: November 2009

Can it be?

Is it official?

Is FHA lending the new subprime?

We have all thought about it and have kept our fingers crossed that it isn't so. But to some in the industry  they believe FHA lending has replaced subprime lending, with its no or low down payment and minimum credit score requirements.

Let's explore some of this..  Last week we saw the FHA's capital ratio fall to just 0.53 percent, this was well below the Congressionally mandated two-percent minimum, thanks to its increased role in the home lending space and steadily rising defaults. But has this been to over leveraged buyers or mostly due to the declining job market?  As for the buyers, I personally do not think they are over leveraging from my point of view.  We've been able to approve loans fairly well by assessing the risk of each buyer.  I do not believe any lender is putting themselves out there to fail.  There are a lot of variables that are causing the defaults within the realm of FHA loans.  However, of course we are going to still see a decline in subprime and prime loans that the Adjustable rates are soon to reset.  That is another blog!

This really caught my attention, when one of the nation's largest home builders comes out and says something is crap, that's when you start to question whether it's bad. Or is it really, really bad?

The CEO of Toll Brothers, Robert Toll, said on Wednesday at a New York home builders conference that FHA lending could create another huge crisis in the mortgage industry, referring to it as "yesterday's subprime."  He also went as far as calling it a "definite train wreck," noting that a "flag will go up in the next couple of months" for bail out money.

Of course, FHA boss Shaun Donovan said last week that the FHA has $31 billion in reserves to protect itself, representing 4.5 percent of total insurance in force. And they're working on policy changes to make it more difficult for unscrupulous lenders to originate bad loans. But with 456,000 FHA loans in default, or 8.2 percent as of September, you have to wonder if we've got another huge bailout on our hands. However, there are many changes that can be made to offset any chance of a taxpayer financed bailout.  Let's keep in mind, regardless of the political and rhetorical opinions, FHA has been an instrumental piece of the backbone of our economy.  My personal beliefs are that FHA will come around on it's own and thus still remain one of the most important elements to our country's economic recovery (As it always has since the Great Depression) (Read on)

NEWS FLASH!!

The FHA/ Federal Housing Administration announced today that it will make a wide series of changes in it's lending requirements and policies in reaction to its capital reserve ratio falling below the congressionally-mandated two percent minimum.

FHA Commissioner David H. Stevens stated "To be clear, the fund's reserves are sufficient to cover our future losses, so the FHA will not require taxpayer assistance or new Congressional action.  That said, given the size and scope of the FHA and its importance to today's market, these risk management and credit policy changes are important steps in strengthening the FHA fund, by ensuring that lenders have proper and sufficient protections."

Effective January 1, FHA will require supervised mortgagees to submit audited financial statements to ensure such entities are adequately capitalized.

The FHA may also up the net-worth requirement of mortgagees, from the current $250,000 to $1,000,000, which would likely lead to consolidation in the industry.

Mortgage brokers will still to be able to originate FHA-insured loans through their relationships with approved mortgagees, but will no longer receive independent FHA approval for origination eligibility.

"These policy changes will require the FHA approved mortgagee to assume responsibility and liability for the FHA insured loan underwritten and closed by the approved mortgagee."

The FHA will also revise procedures for streamlined refinance transactions, establishing new requirements for seasoning, payment history, income verification, collection of credit score, and so on.

"These revisions bring documentation standards for streamline refinance transactions in line with other FHA loan origination guidelines, ensures the borrower's capacity to repay the new mortgage, and prohibits the dangerous practice of loan churning, where borrowers raise cash through successive cash-out refinancings that put them further in debt."

New appraisal guidelines will also come into effect; the appraisal validity period will be reduced to four months from six for all properties, though appraisal portability rules (transferring an appraisal from one lender to another) will ease.

The FHA will also adopt the language of the Home Valuation Code of Conduct (HVCC), meaning brokers will be prohibited from ordering appraisals.

Stevens also announced that a Chief Risk Officer will be hired for the first time in the FHA's 75-year history to oversee and propose specific credit policy changes going forward.

Stay Tuned!!

                                                                   Direct lender and licensed in most states across the U.S.

