Eric's Blog

We all deserve good news now and again --- So for this week, take the new 95% Conventional Program to the Bank.

In light of FHA raising their Upfront MIP to 2.25% this week, there is now another option for those willing to put an extra 1.5% down in cash on a new home. 

Here are the details on the 95% Conventional Program: 

• Primary Residence only
• 1^st Time Home Buyers and Move Up Buyers
• Monthly Multiple as high as .94% ($195K loan the monthly mortgage insurance is $151 est.)
• Credit Score above 720
• DTI Ratio at 45% or less

Good information to have just in case you find any buyers that want to put less than 10% down but not go through FHA.

Hope this works for you.

An article on MSN.com today captured the essence of the problems that FHA has been dealing with over the recent months.  FHA has been struggling to keep foreclosures from piling up, they are paying for 1 of every 4 loans that were made since 2007, and there willingness to insure loans with lower down payment are all reasons for the increase of foreclosures that is on the horizon.

These foreclosures are different, in that they are economically driven.  They are due to unemployment, furlows, and tanking retirement accounts.  These new foreclosures aren't just for people that couldn't afford the loan and were taken advantage of by a Predatory Lender.  No, these loans that are now in foreclosure, are from people that got the right loans and worked hard to keep the house but now can no longer afford to do so.

There are always competing arguments as to whether requiring only 3.5% down is really enough for a person to buy a home.  My opinion is that with the right person(s) as the owner of the home, then yes it is a good product.  It does lend for people to "justify" abandoning a home because they didn't have to give a lot to get into the home, but it also gives people that would otherwise be unable to own a home the security of having a place to call their own.

With the news about FHA facing difficulties with rising foreclosures, it is no wonder that they are raising the Upfront Mortgage Insurance Premium from 1.75% to 2.25% and requiring 10% down for people with lower than 580 credit scores (even though most lenders won't underwrite an FHA file with less than 620 credit score).

FHA is a viable product with the right people and the right loan officer educating them about the process of obtaining a mortgage and what it means.  Without the FHA making an effort to help people get into homes, there would be a lot less movement in the housing market.  It is still just a matter of selectively choosing (with proper documentation, income, etc.) the qualifications people must meet in order to obtain FHA insurance on their new home purchase.

Do you think that FHA should change their qualifications and requirements or do you believe the product is great for people who understand what they are doing and manage their finances in the best way possible.

Licensing for Mortgage Loan Originators is here!!!  I spent a few days last week in classes, brushing up on Federal and State Law and sharpening my skills as a Mortgage Consultant/Loan Originator.  It may be easy to complain about the licensing requirements, but in reality, it will help to make better "professional loan officers".  I learned every day that while in class and I am excited to take the test (early next Tuesday for the federal test) and to be able to call myself "licensed".  Even if the only thing passing the test will lend me (no pun intended) is a bit of credibility with my peers and in the community that will be entirely worth it.  I am for learning and growing in all aspects of life, and by passing National and State tests that is definitely one way to prove that you are worth what you say you are worth in the marketplace.

Week In Review:

• The verdict on the new GFE is still out  -- I find the new form even more confusing to borrowers because of it's lack of "cost breakdown".  The generalization and lump sum numbers doesn't really lend to transparency.  The idea behind the GFE was to find a way to keep Loan Officer's from changing fees at the last minute and to make transparent what the Loan Officer/Broker was making on the loan.  These concepts are accomplished but at the expense of keeping the form straightforward and understandable to the borrower.  The general rule I live by for customers still applies to the mortgage process.  If you educate the borrower by taking the time to answer their questions and are transparent with them, not because of some form, but because it lends to better communication, then the borrower will find the loan process an enjoyable experience.  If, instead, the loan officer doesn't teach but is only concerned with his money on the deal or whatever it may be, then the borrower may suffer because they aren't given the necessary tools by the loan officer to help them understand the financing process. 

Overall I think the new GFE is fine and it's really just another new item to implement to our stacks of ever changing guidelines and regulations.

• High number of I/O Mortgages to Reset this year - While in class for the National Licensing Exam, the discussion turned to the high number of 5/1 ARMS that are set to adjust this year from the peak purchase season in 2005.  Unfortunately we aren't "out of the woods" yet.  As 2005 and 2006 was heating up in the Real Estate market, many buyers turned to I/O financing on ARMS because they believed they would be able to just refinance down the line.  Of course, that is an unlikely possibility with the housing market decline of 2008 - Present.  It is, however, an opportunity for 2 things:

1.       Refinances - Those don't benefit agents directly but if you were in the real estate market in 2005, it may be time to contact your old database and put them in touch with a reputable Loan Officer that will take care of their needs and discuss their options with them.  It will be a great value add for you in case they need help selling or buying their next home.

