FHA Short Sale and Short Payoff Guidelines

09-52ml.pdf

Mortgage Qualification after Short Sales: Did Those Short Sale Classes Cover This?

Loan Guidelines for Clients with Previous Short Sales

Freddie Mac requires, “Evidence on the credit report and other credit documentation that the Borrower has reestablished an acceptable credit reputation for at least the most recent 24 months after the discharge or dismissal of a bankruptcy, short payoff related to a delinquent mortgage obligation, deed-in lieu of foreclosure or other significant adverse or derogatory credit information.”  Fannie Mae Requires, “a two-year period is required to re-establish credit, measured from the completion date.” These guidelines can be found in Fannie Mae and Freddie Mac’s Seller’s Guides (https://www.efanniemae.com/sf/guides/ssg/index.jsp and http://www.freddiemac.com/singlefamily/# – just click where it says AllRegs.

HUD however is far more interesting.  They will make your client wait 3 years after the short sale unless, “they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and the proceeds from the short sale serve as payment in full.”

HUD Mortgagee Letter Concerning Short Sales

I’m sure many, most or all of you know this but I’ve seen Realtors fresh out of some stupid title company class on short sales rush out to clients promising that they have the solution to their life’s problem all figured out only to leave their client homeless for lack of research on the financing consequences.

09-52ml.pdf

Are Realtors Ready for the New Self-Employed Borrower Guidelines?

For all loans this year where the borrower has ANY kind of self employed income feature, they will have extra steps to go through in 2010. This means that even if they have a very passive business or a rental property or anything like that, they’ll be put through the Spanish Inquisition of income documentation.

What’s more important as a Realtor, is that you’re working with a loan officer that is very proficient in tax transcript analysis and knows how to prepare an accurate Self Employed Income Analysis quickly (an example of this form is attached). The reality is that most loan officer either don’t have a clue how to do these or aren’t very proficient with them and end up stumbling through them and taking forever to figure out the “real” qualifying income.

It used to be that a lot of these borrowers qualified for their loans going “stated” or using a “liar’s loan.” Then, lenders starting pulling an IRS 4506t form that gives them a summary of the filed taxes and if it supported what was in the loan application, that was good enough. No more. Now, the self employed income analysis will need to be in there. For my own part, I’ll be putting the analysis form in there along with underwriting cover letters describing my basis for income calculation (a cover letter is just a narrative that get’s right to the point because some underwriters are dumb and the good ones are busy – I’ve attached an example).

If I were a Realtor, I’d be adding some steps this year to prepare for this. First of all, if you don’t already, you might want to help your loan officer collect documents for your buyer because it’s a lot for borrowers to do in a timely fashion but it’s necessary. Secondly, AND THIS IS IMPORTANT, when representing a seller and getting pre-approvals with purchase agreements, ask if the buyer is self-employed in any way shape or form. If they are, then follow up by asking for a copy of the income analysis to be certain that it’s been done because, if it hasn’t, that pre-approval isn’t worth the paper it’s written on. If they won’t show the income analysis to you, then make sure to get a hard financing contingency and/or add special language to the financing addendum. Here’s an example:

“If the buyer’s financing should fall through due to debt to income ratios, inconsistent income, failure to provide necessary income documentation and/or any issue concerning self-employment, buyer agrees to forfeit all earnest money to seller.”

This kind of language is not unfair because all of those grounds for loan denial are detectable in the loan origination process by a quality loan officer.

I’m attaching the announcements from Freddie Mac on this matter and have highlighted in yellow the relevant sections (Fannie is doing it too but I figured this was good enough). If you’re not sure if your loan officer is up to snuff on this, invite them over to your office and, without telling them, throw down your tax returns, tell them to do a self employed income analysis on you and judge for yourself.

Sorry I forgot to mention this earlier and good luck and fortune in the New Year!

