the new income limits must be approved and in use at the time our files are sent to the USDA Rural Development office.  Currently, the earliest date for that occurring is January 20, 2009.

If you have buyers sitting on the fence, it is certainly possible to have them write contracts that don't close until January 21, 2009 and allow your buyers to get the benefit of this program.  And if it's a short sale, it may take that long anyway!

We are a National Trainer in this program and would love to work with your buyers if you are a Realtor®.  If you are a buyer looking for financing, please know that we are experts in Florida, Alabama, Georgia, North Carolina, South Carolina and Tennessee for this program and we can secure this financing for you.  Please feel free to contact me or to have your clients contact me! 

Evidence that the USDA Rural Housing program works to get qualified buyers into homes can be found by checking out their foreclosure website.  Our office is in the Panhandle of Florida, and between here and Tallahassee (Leon) County, there are a total of 5 properties that are in foreclosure. 

I have been using this program for over 10 years and based on the number of properties that have sold under it, this low number of foreclosures represents USDA's committment to making sure that the buyers who use this program show an ability to repay the mortgage

A USDA Rural Housing loan allows a client to finance the entire sales price PLUS any and all closing costs and prepaids that the seller isn't paying.  A seller is not limited to 3% or 6% and can, in fact, pay all of the closing costs and the prepaids for the buyer.  It truly is a no money down program for qualified buyers.

If a buyer's credit and/or debt to income ratio doesn't qualify for this program, there is a Direct USDA Rural Housing mortgage which allows lower income families to purchase a home at a payment that they can afford; sometimes, their payments are subsidized.  If your lender tells you that you do not qualify, please ask them to give you the contact information for this program!