KnowYourPro

Hey All,

It is time again to take action.  Yes, this is in regard to YOUR INCOME...YSP and SRP.  This is in regard to having the ability to continue to offer valuable services to our clients.  This is about NOT letting our government create order takers out of us by being paid no better than a minimum wage. 

If you are like most, you have not read the entire, long legalize documents of the bill...or understand it if you did make an attempt to read it.  Want to hear what the Federal Reserve is proposing right now to destroy our income?  Download the link below.  It is a call with Sue Woodard, Barry Habib and Paul Mondor.  Paul Mondor is an attorney working with the Feds to do away with our income.  THIS IS SHOCKING AND FRIGHTENING.  What they are attempting to do is a joke.

Phone Interview

Why do I bring this to your attention?  Because it is time to TAKE ACTION again.  There is a grass roots effort in an attempt to OPEN UP THE COMMENTS again on this bill.  People, you may be busy...we all are.  If you care about this business at all, your income and your livelihood, MAKE TIME to do this.  There is a CALL TO ACTION that will take a whole 5 minutes of your time.  If you want to take even more time to understand the plea for action, you can listen to the video link on the website.  Go to www.frbcalltoaction.com.  No time right now?  No problem.  Get up an hour earlier or stay up an hour later.  Please...just take action.

I am certainly not an appraiser or an expert on home values, but being in the biz as long as I have, I do have a pretty good understanding of appraised home values and the ever restrictive lending requirements behind it.

For many who have had an appraisal done in the past year or so, may be able to attest to this blog's title.  The appraisal was done and they were shocked that the value came in so low.

"But I just spent $25,000 for this beautiful landscaping!"  In this day and age, that is called over-improved.  You just spent a lot of money that did not increase the value of your home.

"But there was a home just like mine that just sold last April 2009 and you're telling me that my home is $75,000 less than that one?"  Umm, yep!  That home that sold just like yours almost a year ago is not even a viable comparable at this point.

So, what gives?  How is a value determined?

Let's get the predominating factor out right away:

Your home's value is PRIMARILY DICTATED by like style homes that have sold within the last 6 months, within a 1 mile radius of yours.  Period. 
Now, obviously, if you are in a rural area or have very unique characteristics, that guideline is stretched.  But for the typical suburban area, this holds true.

Let's break this down a bit further:
The homes that have sold in your area are what the industry calls "Comparables".  Your home's value is dictated by these comparables.  And it cannot be just any comparable, rather it has to "fit" within guidelines.  When looking at comparables to a subject property (your home), the basic criteria need to be met:

·Comparable homes must be the same style of home as yours.  You cannot compare ramblers with two stories.

·Those comparables should have the same number of total rooms that yours does.

·The comparables must be similar in square footage and age (with some wiggle room for adjustments)

·The comparables must have been sold within the last 6 months.  Homes that are older in sales are not viable comparables.  Lenders take this a bit further and also require that at least one of the comparables be sold within the last 3 months.

·The appraisal report is required to have a minimum of THREE comparables to your home and TWO comparables that are active/pending listings for a TOTAL OF FIVE.  Of those, your home’s value rests somewhere between.  In other words, your value cannot be the highest number of all comparables.  The comparables MUST bracket your value.

Whew!  Did you take all that in?  Here is my message...before you decide to spend major dollars on renovations to sell your home or refinance, first understand your immediate, neighborhood housing market.  Ask your local agent to assist you with a comparative market analysis.  You don't want to spend your hard earned money for a dismal ROI.     And personally, I do not want to be making that call only to hear you say, "What!  My home is only worth what?  Are you crazy??"  Just makes the MN Mortgage Mom a little more crazier.

I'm sure that everyone's heard about the new Real Estate Settlement Procedures (RESPA) law that's come into effect, specifically, the new Good Faith Estimate (GFE) form that's now required as of January 1.  Upon first blush, the new GFE, which is now 3 pages compared to 1 page of the prior version, is fairly simple and clear to read; many complained of the prior version's esoteric layout and confusing brevity.  For instance, the new form states specifically whether the new mortgage will have escrows required and what the exact charges of the transaction will be, not simply estimates; that's where the title of the new form is deceiving.  It's not really a good faith estimate as it is a good faith GUARANTEE.

Where the form really deviates from the prior iteration is in its enforcement or effect.  Specifically, the new form does not tolerate upward deviation from the disclosed fees to the actual fees at the time of closing, except in certain circumstances where services can be shopped by the borrower, such as attorneys fees, it can tolerate a 10% deviation.   Again, this appears to be a consumer protection mechanism of the new law; now a loan cannot close unless the original GFE matches the settlement statement, or HUD-1, pretty much to the T.  

