New RESPA, New HUD, New EVERYTHING!!

Here's the problem with what's typed below. I guarantee you that it will not be uniform, smooth or easy to figure out. Not all banks will do implement this the same way causing loans to take even longer to close than they do now. And they can take pretty long these days. I have been saying all along that there is no common sense in the lending industry. Like it or not this will be the new rules in two months. We have to know it as well as possible before it comes to us so it doesn't slow down settlements and cost the borrower and the loan officer money in burnt locks and increased fees. Banks are out of control with the way they implement rules. HVCC was designed to standardize the appraisal process. If a loan is denied now though it's almost impossible to take that appraisal and deliver it to another lender even though the old lender will certify that it is conforms to HVCC. Why do they do that? Because they own pieces of the appraisal management companies!! Fannie Mae will agree to buy loans with a CLTV over 80% and a loan balance over 625,500. To my knowledge not one lender will do this loan. I have some that will if it's the new DU refi plus but not otherwise. All the rules have changed basically and below is a new major one. Please let me know if I can help you sort thru this disaster.


Effective January 1, 2010 the U.S. Department of Housing and Urban Development (HUD) will implement mortgage reforms under the Real Estate Settlement Procedures Act (RESPA). Revised regulations will standardize the Good Faith Estimate (GFE) providing borrowers with a useful comparison tool when shopping for mortgage financing. Originators will also be required to ensure the accuracy of the anticipated settlement costs they quote to clients and to eliminate unjustified increases in costs between the GFE and the HUD-1 settlement statement.
General Overview
• Requires all lenders to use new GFE forms and HUD-1 Settlement Statements (HUD-1A for refinance transactions)
• Establishes a new definition of "application" for the purposes of determining when a GFE is required to be provided to the borrower
• Restricts revisions to the GFE and permits them only upon "changed circumstances" as defined by the ruling
• Establishes tolerances restricting changes in settlement costs between issuance of the GFE at application and final costs on the HUD-1 at closing
• Grants lenders a cure period of 30 days from settlement to resolve differences in costs occurring between the GFE and the HUD-1
• Changes the way the Yield Spread Premium (YSP) is disclosed on the GFE, yet still permits a lender to offer a YSP for use as a credit towards broker compensation or to offset other borrower settlement costs

Changes to the GFE
• Page 1: identifies originator, including contact information; discloses expiration dates for the lock and settlement cost estimates; provides a summary of the loan terms
• Page 2: details settlement and origination charges; consolidates closing costs into major categories
• Page 3: provides instructions to help borrowers understand and compare the terms of the offer

Changes to the HUD-1
• Page 1: shows settlement charges paid for by third parties, such as the lender or seller, as a credit to the borrower (and debit to the seller as applicable)
• Page 2: omits the line-by-line itemization of lender and settlement agent fees; modifies fee lines to include references to relevant lines on the GFE; modifies terminology to mirror the terminology used on the GFE
• Page 3: compares the costs on the GFE and the HUD-1; summarizes costs that cannot increase, those that cannot increase by more than 10% in aggregate, and those that can change
I will be providing you in the weeks to come with more details on how this new rule will impact the way Choice Finance conducts it's business. In the meantime, I encourage you to visit the HUD web site at www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm for more details, including FAQs.

Start saving NOW

I sat thru a financial seminar on Wednesday and I wanted to share with you in a few minutes topics we covered for several hours. The bottom line is start saving for retirement NOW!! Even if you don't have alot to put away now that is perfectly fine. Even $50 or $100 is better than nothing and you will be simply amazed at how the money grows over time. If you start at age 25 and start saving $250 dollars per month you will have $1,552,877 in your retirement account. Now this takes into account a few basic assumptions. One is an inflation rate of 3.10% If inflation is rising then your contribution year by year should also rise with it. So when you turn 26 instead of $3,000 you should have $3,093 per year. It's only $7.75 more per month. We are also assuming a constant rate of increase with the value which of course changes. If you follow this model this will provide you with $8,234 per month of income AFTER taxes. Sounds great but after adjustment for inflation it's only $2,428 in monthly income by today's standards. Can you live on that? Will SS ever be around in 40 years at least in it's current form? Bottom line talk to a financial advisor NOW to discuss your options. Don't wait to get started it will cost you so much more and save you so much less.