                                                                  Real Estate Information You Can Trust 

                                         Ted Canto

                               Sr. Mortgage Consultant

                               Direct: 480.650.8602

                                                              Visit www.tedcanto.com

                                                   Ted's Blog:  www.thecantoteam.com

                             Home of the 10 Day Close!  www.tendayclose.com

                                              Company site:  www.academymortgage.com/tedcanto

UPDATE as of 11/19/09: 

The rule is 2 years on Conventional.  However:

• there are probably 10% of lenders that are doing it.  The other 90% will not.
• It may also vary upon whether it is a Short Sale with no default in payment history
• or, whether it is a pre-foreclosure that will likely reflect on the credit history
• It will also depend whether the payoff at the time of settlement reflects the deficiency or it does not.

The Rule on FHA.  Technically FHA sees this as a Foreclosure (takes 3 years to buy a home) but has not ruled out the possibility that one could obtain a loan in 2 years, however one needs to keep this in mind:

• If there are no lates prior to the short sale and the agreed upon payoff does not reflect the deficiency thus not reflecting on the HUD, then it is likely a good possibility that the client can get the loan in a period of 2 years.
• If there are lates in the history, then it becomes pretty clear it is a pre-foreclosure and they are very unlikely to get the loan (Must wait for 3 years).
• Again, there are probably 10% of lenders that wil do this, the other 90% will not.  Keep you eyes open as the lending industry is about to get more strict.  My guess is that the 10% will likely cease to exist. 

What we need to keep in mind is that we should be careful to imply that this is somehow set in stone.  There are way too many variables to risk ourselves in implying that our client "IS" going to get into a home in 2 years.  With the way things are going, it likely will not be the case "AT ALL"  FHA is having major problems at this time and so is Fannie.  In fact, the new rules coming out in the next 60 days will be revolutionary to the way we all are accustomed to.

________________________________________________________________________________________________

Posted on 11/13/2009

Let set the record straight!  There is too much bad information going on about Short Sales.  In fact there are companies right here in Arizona that are conducting Short Sale Seminars teaching agents that the short sale homeowner is eligible for a home loan in 2 years.  THIS IS NOT TRUE!!  The truth is that FHA was up in the air as to how they would rule on this.  So what is the answer?  FHA considers a Short Sale the same as a Foreclosure.  That means that a would-be borrower is not eligible to apply for an FHA Home Loan for a period of 3 years. 

I understand that there is a lot of information out there but I confirmed this with my company's Vice President of Operations who is the Goddess of the Underwriters.  She knows her stuff so I believe "EVERYTHING" she says about loans. 

DO NOT put yourself in a position where you are misrepresenting yourself (Worse! By handing out the wrong information without even knowing it). 

As always, the 90/10 Rule Applies here.. What side will you be on?

                                             Direct lender and licensed in most states across the U.S.

                             Real Estate Information You Can Trust 

Ted Canto

Sr. Mortgage Consultant

Direct: 480.650.8602

                               Visit www.tedcanto.com

                          Ted's Blog:  www.thecantoteam.com

  Home of the 10 Day Close!  www.tendayclose.com

                                          Company site:  www.academymortgage.com/tedcanto

Your 2010 Business Plan Started Days Ago: How To Market The Extended Homebuyer Tax Credit.

I posted a blog on Marketing Opportunities: Homebuyer Tax Credit in AR and also on my Facebook.  I had approximately 45 posts on the AR blog and about 26 personal replies and on Facebook I had no posts and about 30 personal replies. I hyperlinked the blogs with www.Bitly.com and had about 33 people opt to follow me on Twitter. If you are left wondering what were the personal replies about, the majority of them were from REALTORS asking me to share with them some marketing ideas.  Get this?  REALTORS asking ME for marketing tips!  Well, I confess!  This is my expertise and I am a marketing wiz of sorts.