Basis for Income Calculation.pdf

FHLMC LP Updates 12132009.pdf

Freddie Mac Underwriting Announcement.pdf

Self Employed Income Analysis Form.pdf

New HUD Booklet – Shopping for your Home Loan

Shopping for Your Home Loan.pdf

Interest Rate and Market Forecasts for 2010

MBA 2010 Forecast.pdf

cantor rates outlook 2010.pdf

Amended Tax Return for First Time Home Buyer Credit Basics

2009 Homebuyer Tax Credit Changes.pdf

FTHB Tax Credit Q&A.pdf

Summary: (Senate Bill) Restoring American Financial Stability – Discussion Draft

FinancialReformDiscussionDraft111009.pdf

So Banks Think There’s No Such Thing as “Too Big to Fail” – The Audacity of Dopes

On Friday the 13th, the Chairman and CEO of J.P. Morgan Chase decided to weigh in on whether a bank could be too big to fail. I’m sure you’re on the edge of your seat wondering which side of this argument he’d be on. I know I’ve been breathlessly waiting for one of the titans of Wall Street to tell me what the best way to regulate their businesses would be. Thank heavens I finally know what to think!

Before we evaluate the points, let’s consider the timing and the source. This op ed wasn’t benevolently shared with us in the 4th quarter of 2008 when the survival of the banking sector (especially the larger players) were in public question; no. . . Rather, we have it from him now in the 4th quarter of 09. How brave and forward thinking (sarcasm). And, we’re hearing this from an institution that received an undisclosed amount of insured aid for the purchase of Bear Stearns before they received 25 billion in federal assistance to stay afloat during the hardest times. J.P. Morgan Chase would say that they purchased Bear Stearns at the request of the Treasury and FED and I’ll give them that. But, if they assert that they didn’t need the TARP funds, just remind them of March 9th when they made Paul Kangas’ Stocks in the News as they plummeted to $14.96 a share from their 6 month high of $49.85. They might assert that they led the pack in paying back their assistance but that came on the heels of complaints about bonuses and a 138 million dollar announcement for purchase of corporate jets and hangar renovations (another great moment for an op ed).

The good Chairman and CEO uses 886 words to basically make 3 points:

1. That we should be, “creating the structures to allow for the orderly failure of a large financial institution starts with giving regulators the authority to facilitate failures when they occur.” He expounds on this point stating that these structures require, “effective international cooperation, as the implications of a major financial institution’s failure are global.”

2. “Scale can create value for shareholders; for consumers, who are beneficiaries of better products, delivered more quickly and at less cost; for the businesses that are our customers; and for the economy as a whole.”

3. That by capping the size of banking institutions, somehow banks wouldn’t be able to adequately service multinational corporations.

All of these points are erroneous.

To point number 1:

This is the most laughable of the 3 arguments. The institutions that are or have been used to facilitate orderly failures of banks in the past are too small and underfunded to enable the orderly failure of a bank like J.P. Morgan Chase. In the wake of the S&L crisis, the Resolution Trust Corporation or RTC handled 394 billion in total assets over 6 years. Hmm, let’s see, J.P Morgan Chase’s assets total over 2 trillion and with all the griping from the US tax payer on funding the RTC, TARP, the Emergency Economic Stabilization Act of 2008 and the like, you can bet they’re not going to reach further into their wallets for the likes of those kinds of funds.

So why not the FDIC? They can handle it, right? In 2007, the FDIC had to manage 2.6 billion in assets. In 2008, 371.9 billion. How about 2009? See for yourself. As breathtaking a list as that may be, it’s nothing compared to J.P. Morgan Chase’s balance sheet. Short of having a bake sale, the FDIC has had to require a 3 year prepayment on their insurance fees from participating banks.  So no, they couldn’t take on a J.P Morgan Chase-like balance sheet if they wanted to.

But never fear, the good Chairman and CEO has a solution for this too! We’ll use international cooperation to cure the modern day shortfalls of existing institutions. Yeah, that worked really well when we needed troops in Afghanistan. Amongst deflation, one of the greatest fears during times like these is economic protectionism and we’re supposed to rely on international cooperation to solve the next banking crisis? I think not.  In times like these you couldn’t get an international organization to manage the orderly failure of a lemonade stand.

To point number 2:

I’m not going to spend a lot of time on this one because it’s a hardly defensible position (it’s notable that not much ink was spent on it in the op ed either). Legitimate competition to the big four include credit unions staffed with as few as 4 persons, boutique investment houses and one person mortgage brokerages. Seriously, J.P. Morgan Chase competes with institutions like that.  With competition like this, who needs size of the kind J.P. Morgan Chase recommends? Theories of savings in financial instruments through size and vertical integration have not materialized. That day may come but despite many promises, it never has. Service delivery speed, at best, is the same as smaller firms and far less personal.