2.       Short Sales - The dreaded word in Real Estate, even worse than Foreclosure, is SHORT.  The process is arduous and seemingly never ends.  However, the rise of Short Sales will continue for sometime as people seek to be out from under the large amount of debt they face due to purchasing homes in 2005-2008 (yes even people who bought in 2008 are hurting, some in 2009 as well).  If you have an old contact that can't refinance and is need to get out from the debt, perhaps it's an opportunity to assist them in the sale of their current home.  So pull out those old contact sheets and get after it!!!

• Selling to Make a Living - I read a blog article this week from a fellow mortgage professional that touched on the topic of "selling" to real estate agents.  The premise of the blog was that if he was "selling" his services to realtors could they at least be courteous seeing as though Realtors, by very nature, are in the sales business as well.  I can empathize with his points and I also empathize with the many agents that don't want to be "cold-called" and offered products by random companies.  I also certainly empathize with the comments many made regarding the "badgering" that often occurs from "sales professionals".  But in truth we all know that in order to be successful we have to sell.  Name any company or position within a company and they all relate in some way selling.  It is why we are different from other countries, the right to capitalism where we can sell something that we perceive as worth value and others can choose to purchase or use what we are selling.  I can't say that selling is the easiest thing to do, in fact, most of the time I feel as thought I am "badgering" or even bothering Agents when I call them.  But in truth, I believe in what I am doing.  I believe I am an efficient loan officer that can take the stress away from you and your clients by being thorough and diligent throughout the process.  I also believe I am one of the best mortgage professionals remaining in the industry today.  What will it take to prove to the masses that I am, only selling!  It is what we do, realtors and lenders, to make a living and if you believe in what you do and are passionate about it you will find success by selling.  Let's just hope that along the way those you sell to will be courteous and have empathy for the work that you are doing to be the best.

A little over two weeks remain as we close out 2009 and brazenly embrace 2010.  The rates that were down in the 4% range have shot back to a more expected level to where rates have been throughout the year.  If the theory holds true though, we may see a small dip in rates come the end of December and into early January so be ready with those buyers to snag the best and most affordable rates.

It has been a while since I posted because of the Thanksgiving Holiday and then my first real vacation (one where the cell phone was left at the condo when we left to do exploring) since I was married in 2006.  Lucky for me, the vacation to Maui was just what I needed to recharge the batteries and to attack 2010 with a vengeance.  I have been researching a few different items related to the mortgage market that I am sure is great information for you and your clients.  So without further adieu:

Week in Review:

• Fannie Mae 8.0 and new Freddie Mac LP - In the world of loan originators, Fannie Mae and Freddie Mac LP, are the lifeline through which we can approve and not approve deals prior to underwriting.  Basically, an approve/eligible rating with Fannie Mae or an Accept rating from Freddie Mac LP, means that the loan does meet minimum guidelines if the Assets, Income, Credit, etc. can be supported through verification.  Why is this important?  Well, both are undergoing upgrades to their Desktop Underwriting system that is going to change the guidelines for borrowers.  For the past two years a decent credit rating and a DTI (debt to income) ratio of less than 57% was enough to get people qualified.  THE NEW MINIMUM STANDARD FOR DTI RATIO IS 45%.  Read it again!  And again!  The guidelines just got tighter, which means we have to be even more diligent to ensure that the borrower are qualified upfront.  It can be said for sure the effect that the new DU system will have on borrowers but it does mean we are back to the underwriting of the mid 90's.  Time to buckle down for 2010.

• Financially - Does walking away make more sense? - An article by a lawyer, Brent White, from the University of Arizona discusses the stigma associated with walking away from your home.  He makes some compelling arguments for people to walk away, because if the numbers work in their favor, they can save tens of thousands of dollars.  An article, written by Liz Pulliam Westin, gives her take on the subject matter.  It is interesting that people are making a moral decision when it comes to their homes not a financial or numbers decision.  Brent White, discusses how the trends of foreclosures closely follows the trend of unemployment and further that people, instead of thinking logically, use emotion to deter them from foreclosing on their home.  However, Liz Pulliam Westin does disagree with White as he speaks nonchalantly about the difficulties associated with credit after a foreclosure. (Of which I agree!)  The most profound comments though came from White when he discussed the general public/society and their decision to keep the house being a moral decision. He believes that the lending industry and bankers don't make moral decisions, they make numbers decisions, and because of that the general public has that right.  