Again, no one can impugn the intention behind this new law; borrowers have been taken advantage of in the past and they need additional protections in the future.  However, there is a fairly significant oversight in the end result of the document, i.e., a loan CANNOT close if the documents differ.  This means that for certain fields if there is any difference between the documents, no matter how small or unintended those deviations may be, a closing can be put in jeopardy.  

For instance, in the state of Illinois, it is customary that the seller pay for the owner's title policy at the closing.  Now since it is only customary, and not codified or statutory, then according to RESPA this title charge needs to be entered on the GFE under Box #5, which will also be added to the bottom line, Box B, of the borrower's total closing charges.  Now you may ask yourself, why would a charge that is customarily a seller's fee, need to be disclosed as a buyer's charge?  Logic aside, this is the new law and everyone, including the buyer, must accept it because if it is not disclosed as such, then the loan will not be permitted to close.  So in essence, the borrower will not be able to close a loan because a fee that they customarily are not charged, and were in fact never going to be charged, was not disclosed to them at the inception of the loan process.  

Now, there is a simple and required fix to this: disclose a owner's title charge.  However, there is a fairly obvious problem with having an originator quote title charges to a consumer, i.e., the originator is not a title agent and frankly would have no idea of the owner's title until the policy is issued by the title company.  So the originator is left with guestimating those charges based on past experience.  Again, in Illinois, the owner's title can vary quite a bit depending the title company used by the seller.  I've seen owner's policy range from $1200 all the way to $2500.  Based on that alone, an originator would have to assume worst case, again because of the 10% tolerance, so $2500.  Remember, this fee will show as a borrower charge and be added to the bottom closing charges on the GFE.  

Obviously, a seasoned originator will be able to explain this particular quirk to a disgruntled borrower, and hope that another originator who is willing to bend the rules doesn't offer them a GFE without those attendance and required charges.  But what does this do to the state of mortgage lending?  Aren't we back to square one again in terms of confusing or misleading loan disclosures?  Shouldn't the mortgage process be clearer and more approachable for borrowers, rather than more opaque or confusing?  Is there anything more confusing that being offered a document stating one thing, and having your mortgage professional tell you the complete opposite in terms of actual costs at a closing?  Clearly, there must be a better way!  Perhaps it would have helped our lawmakers to solicit feedback from actual lending practitioners before implementing such dramatic changes to such long used processes.  It would appear from both a consumer's and originator's perspectives that the process remains broken, perhaps even more so.  

Thanks to Jen commenting on my last blog post, I now have my next blog post. Continuing my compliance theme, today I'm talking about licensing and how it came about in MA. Starting in the early 2000's, our state association was pushing for Loan Officer Lincensing. One year it came real close to moving on, as the bill was filed and it went to comittee. There was a lobby to oppose it, and that lobby was lead by the banks. Why would the banks not want non-bank Loan Officers to get licened? Take your guess in the comments. I'll check back in between shoveling snow to see if anyone has the correct answer.

So last week in my quest to be completely licensed we went to go get finger printed. Its a wacky system the National Mortg Lic System uses. You pay through them, you schedule an appointment, you show up, and then call the Finger Print company to check that they received your prints. My appointment was at a UPS store in Boston about 1/2 drive from the office. When I got there, the workers said the person that is trained on the system was not in and was not going to be in. So I called the finger print company and told them the situation. I don't think they were happy. I wasn't, as I took time out of my day. About 15 minutes later, they called me back and told me to go back to the UPS store. I guess the workers were magically trained by telephone. So the prints are done and the last item is the national test.

PS- the licensing system is now available for consumers to check their Loan Officers:

http://www.nmlsconsumeraccess.org/Home.aspx/MainSearch

Note: If you are working with a LO from a bank, that LO may not require to be licensed through the NMLS system.

Just in from one of our lenders:

To build capital and reduce risk, the FHA announced that it will raise insurance rates and tighten credit score requirements. The major changes include increasing upfront premiums from 1.75% to 2.25%, reducing the maximum seller contribution from 6% to 3%, and increasing the level of FICO scores from 500 to 580 below which a down payment of 10% is required. At this point, the expected timing of the upfront premium increase will be in the spring, and the other changes will take place over the summer.

 

Lets break this down point by point:

-Build capital and reduce risk. Remember when Barney Frank said FannieMae was in great shape?
-Increase in UpFront Mortgage Ins. Premiums. This will hall have some effect on qualifying but this premium is financed into the loan so it should not affect a borrowers cash to close.
-Decreasing the max sellers contribution. This will make FHA more in line with Fannie/Freddie guidelins. It will also help to stop a property's selling price from being over inflated. In high cost areas, this is a non-event. In areas where selling prices are much lower it could be an issue.
-Fico score and down payment requirement. Is anyone writing FHA loans for people with credit scores that low??