To point number 3:

A lot can be learned from the retort to point number 2 if one wants to understand why point number 3 is baseless. Point number 3 assumes that technology doesn’t innovate and that regulators are so dumb that they’ll shrink banks such that they can’t service the General Motors, Dell’s and 3M’s of the world. While I am periodically dumbfounded at legislative stupidity, you can bet that legislators aren’t going to do anything that would injure these companies. Further, I am continuously astounded at what the tech sector continues to bring to delivering and managing financial products and I’m confident that these products will meet the needs of tomorrow regardless of the size of banking institutions.

Perhaps a case could be made that the largest 100 or so credit instruments offered by each of the big four banks couldn’t be done the way they currently are under a new regulatory regime and that may be true to a certain extent. What is not true is that these instruments couldn’t be made at all under the new, not too big to fail bank structure. The banks would simply have to use participation to get the instruments completed. I guess John Stumpf and James Dimon will have to share.

Look, I don’t want to pick on Dimon. I commend him for writing this op ed because heaven knows the other 3 of the other large banks are thinking the same thing. I’m also not one of those torch-waving, pitchfork-wielding people that blame Wall Street bankers for the credit crunch. There’s a ton of blame to go around on that one. I’m picking on all of the big banks for how selfish, short-sighted and intellectually bankrupt their solutions for a new regulatory regime are.

Difficult, but worthwhile conversations would include regulating derivatives (a.k.a. bucket shops), establishing a modernized version of the Glass Steagall Act, reforming ratings agencies, divesting the Federal Reserve of conflicts of interest from its charter, raising capital requirements (rather how to do it) and forcing the sales of investment houses/management services that masquerade as FDIC insured banks. I realize this is hard but it’s a lot more realistic than dealing through some international body to create a RTC-like solution. So rather than calling the IMF or EU or writing op ed’s like this one, the CEO’s of the big four should start honest, constructive and quiet conversations with congress and the white house.

The Right Time to Buy

As a realtor, the question I am asked more often than any other is: “How is the market?” Without the benefit of hindsight, this is always a difficult question. There are, however, certain factors that always come to mind when answering this question.  They include, past market trends, home affordability, market activity, current interest rates, and rate forecasts.  Two resources I recommend to buyers, sellers, and fellow agents to help understand the current market are the Standard and Poor’s Case-Schiller Home Price Index (which has been keeping track of our real estate market values since 1989), and the National Association of Realtors Housing Affordability Index. According to the Case-Schiller index, April of 2006 was the peak of home prices in our Twin Cities metro area.  Home prices have been declining steadily until the spring of this year-April being the low point.  This data lags several months so the last month reported is July, 2009.  Notable is the fact that values have increased significantly in May, June and July.  Other than a very small increase in January-February of 2007, this is the first steady three-month increase since the peak of the market. Furthermore, this increase was preceded by only sharp declines.

The change in trends is very significant as this steady turnaround has effectively defined the bottom or the market.  This has given a green light to those who had been sitting on their hands waiting for the right time to buy.  The combination of low home prices and low interest rates created a ‘perfect storm’ for would-be homebuyers. However, with interest rates likely on the rise, and home prices also increasing, home affordability will certainly diminish with time.  Data would suggest that the perfect time to buy has already passed.  The National Association of Realtors Home Affordability Index tells us that the peak of home affordability was this past January, 2009.  Since then, home affordability has decreased by 11% as last reported in August.  I believe that these trends will continue although, perhaps more slowly than in recent months.  To anyone hoping to take advantage of the zenith of this buyer’s market, I would say, ‘the candle is burning at both ends.’