For example is someone wants to reach the same dollar amount and start at age 45 you must put $12,250 away each and every year. So more than 4 times the monthly amount to play catch up and reach the same levels to retire. This is why we want you to start now no matter how small the amount. I am not a financial advisor but I happen thru my job to know several good local qualified financial professionals. They have a wide range of products to help almost anyone no matter the situation. One last piece of advice, I have been told me some people in the industry that they didn't want to "bother" with people that wanted to open small accounts. That to me is the worst form of elitism I have seen. I pulled me accounts from this advisor when he told me how he felt. He assumed he was going me a favor by investing my money? I know that the people I work with now are happy to help me grow the small sums into larger ones. That way they make more money themselves. I would be happy to introduce you to them and let them give you some advice for the future. I would say why wait until 25 start even earlier. I wish I had done so.
I also would also buy a home as soon as possible but that is another topic for another day. Please let me know if you have any questions and I will get right back to you and do what I can to help you start investing in YOUR future.

Home Sales Surge/Rates projected higher

There were few major surprises in the economic news this week, and moderate change in the stock market. The old rule of tracking mortgage rates by the ebb and low of the stock market seems to be a thing of the past. There simply is no rhyme or reason to the the increase or decrease in interest rate short term.

While there was a great deal of daily volatility, mortgage rates ended the week with slight increases and we believe that trend will continue.
A flood of housing market data was released during the week, and most of it reflected improvement in the sector. The biggest unexpected news came from the September Existing Home Sales report, which jumped 9% from August to the highest level since July 2007. Inventories of unsold existing homes dropped sharply to a 7.8-month supply from a 9.3-month supply in August. This marked the lowest inventory levels in two and one-half years. Again this is a great sign but with the projected wave of foreclosures coming in the next few years I still maintain that this is the temporary calm before the storm. In Maryland alone this year there have been 37,000 foreclosures. In Montgomery county which is the biggest and most wealthy county we have had 14,000 since 2007. People say that we are immune to the economic storm which hits other parts of the country. These stats show that this is simply untrue. Bad loans from banks, foolish pie in the sky borrowers and most everyone involved in the loan process share some of the blame. September Housing Starts remained at depressed levels, which removes pressure on future inventory levels. Building Permits, a leading indicator, also held at low levels. In short, home sales improved, while inventory levels moved lower with a relatively light supply of new homes in coming months. If there is a note of caution, though, it's that much of the activity has been spurred by exceptionally low mortgage rates and the first-time home buyer tax credit, and the future is uncertain on both fronts. The Fed is scaling back its purchases of mortgage-backed securities, which might push mortgage rates gradually higher, and lawmakers are currently debating whether to extend the first-time home buyer tax credit. The National Association of Realtors estimates that 355,000 homes were sold that wouldn't have been if the first time home buyer tax credit wasn't implemented. It worked but at what cost and can we afford to extend it. Selfishly I would like to see it not only extended by opened up to any home buyer, that would really generate a housing boom but I would like to see some estimates of cost versus revenue.
The Mortgage Bankers Association (MBA) also released its forecasts for this year and next. According to the MBA projections, purchase origination's will decline slightly in 2009, but will then increase by 12% in 2010. Similarly, the MBA forecasts that existing home sales will rise by 11% in 2010. The chief economist of the MBA suggested that the timing of the economic recovery and the level of mortgage rates are the biggest variables influencing the results for 2010. This is obviously good news but I still think that one of the major reasons for the mini boom is a combination of artificial factors including the tax credit and the temporary increase in loan limits for FHA, VA and Fannie Freddie.

I still think prices will remain depressed for several years or remain flat. Selected sub markets such as Bethesda or Old Town Alexandria will continue to just fine. If you bought the last few years this is probably good news, if you bought from 02 to 06 not so much. My advice is to get in a 30 year fixed no matter what the cost and then you are immune to the temporary fluctuations of the market. If you own a home free and clear in 30 years it will be worth far more than today and besides you won't owe anything on it which can secure you for the rest of your golden years. Let me know if I can help answer any questions.