What is my point?  Well I started marketing the idea of marketing the Federal Housing Extended Tax Credit on my blogs that resulted a total of 1300 views, 134 replies and additions to my database of which I was able to generate 7 appointments with REALTORS and it also generated about 4 referral (buyers) clients to my team.  I would say that was a pretty big start.  Don't stop the press yet, I just got started!  To simplify what I have and continue to do, let me make it simple:

1. Blog, blog, blog and then blog some more.
   1. Sign up on as many blog sites as you can and write material worthy of reading and educate the masses (learn more at Federal Housting Extended Tax Credit).
   2. Let people know that this is the last tax credit and it "WILL NOT" be extended after April 2010.
2. Call, call, call and then call some more on your database.
   • This is the foremost important aspect to what we do as sales consultants.  WE TALK!! Do I need to say more
   • Do not call asking if your client wants to buy or sell.  They likely DO NOT!!  Use them to extend the word out to their sphere of influence.  Let them know that this is the best opportunity for them to help their friends and family take advantage of historic lows while earning the tax credit even if they currently own a home.
   • Ask your clients if they understand the tax credit.  They might be eligible and do not know enough about it.  In fact they can claim the tax now if they want to, they do not have to wait to tax return time
   • Conduct more calls!
3. Get together with your Marketing Rep and/ or Loan Officer
   1. Strategize on a viable marketing plan (FYI: This takes speaking to a real Marketing Rep.  not someone who is going to just throw postcards at you) or even an LO who understands marketing (not many do) not just answering calls and sending preapproval letters.  I am an LO and I can tell you that many just don't get it too well.
   2. Obtain a list of homeowners that purchased in 1999-2004 and still live in their homes.  Believe me, there are more than you think.  Here in Arizona the count was in the 100's of thousands. 
   3. With the help of your Marketing Rep and/or LO, devise a letter worth reading and highly informative. 
   4. Don't try to be elegant on the letter. 
      • Think about this.. When you get a letter solicitation in the mail in 10-12 size font: How Many Seconds Does It Take You To Throw It Away?
      • Now think about this:  When you get a letter solicitation in the mail with big 18-42 size font: How Many "MINUTES" Does It Take You To Throw It Away?
      • BIG, LOUD, and GAUDY WORKS!!
   5. Take out your check book. This is going to be an investment well worth it. The best things are not free and take TIME, MONEY and DEDICATION.  Sorry! No Freebies here.
   6. Write a check to your preferred direct marketing company and get the postcards, door hangers, and letters out into the world.
4. Repeat Step 1 through 3 all over again. 

Fellow associates... this is not rocket science but it does involve some hard work and dedication.  Keep in mind that Real Estate & Mortgage sales and is a lot like holiday shopping where now everyone begins as early as September to buy gifts.  For us, we go selling!  October, November and December is our 2010 New Year.  Our 2010 is already in the works.  If you are not devising and/or implementing a plan of attack, you leave the playing field open to the REALTOR & LO next door.  We must earn our keep and get our hands dirty and consult our clients to the best of our ability.  As you already know, the cream of the crops is rising in the industry and there will be more collateral damage.

As always, the 90/10 Rule Applies here.. What side will you be on?

                                             Direct lender and licensed in most states across the U.S.

                             Real Estate Information You Can Trust 

Ted Canto

Sr. Mortgage Consultant

Direct: 480.650.8602

                               Visit www.tedcanto.com

                          Ted's Blog:  www.thecantoteam.com

  Home of the 10 Day Close!  www.tendayclose.com

                                          Company site:  www.academymortgage.com/tedcanto

Credit Cards are Causing Damage to Your Credit Score

A new survey from the Federal Reserve shows that, despite how consumers are being hurt in the current economy, banks continue to raise the interest rates and lower credit limits with most credit cards.  Not good for those who are already struggling,, since studies consistently show that the single source that causes more people problems with their credit reports are their credit cards.  Specifically, the person uses his Visa or MasterCard to get out of a financial crunch, but when that crunch does not abate, he finds himself unable to make the card payments. The result:  one hit after another to his credit score.

Consider the situation:

* In the U.S., 54 percent have either already increased or plan to soon increase the credit card APR, even on their good customers.  And 74 percent have or will increase it on those with poor credit.

* More than half of all banks intend to cut, or have already cut, the credit limits of credit card holders.