S&P/Case-Shiller Home Price Index

Minneapolis		SA INDEX
MNXR-SA		LOW TIER	MIDDLE TIER	HIGH TIER	AGGREGATE
YEAR	MONTH	(Under $136440)	($136440 – $214582)	(Over $214582)	(Overall Market)

2006	4	189.14	169.46	166.44	172.23
2006	5	188.62	168.88	166.47	172.07
2006	6	187.94	168.63	165.27	171.17
2006	7	186.99	167.84	163.65	169.92
2006	8	185.4	167.2	163.12	169.12
2006	9	183.9	166.37	162.93	168.57
2006	10	183.13	166.02	162.85	168.37
2006	11	183.11	165.91	162.53	168.1
2006	12	183.76	166.13	162.56	168.05
2007	1	184.9	166.86	162.66	168.6
2007	2	185.05	166.87	163.35	168.83
2007	3	184.42	167.24	162.84	168.6
2007	4	183.27	166.41	161.86	167.54
2007	5	180.69	165.03	160.77	166.25
2007	6	178.94	163.05	159.52	164.51
2007	7	176.65	162.13	159.51	164.06
2007	8	175.09	160.9	158.16	162.61
2007	9	172.8	159.16	157.39	161.43
2007	10	170.68	157.62	155.94	159.81
2007	11	167.47	155.03	154.06	157.37
2007	12	165.17	152.8	152.08	154.97
2008	1	158.86	149.15	149.55	151.75
2008	2	153.84	145.62	145.97	147.9
2008	3	150.06	143.7	143.14	145.11
2008	4	146.16	141.91	139.33	141.93
2008	5	143.54	141.66	139.68	141.93
2008	6	144.5	140.66	139.65	141.67
2008	7	143.86	140.34	141.45	142.58
2008	8	141.82	138.69	138.83	140.27
2008	9	138.59	136.83	136.91	138.21
2008	10	133.86	133.37	132.31	133.96
2008	11	130.31	130.48	130.7	131.45
2008	12	118.52	125.02	126.71	125.64
2009	1	108.58	118.7	123.94	120.93
2009	2	101.76	116.44	121.5	117.97
2009	3	99	110.52	115.97	111.84
2009	4	97.61	110.45	114.73	110.9
2009	5	97.45	110.11	115.7	111.39
2009	6	97.21	112.38	117.73	113.58

NATIONAL ASSOCIATION OF REALTORS: HOUSING AFFORDABILITY INDEX

		Median Priced
		Existing Single-	Mortgage	Qualifying
Year		Family Home	Rate*	Income**	Composite
2006		221,900	6.58	54,288	107.6
2007		217,900	6.52	52,992	115.8
2008		196,600	6.15	45,984	134.9
2008	Aug	201,900	6.53	49,152	125.8
2008	Sep	190,300	6.22	44,832	137.6
2008	Oct	185,700	6.23	43,824	140.5
2008	Nov	179,900	6.26	42,576	144.3
2008	Dec	175,000	5.59	38,544	159.1
2009	Jan	164,200	5.21	34,656	176.9
2009	Feb	167,900	5.12	35,088	174.4
2009	Mar	169,700	5.14	35,520	171.9
2009	Apr	166,000	4.96	34,080	178.8
2009	May	174,600	4.95	35,808	169.8
2009	Jun	181,900	5.16	38,160	159.0
2009	Jul r	181,700	5.34	38,928	155.5
2009	Aug p	177,500	5.33	37,968	159.1
					This
					Month
	Northeast	241,700	5.21	51,024	128.7
	Midwest	149,100	5.43	32,256	191.9
	South	159,900	5.27	33,984	163.8
	West	225,600	5.38	48,528	128.7

Filing amended tax return for first-time homebuyer credit

This was a post from a “Ginger L” on Trulia that I thought was fantastic and wanted to share it with you.

“I bought my home on 5-15-09. I amended my return and called the IRS to make sure that I didn’t need any additional forms or proof of purchase. A rep stated that all I needed to mail is two forms: the 1040 X and the 5405. The forms were super easy to complete! To find where to mail your amended return, click here: http://www.irs.gov/file/article/0,,id=109750,00.html  I mailed my forms on 5-19.

The IRS website states that you can’t view the status of a refund on an amended return online; you have to call to get the status. On 6-24, I called the IRS at 800-829-0582 and pressed X462. After being on hold for about 20 minutes, a rep said that my return was received on 5-26. I called again on 7-6 and, after being on hold for about 20 minutes, a rep stated that a check was mailed on 7-3. It appears that the IRS will only issue a paper check on this credit/refund.

Mon Jul 6 2009, 14:00″