More New FHA changes

It was announced recently that FHA has delayed the changes in spot approvals and condo financing until December 7th 2009. This is good news for people trying to purchase and use the spot approval process. Basically a spot approval grants the use of condo projects that aren't FHA approved but meet all the rules and regulations and hence can be approved "on the spot" Because of the difficulties that most major housing markets still face FHA has offered additional lenience for home buyers. This is good news especially for first time home buyers as the vast majority of first time buyers needs the FHA financing unless they have 20% down. These rule changes if finally implemented will cause further stress on our already fragile housing markets around the country.

For example on condo pricing in and around the DC area some Virginia counties and DC itself are slated to see a shortage of available affordable condo units in the in the next 12-18 months. When this happens we should see a rather rapid increase in prices and a decrease of homes in this market for sale. By contrast Montgomery county is 5 years of inventory and PG is a whopping 14 years. Maryland is definitely behind Virginia in terms of a housing recovery. It is logical because prices fell there first and have now begun to at least stabilize. Whether builders can obtain financing in the credit crunch remains to be seen and could delay the recovery. This is needed in my opinion because homes are bottom up. If we can get first time buyers in the condos we can get those people in the townhouses, those people in smaller single family homes and those people in larger homes. A rising tide really does lift all boats. It's just a temporary delay but it all helps and perhaps the rules can and will be tweaked in this interim period. Please let me know if you have any questions.

Thanks,
Brent

Major FHA streamline changes

It has been announced recently of MAJOR changes in the FHA streamline program. And not for the better. After November 16th any case numbers that are pulled are subject to the new restrictions. They will be far more restrictive, less benefical to the borrowers and more expensive for the borrowers. Thanks federal gov't for taking another weapon of common sense out of our hands to easily save people money and get them on 30 year fixed rate mortgages.
The major changes are as follows.

You must have made at least 6 payments so no more turning around and refinancing into a lower rate.
Loans less than 12 months must have a clean payment history.
The net tangible benefit to the borrower is much more stringent now. It's unclear exactly what this means at this point. I guess they will decide how much is important enough for you to save.
Loans will be capped at 125% of the current LTV
Appraisals will be required if you wish to roll in the closing costs on the loan. It will be the outstanding balance minus the UFMIP plus the new UFMIP only.

This means that borrowers will have to come to the table with thousands of dollars to the table if they wish to take advantage of the new lower rates. Considering that many first time home buyers use FHA many people will be unable to refinance.

Here's why the streamline program makes so much sense now. A lender sees you are paying at say 6.0% and have been for years. Common sense tells you that if they pay 6% why couldn't they pay 5% and save hundreds of dollars per month? Appraisals are not required because the lenders don't need to see what a home is worth because the borrower is saving so much money. Now if you want to roll in the majority of closing costs an appraisal is required. With the drop in DC area home prices this again means many people will be unable to refinance. They finally made a common sense decision on the conventional side to look past the LTV of a home but are now bringing FHA into the past where good loans and good people are denied the chance to save money. In this economy people need ever dollar they can get and now it's harder or soon will be to do just that. In January HVCC like restrictions are also to be placed on FHA loans. Another disaster waiting to happen. We are hoping that the HVCC goes away and dies and instead the gov't thinks it should EXPAND a program that doesn't work. HVCC hires appraisers from far away to work markets they don't always understand and breaks the link of accountability to the borrower and the lender. Call your Congressman and ask that they vote to put a hold on HVCC. There is a bill in to end the collusion between banks and appraisal management companies but passage looks dim with the current Congress. Please ask me how you can help fight Andrew Cuomo and his allies so the US housing market can be the linchpin of economic recovery.

Thanks,
Brent Mendelson
Mortgage Broker

How your credit score is determined

There are three scores that determine the rate on all credit cards, car and student loans. They also determine if you will get that home loan at all. The scores are also used by employers, insurance companies and cell carriers.
They are your credit scores and hopefully this will shed a little light on how they are computed and what you can and can't do in regards to your score.
There are three credit bureaus in the country. Transunion, Equifax and Experian. For a mortgage you will be graded according to the middle score and each company has a different scoring model which can easily be 75 points apart.
Four main areas are used to compute your score.

Payment history is roughly 40% of your score. It's pretty easy; pay all your bills and pay them on time. You have 30 days to pay most bills before they go on your credit report. Consider automatic bill pay but I have seen on my own accounts it's not foolproof so for the things that impact your credit score such as mortgages, car loans, student loans and credit cards a quick check at the end of the month is in order. If you have a low score paying on time will make the score rise also. One missed payment can drop you 50-80 points. Especially on a mortgage.