A few in Congress have taken note of the situation and plan to introduce legislation to provide relief for credit-card users.  However, it's likely that any legislation, if it passes, will be months or years before offering any real relief.

In the meantime, there are things the consumer can do to minimize the damage that credit cards to his credit score:

1) If you learn of coming rate hikes with your card, find out of there is an "opt out' option. If so, take it and leave the account open.  this will allow you to pay off your current balance at your current interest rate.  This will ensure that the card does not negatively impact your credit score.

2) If you are only able to "opt out" by closing the account, it's still better to go ahead and do that. This way you'll still be getting the lower interest rate on the balance. And if you have other cards with no balance, closing one of them might not do that much damage to your credit score.

3) If you know that your credit score is still fairly high, then it might be time to shop for another card.  There might still be time to get one, and the new card's available credit could cancel out issues with an account that you're force to close.

4) If your credit card has already done some damage, then it's time to put normal credit-repair strategies into play.  This means first of all, getting a free copy of all three credit reports and scanning them for any inaccurate entries.  Contact the credit bureau and contest the inaccuracy (They will then be forced to either delete the entry or prove its legitimacy).   Next, your number one goal is to get all past-due amounts reported as "current," so as soon as possible, work with debt-collectors to bring the accounts up to date, and pay off any charge-offs. And of course, bring any credit cards that are maxed-out down below your credit limit (since a maxed-out limit takes points off your score). Continue working to pay of these card balances.

Your credit score won't be fixed overnight, but if you act responsibly, you can be sure that there is "credit light" at the end of the financial tunnel.

Direct lender and licensed in most states across the U.S.

Ted Canto

Sr. Mortgage Consultant

Direct: 480.650.8602

Visit www.tedcanto.com

Ted's Blog:  www.thecantoteam.com

                                  Home of the 10 Day Close!  www.tendayclose.com

                                    Company site:  www.academymortgage.com/tedcanto

                                       Real Estate Information You Can Trust 

                                             Serving the Residential Home Loan Needs of Buyers Like You!

Update (BORROWERS' INSTRUCTIONS):   https://www.efanniemae.com/sf/servicing/d4l/pdf/d4lborrowerinstructions.pdf

Fannie Mae Is Now My Landlord?

Well when you think they have thought of everything, Fannie is now in the Landlord business!!  I am not sure how I feel about this and whether or not it will realistically make a difference in the process of filtering the problems out of the market.  However, it does help the struggling homeowners from becoming

homeless which is a good thing (Just in case, if you haven't heard, homeslessness is on the rise and it partly does have a relationship to the foreclosure problem). 

So what does this all mean?  I suggest busting out the glasses and get reading.

Fannie Mae announced Thursday that it will allow troubled homeowners lease their homes versus losing them through foreclosure and eviction. The new program is directed at providing greater home security to distressed borrowers who can't afford their mortgage payments and do not qualify for a loan modification, however who can  able to afford the rent.

The program is designed so that borrowers transfer their property deed to Fannie, this is also known as a deed-in-lieu of foreclosure. A deed-in-lieu will adversely affect a borrower's credit score, but it isn't as damaging as a straight-up foreclosure, even though the end result is the same which is that "Fannie gets back the property".

In the new "Deed for Lease" program, borrowers will need to:

• Qualify for a deed-in-lieu under Fannie's current guidelines
• Demonstrate that they have enough income to pay a market rent, they'll be required to sign a lease for up to 12 months. 

Here's a few question and answers about the program:

How do I know if Fannie owns or guarantees my loan?

Fannie Mae has a loan look-up Web site that lets borrowers see whether their loan is held or backed by Fannie, and therefore eligible for the program. Mortgages backed by the FHA and other government agencies don't qualify.

Can homeowners qualify for the program if they're current on the mortgage?

No. The program is open only to borrowers who have missed a payment and who therefore can show that they can't afford their current mortgage payments. A borrower's mortgage servicer must also show that the borrower isn't eligible for a loan modification. Potential tenants have to demonstrate that market rent wouldn't exceed 31% of their monthly gross income, and borrowers who are 12 or more payments past due on their mortgage aren't eligible.