•  
  • When faced with difficult decisions, are we hurting the economy by making a financial decision that will keep ourselves protected or should we, as Liz Pulliam suggests, continue to put our financial well being in the hands of banks and lenders who are unwilling to help?  (Ms. Pulliam does suggest that banks and lending institutions improve their moral position to help but the truth is that won't happen!

• PMI increases DTI Ratio -  For those borrowers that couldn't get PMI because their DTI was over 41%...Congratulations, the new percentage is now 45% to match that of the Fannie Mae and LP changes above.  Remember, to always find the good in any news. 

Lastly, remember that the new changes always make it more difficult to close loans without underwriting asking questions or wanting more information.  Sure, it can be tiring and grating, but my motto is that the Underwriters are my friends, not my enemy, and if I work with them and don't fight them the chance for overall success is greater.  I will always fight for what the customer needs, but the goal is to win the war and if there are times when we must retreat and not fight small battles to ultimately win the war, then that is what I will do. 

Consistent, Disciplined and Persistent Lending practices will lead to successful closings.  You have all contributed in a positive way I am sure for your clients and for that they will be forever grateful. 

With a little bit of elbow grease, 2010 looks to be even more promising.

Interesting how perspective can change in just one quick second.  As soon as news that the tax credit extension had been approved (see attached document), it seemed people weren't quite as pressured to buy a home, "right now".  That isn't at all a scientific observation, but perhaps just a feeling since there were a lot of people, realtors and lenders included, who breathed a sigh of relief.  As a result of the extension, a few borrowers that were concerned about the deadline can now take a bit more time to find the home that works the best for them without feeling rushed.  Not to mention the added benefit of continuing to help first time home buyers with a lasting benefit in the form of cash back from the government (even if it sets the deficit nationally further in the red - yes the statement is too political for this email so no further mention will be made of it, excuse the lapse in judgement...HAHA).  Again, it's that whole perspective thing.

Nevertheless, rates held steady through the week and at this point on Friday, the market is saying to "bail out", which just means to be patient to see how the market moves.  Again, there isn't a better time to buy a home then when you are ready.  And if you are ready when rates are historically low and the government is giving you money, then by all means...buy a home.

Besides the most important news (see above) there were some other interesting items:

•·         Consumer Credit Fell - AGAIN! - For the eighth straight month consumer credit fell and people were borrowing money at a slower pace than in the past.  It seems we are moving toward cash and away from credit.  But if it is any indication on the upcoming Holiday season, many retailers may be in for some hard times.  In some cases, there are stories of retailers beginning their "Black Friday" sales this weekend.  Retailers such as Walmart (no surprise there J ), Sears, JC Penney, etc. are having blowout sales every weekend leading up to "Black Friday", all in the hopes of capturing some of that consumer spending which may be very muted this year.  It will be an opportunity for many to find great deals throughout the end of the year and leading all the way up to Christmas.

•·         Credit Policies continue to tighten -  The question always looms: when will the easing on the credit markets occur?  When will it not be a battle to the finish line, with the Loan Officer asking for the borrowers' blood to get the deals done???  It seems that in some areas changes are taking place, but not always for the good.  For example, trailing secondary wage earner income is no longer eligible income for any conventional loan transaction.  (Trailing Secondary income - if a borrower is relocating and the old job will end before the new job begins, the old income cannot be used to qualify). Investors are now asking for three months bank statements for retirement/pension income.  There are more guideline changes and credit policy changes that will increase the paperwork needed for many borrowers.  Surely one would think these are not standard with every investor, however, they are derived from Fannie Mae and Freddie Mac and will become commonplace as we move forward.

•·        Phoenix Coyotes are 10-6, Phoenix Polar Bears work to raise money for Breast Cancer - If you are a hockey fan, which I am, then you will be pleased with the new brand of hockey the Coyotes are playing.  They compete and battle all over the ice, it isn't always flashy but they seem committed to defense and playing the game with intelligence which has led to a decent start.  Sure, it will still be a long shot to make the playoffs, but at least they are enjoyable to watch.  So long Gretzky!  If you are interested in continuing the donations for Breast Cancer, the Junior team that I am involved with is hosting a walk tomorrow morning.  You can read more about it at the website: Making Strides for Breast Cancer.  You can also check out the webpage at www.phoenixpolarbears.com to see our website and its facelift to commemorate Breast Cancer Awareness. 

(P.S.  We carry Breast Cancer awareness into November due to our season schedule - but, hey shouldn't we be aware of dangers to our loved ones at all times)