Total debt is 35% of the scoring model. It's your usage ratio. If all your cards are maxed out this will have a very serious decline in your credit scores. Do not cancel cards that are open and have zero balances. You may wish to transfer some debt around in order to balance out the amount of debt you have on certain cards. The credit bureaus keep the exact way your score is computed a secret but I have heard if you keep your available balances under 80%, 50% and 30% this will maximise your credit score. For more information on how to improve your score please refer to
http://www.choicefinance.net/brent.htm#improvecredit

The length of time you have had credit cards open also makes a difference. So again DO NOT close accounts that are old and not used any longer. It is strange but trust me it will drop your score. You also need to be careful about opening too many new accounts as well. Also in the current credit crunch enviorment companies are closing cards that aren't used and reducing line amounts. Keep a close eye on that as well when you recieve your monthly statements. This is roughly 15% of your credit score.

The last part is what type of credit you have. You would like to have a few different types of credit, a home loan, a few credit cards and an installment loan. It's about 10% of your total score.
Credit cards are preferred to installment loans such as mortgages and student debts. If the number is wrong to the computer then it will hurt your score.

My frustration is that how to keep and get a high credit score is somewhat of a mystery. I highly recommend that you review your credit once a year at least to make sure that it's accurate. Steer clear of all the internet "free" credit reports. I would go to http://www.creditreport.com/

I hope this helps and please post something if you have questions. If I can answer and help I will.

Thanks,
Brent

Debt Settlement, Bankruptcy or Debt Management

These terms get interchanged and confuse people about the pros and cons far too often. In 2005 Congress changed the bankruptcy laws and made it harder for people to declare chapter 13 and 7. When that happened debt settlement and management companies exploded to help Americans dig out from the credit card debt they accrued and couldn't shed thru a BK any longer. The way debt settlement works is simple. You owe 50k in different credit card debt. You stop making the payments to the different creditors and instead make payments to a debt settlement company. When they have enough money in the account they create for you they arrange settlement, usually at a hefty discount. Sounds simple but the truth is much more murkier than that. There are many companies, far too many in what was a largely unregulated new industry that simply took a desperate persons money and then claimed they couldn't help them. All the fees were up front of course. There are some tips to find a reputable debt settlement company that can and will actually help you. Find a company that offers credit counseling as well as debt settlement. They should tell you if the best idea is for debt settlement which means a drastic reduction in your credit score but less money you pay to the overall bill as opposed to debt management which is paying your debt in full but with a reduction of fees and an increased timeline.

DO NOT PAY any large up front fees to anyone that claims a magic bullet for debt settlement. We have all heard their endless ads on the radio claiming this magic secret that credit card companies don't want you to know. It's no secret to people in my line of work. Or many lines of work. A small fee may be acceptable but the company I know about basically works to save you money and then takes their fees based on the savings so it's in their interest to save you as much as possible. Many firms charge up to 15% of your outstanding debt which just makes you that much greater into debt. Don't pay these fees, you are wasting your money.
Ask many questions such as how long it will take to remove your debt and when they will make an offer to lower your debt payments. What happens in the meantime to the calls and letters?

Take a look at the Credit counseling agencies and what they recommend and what companies they recommend. There is also the Association of Debt Settlement Companies and also the National Conference of Commissioners on Uniform State Laws. <> Some are more inclined to debt settlement and some to credit counseling and debt management so you will get both sides of the debate. Some of these groups provide ratings and accreditation and that can be very valuable.

You can also check with the BBB but they consider the entire industry "inherently problematic".
Also something that may be "forgotten" to tell you. Any debt foregiven is considered taxable income. This also applies to short sales so keep that in mind also. They may forget to tell you but the IRS will not. I hope this helps sort some of this out for you. Please email me if you need any help or questions answered.