Could borrowers-turned-tenants buy their home back when the lease expires?

Unlikely. Fannie says that at the end of the initial lease term, they may choose to extend the lease or "offer for sale to any qualified home buyer." Most borrowers who have recently missed mortgage payments and executed a deed-in-lieu probably won't have strong enough credit or enough cash to be able to buy a home.

Can borrowers intentionally default in order to be eligible for the lease program? A

gain, it's unlikely. Fannie says that "borrowers would not qualify for a deed-in-lieu, and therefore not qualify for a deed for lease, if it is determined that they can afford their current mortgage payments."

Are there any other restrictions?

Second lien mortgages aren't eligible, and any subordinate liens secured against the borrower must be released. Borrowers can't be involved in an active bankruptcy proceeding and aren't parties to any litigation on the property or the loan. Properties also couldn't be rented if rented homes would violate zoning or homeowners' association rules.

Who will manage the properties?

Fannie Mae has contracted with a national property management company to handle maintenance and property management. Here's a full list of rules and regulations, Fannie's FAQ, and a page that includes (UPDATED) borrower instructions for the program .

Direct lender and licensed in most states across the U.S.

Ted Canto

Sr. Mortgage Consultant

Direct: 480.650.8602

Visit www.tedcanto.com

Ted's Blog:  www.thecantoteam.com

Home of the 10 Day Close!  www.tendayclose.com

     Company site:  www.academymortgage.com/tedcanto

There is a lot of speculation about how, when and who the "NEW" Homebuyer Tax Credit affects.  We should be very clear in our information and learn how to effectively make the most of the opportunity.  If you are serious about building your database and business.  It is time to get your butts up and do something about it. 

The 90/10 Rule will apply! 

• What side of that equation will you be?
• How to make the most of this? 

Well, If I'm a REALTOR and I'm not (but I am going to do this anyway).  I would call the best marketing rep from a title company or Loan Officer (hopefully me) and request a list of homeowners that purchased in 2004 or before.  Then I am going to send them flyers, newsletters, bulletin, etc to tell them that they can upgrade and/or keep their property as an investment or not and move to a better home while obtaining $6,500 as a tax credit. I am also going to get on the internet and work out a massive Social Media campaign to get the buyers (and likley sellers) calling me!! 

Don't take my advice, I am just speaking out loud of what I am going to do!

What you need to know!

The $8,000 homebuyer tax credit for first-time buyers, due to expire in 25 days, will be extended through April 30 of next year and buyers will have an additional two months, until the end of June, to close. First-time buyers who are in the process of making a purchase will no longer need to worry about qualifying for the $8,000 credit if they close after the November 30 deadline. The new legislation increases the income limit for couples with income up to $225,000, a nearly $55,000 increase above the level in existing law.

For the first time, the new legislation makes buyers who already own a home eligible for a credit. A $6,500 maximum credit will be available to existing homeowners who have lived in their current residence for five of the prior eight years. The legislation limits eligibility for the existing homeowner credit to homes worth $800,000 or less.

The legislation takes effect December 1 and is not retroactive. Both credits are available only for primary residences, not second homes or investment properties.

Here we go folks!!!  I suspect we are about to face a firestorm of controversy and business as the Homebuyer Tax Credit is set to be extended not only to First Timers but also to "Existing Homeowners". 

I know that some in the AR community have been reluctant of this program but it has done wonders for the Arizona market.  I support and look forward to the extension especially for the fact it is inclusive of the existing homeowners.

"The Senate today voted to extend and expand a tax credit for home buyers as an added boost for the recovering real estate market, and also approved a provision to continue giving aid to the long-term unemployed.

The measure, adopted on a strong bipartisan vote of 98-0, also would extend and expand a tax benefit for businesses with losses. The House is expected to follow suit within days, and President Obama is expected to sign it into law.

To keep fueling the real estate rebound, the legislation would extend the $8,000 tax credit for first-time home buyers to April 30. It now is set expire at the end of the month. More importantly, it also would provide a new $6,500 tax break for existing homeowners who want to move up to a new home, as long as they have lived in their current residence for five consecutive years out of the last eight."