So to recap, mostly a non-event. So when it comes time for a mortgage the question is: Would you like Vanilla, Vanilla Bean, or Choc Chip (which is really vanilla with a few choc chips).

A few years ago, we lost a friend, a companion and a family member.  His name was Pup and he was a beautiful, 11 year old black lab.  Kidney disease took him.  He was incredibly special to us and the loss was sooo hard.  I remember the final days...his body was so weak, but his mind was just like it was when he was 2.  I couldn't let go just yet and I filled an air mattress, covered it with lots of comfy blankets and that's where Pup and I slept, cuddled and spent our final time together.  When the day came to say goodbye, we knew he was ready.  He would look at me on that mattress and say, "Mom, I'm too tired to fight anymore."  Uuugh...that was one of the worst days of my life.  I still reflect on his beautiful life...sometimes with tears and sometimes with smiles.  We loved him dearly and still miss him terribly.

And my husband and I said never again.  The loss was too hard to go through a second time.

Well, that didn't last long.  Our home was too lonely.  It was just too quiet.  Our kids said, "How bout a puppy?  P-L-E-A-S-E!!!"  A puppy!  Do you know how much work they are?  No way!

For any of you who have kids, well, they can be quite pursuasive and in their world, yes means yes and no means maybe.  They continued to "work" us...nothing like hitting mom and dad when we're down!  Our hearts were still broken and those little stinkers knew it...they preyed on our weakness.

So, a puppy it was!  What kind should we get?  Ha!  Not a cute little terrier that I could galavant around in my foo-foo bag to all my closings.  Not even another lab...we didn't want to feel like we were trying to replace Pup.  How about an Old English Mastiff?  "Mom, they are so cute and we can have lots of fun with it!"  Are you nuts???  Those things are HUGE!  But I couldn't help myself...I went straight to my handy dandy laptop and started doing the research...

The next thing we knew, we were driving to Cambridge, MN to pick up our cute little 8 week old Mastiff from a Mastiff breeder.  And cute he was!!!  11 pounds of wrinkly skin and baby slobber to boot.

That was 2 years ago.  Now, at 2 1/2 years old, everything is gotten REALLY BIG.  Big body (lordy, this guy is almost 200 pounds), big paws (or should I say massive), big slobber (our home is littered with bibs to catch it before it slings), even big poops.  Okay, I could have probably skipped the last visual, but dang, everything about this wonderful beast is BIG.  Sorry if I offended anyone.  Small digression...we keep teasing our next door neighbors, who are one of our dearest friends and non-pet owners that we're going to build sculptures out of the stuff...Ha!  Let me just say, it's a whole lot of poop.  Dad's daily clean up job...

Back to the 4-legged child.  His name is Mic.  He's cute, he's funny and he's a whole lot of work.  First came the potty training.  For all you who have a puppy, invest in Nature's Miracle.  It IS a miracle...the stuff WORKS.  We now own stock in the company :).  Let me tell you, potty training was not fun.  Mic just didn't understand...he was confused by the whole process, but we were successful...2 weeks and he figured it out.  Kind of reminds me of my First Time Home Buyer clients!  Now don't get me wrong...I love first time home buyers...they are my niche.  I really enjoy working with these people.  The lack of understanding and confusion about the whole process is what grounds me...keeps me to the basics with patience, kindness and understanding of my own.  Kind of like Mic and the whole potty training business.

And he whines...he whines when he is bored, he whines when he wants attention.  He's the perfect little toddler.  And when I want him to do something (we're STILL working on obedience and tricks) he just looks at me like "you're kidding, you really want me to do this?"  Think about all those underwriters out there that get paid the big bucks to make all of our lives a little bit miserable.  They want this, they want that...conditions, conditions.  I call my wonderful mortgage client and I can feel that look right through the telephone wires.  "Are you kidding?  You really want me to do this?"  Don't kill the messenger...we've got a doozy of an underwriter on our hands...we all take a deep breath and work through it together.

What makes it all worthwhile?  His love and appreciation.  When he wags his tail because he's so happy to see us.  When he slobbers on our face to show us his love.  It's unconditional.  When the day is done, all the work, the headaches and frustration melt away.  He adores us and shows it in so many wonderful ways.

I have been blessed with so many wonderful mortgage clients throughout the years.  Through the mutual patience, admiration and appreciation for hard work well done.  The appreciation of my clients does not go un-noticed.  It's what makes me tick and move forward.  It is rewarding and fills me up with warm fuzzies.  Just like Mic...warm fuzzies and a little slobber to boot.

The cook chief and bottle washer here, Jen, wants blog postings and after much consideration, I'm going to give her some so here it goes.....

Trying to stay on one topic will be difficult so let me just say I hope to give some insight into the industry here, but I caution you. I am in Massachusetts. I think I spelled that right, but let me check with Martha Coakley. Doh! I only am licensed here so when I refer to business, it’s from the customs and practices we work with here.