To pay or not to pay

I have always wondered why people have the fear of paying points on a loan. Now sometimes it makes sense and sometimes it doesn't One fear is perhaps not fully understanding what it means to pay discount and origination fees in order to get a lower rate. Though not for everyone it always make sense to look at various options. One question I always ask my clients is "how long do you plan to stay in the home?" While no one knows for sure what the future hold most people have a fairly accurate idea. I have a client who plans on refinancing and paying $8,000 in discount points and a $2700 origination fee. To make this clear any discount points are paid to the lender and not the broker, loan officer or anyone but the lender. It is NOT profit for us. Origination fees are profit. His rate though will be 4.0% on a 30 year fixed. He is saving $321 per month over his current rate. He will save $3852 per year. It will take him 34 months to break even on his discount and origination fees. There are other charges for the loan so his true break even point is longer. He plans on staying there 20 years according to he and his wife. Now over that 20 years he will save $77,040 over the 20 years. Doesn't seem like such a bad investment now does it? If they stay 30 years they will save $115,560 in lower monthly payments. They can also deduct the points and fees over the life of the loan which could provide some tax savings as well. Please consult a CPA to assess how that would impact you. I am far from a CPA. Generally for this plan to make sense you must plan on living in the home for a number of years and have the equity to roll in the larger number of points that are required. Unfortunately most banks don't allow such a massive buydown on the rates. I have the lender that allows this though and we are moving forward. If you would like to see if this scenario make sense for you just email me and we can review the numbers together. brent@choicefinance.net

Local Government Help on a Mortgage

Everyone knows about the federal government first time buyer tax credit but they not know about the local help that state's, cities and counties can offer. Many of these programs are income and geographically restricted. In Maryland the Department of Community Development (DHCD) has many different programs available for buyers. You must be a first time homebuyer and stay under the cap of $525,000. They are very low interest, fixed rates and are limited by income depending on where you live. There also is the HK4E program for government employees and possibly others as well. This provides you with downpayment assistance which went away with the elimination of companies like Ameridream last year. In Maryland there are cities and counties that also provide funds to help the lower income, first time homebuyer.

Virginia also has programs to assist thru the VHDA. They have a tax credit plus program that lets you get a second mortgage to finance down payment and closing costs. There are no payments or interest charges for the first 12 months and then after that pay off the loan over 29 years which means the payment will be very low.

DC has the very popular HPAP which because of it's popularity and the economy actually ran out of funds for awhile last year. It is for low and moderate incomes and you must have good credit and live in the District. There are many more restrictions on this and other programs, but I wanted to let you know the basic parameters. If you qualify you get a second mortgage again like Virginia to cover downpayment and closing costs. You make no payments for the first 5 years. In year 6 you begin to repay the loan but the payment is well under $100 per month even if you borrow the entire amount. DC also has the Bond program and this one is NOT restricted by income. You can get up to 10,000 in a derred loan for 5 years with a low fixed interest rate. You may also qualify for the District $5,000 tax credit as long as you are under 90k for single buyers and 130k for married.

As you can see there are MANY programs available to qualified first time home buyers. The help is there, the prices and the rates are there as well. Please let me know how I can help you.

Thanks,

Some more good news!!

August numbers are looking MUCH better for the DC area real estate market. Especially in Virginia. I'll take any good news we can get at this point. I still caution that when the temporary programs to stimulate the housing market end we could see a reversal of fortune. Sales were 15% higher and more importantly the inventory was 24% lower after the August numbers were released. 67 days was the average market time needed to sell a home in the close in VA counties as opposed to 113 in the corresponding suburban MD counties. Only Montgomery and Howard were under 100 days. The inventory of unsold homes on the market are the smallest since February of 2007.August sales rose 15% from last year but a whopping 55% from August 2007. Again though please remember that we have programs in place for 8,000 tax credits for first time homebuyers, temporary loan limits up to $729,750 and programs that allow underwater homeowners to refinance into low fixed rates as low right now as 5%. The only one of these programs that has even been possibly extended is the first time home buyer tax credit.

On Wednesday afternoon, Senator Ben Cardin introduced S. 1678, extending the $8,000 first time homebuyer tax credit for another 6 months to June 1, 2010. The current tax credit is set to expire on December 1, 2009. The bill has 4 co-sponsors: Ensign, Reid, Isakson, and Stabenow. You can read the bill and track its progress by clicking here. To learn more about the tax credit, visit http://www.fixhousingfirst.com/

According to figures released by the U.S. Commerce Department on September 17, production of new single-family homes slowed in August as the expiration date for the buyer incentive drew nearer. While overall housing starts rose 1.5 percent to a seasonally adjusted annual rate of 598,000 units for the month, single-family starts declined 3 percent in August to a rate of 479,000 units, ending what had been a five-month run of improvements.