Let start by saying we are an Attorney closing state. Attorneys run the closings, not title companies. Scott Brown, our newly elected US Senator is a closing attorney. Wow someone in power that might understand our business. That gives me hope.

Now back to the subject (see, I'm rambling already). Last Friday, I won $140 playing blackjack at Foxwoods. Now while it’s nice to gamble and win, I was really there for a mortgage conference. It was for New England mortgage professionals. In between my time on the blackjack tables, I was in a cram class to learn how to take the National Mortgage Licensing System's Loan Officer Licensing exam.

I want to talk about how we got to this point. Not me winning $140 at blackjack, but rather how it came to be that I am taking the first test since I left college back in '87.  Back to rambling: Don't you just love pulling an 8 and 3 and doubling down when the dealer is showing a low-med numbered card?? Winning at blackjack is so much fun because it keeps me off the craps table.

Mortgage Client:  "I'm confused.  I don't understand.  None of this makes sense.  This paper does not even give me the numbers I need to know."

Loan Officer: "Why, Mr. and Mrs. Mortgage Client, you are absolutely correct...all this confusion compliments of our wonderful government and their ivory tower."

Could government just leave well enough alone?  Yes, the MN Mortgage Mom is on a rant!

As of January 1, 2010, the newly overhauled Good Faith Estimate (GFE) and HUD-1 Settlement statement went into effect.  And boy, what a confusing mess it is!

Last week, I met with a new client who has bought and sold real estate several times. This client is very well informed and experienced. As we were going through the mortgage documents, we came upon the new GFE. I began going through it when my client said, "Excuse my profanity, but what is this s**t?" I explained to him the changes, compliments of our wonderful government and their ivory tower. He expressed, "This is a joke. Is there any way I can get the old document?"

First, who other than the government can take a 1 page, detailed document of all fees and turn it into a 3 page bundled up mess??

To make matters worse, it does nothing to help the mortgage consumer understand some fundamental and critical numbers:

• 
  Cash-to-Close--There is no indication whatsoever on the new GFE as to how much money will be required from the borrower to bring to closing. Huh?
• 
  Total Monthly Payment--Ummm, yes, most borrowers want to know what their total payment is. Gotta look for it on another mortgage document!
• 
  Seller Paid Closing Costs--For those who are purchasing a home, it is nice to see how seller paid closing costs paid on behalf of the borrower/buyer will affect their bottom line cash needed at closing. You guessed it! Not on the GFE anymore! Gotta look for it on another mortgage document again.
• 
  Details--Many of my clients are very detail oriented. They want to know exactly what they are spending their money on. Rightfully so! The new GFE takes all of that away. Now fees are BUNDLED. Great for the lender, not so great for the consumer.

Here's my point. I am not ranting because this has just made my job more difficult. It has, but I will get used to it very quickly. I am used to constant change, being in the industry as long as I have. However, my point is these new forms do nothing to provide clarity to the consumer in a concise, easily documented fashion. Sure, these numbers can be found elsewhere in other mortgage documents, but GEEZ! At the consumer's expense in the growing sea of mortgage confusion?

All of this, compliments of our wonderful government and their ivory tower.

Short Sales and Deed in Lieu of Foreclosure (commonly referred to as Cash for Keys) have received major attention on the Hill.

The Feds are stepping in AGAIN, perhaps to the advantage of everyone...homeowners, buyers and the real estate community.

In an effort to curtail foreclosures, the Feds have introduced HAFA, Home Affordable Foreclosure Alternatives, effective April 2010. This is a big push to get banks to approve and move expeditiously on allowing homeowners to short sale their homes or possibly turn in their keys WITHOUT deficiency recourse.

Up until now, foreclosures have outnumbered short sales and loan modifications 20:1. Banks have been very non-responsive to short sales...or they take "a month of Sundays" to even respond to an inquiry. Homeowners, buyers and agents may see some relief around the horizon.

With HAFA, banks will be required to streamline and simplify the process of short sales or DILs.

Here are the highlights:
* Allows homeowner to receive preapproved short sale terms before property listing
*Prohibits servicer from reducing real estate commissions as a condition of approving the short sale. Great news for the agents!
*Homeowners are fully released from future liability for the debt...No more deficiency judgments!
*Servicer must respond within 30 days of the homeowner requesting a short sale. Yes! An established time frame!
*$1,500 relocation incentive to the homeowner
*The bank MUST respond within 10 business days of receiving an executed purchase agreement, it's decision on approval or denial. You read it right...TEN DAYS!
*The servicer (bank) may not charge the homeowner administrative processing fees...the servicer must pay all out of pocket expenses

Click on the provided link above to read the entire directive. It even includes a short sale agreement.

Happy Holidays from The MN Mortgage Mom!