What to Expect After The Mortgage Meltdown

“Why is this so much work, I don’t ever remember a loan taking this long or being so hard?” “Why do I feel like a criminal, what does the Underwriter think I’m hiding?”

These are just some of the complaints my best and longest clients have expressed to me about their most recent mortgage experience. And guess what? They’re right, it’s just flat out tougher to get a loan today than it was two years ago.

In nearly ten years that I’ve been in this industry, the mortgage process has become infinitely more complicated, regulated and difficult. We are dealing with less loan options, more regulations, much tougher appraisal rules and strict underwriting guidelines that seem to change daily. Today even the best quality loans are being scrutinized, reviewed and occasionally experience delays in underwriting and closing. It has never been so important for you to work with an expert in the field!

Why, you ask? Well our industry has been turned upside down, it’s taken mammoth losses on bad loans and today the industry is trying to find the correct balance. But balance for an industry as big, complicated and regulated as ours is tough to find. So sometimes underwriters are too tough on one borrower and not tough enough on another, it’s all part of our industry finding balance again.

Don’t take it personal! Chances are if you buy or refinance in the next couple years, at some point during the loan process you will be asked for some additional documentation, explanation or the appraiser will have to go back to work to justify the property value. This is NORMAL in today’s market, it’s just par for the course. Getting a mortgage today is just going to be a little more work than it was before the meltdown.

HERE’S THE GOOD NEWS. You’ve chosen a team that is absolutely dedicated to getting you through the process on time and with as little stress as possible. We dedicate a huge amount of time and energy to create systems that prevent you from having any major problems. We will get you through this safe and sound; just don’t panic if there’s a little turbulence along the way.

AND HERE’S SOME MORE GOOD NEWS. When you’re done, you will have bought a home at the bottom of this real estate cycle and will enjoy a TON of appreciation over the next 7 to 10 years. You’ve had the courage to buy when others are afraid to enter the market, you beat the crowd back to the game and you will be rewarded handsomely for your courage and efforts. Oh yeah and you’re going to get a 30 year fixed interest rate at the lowest they’ve been for about 100 years.

So is it more work, stress and effort? ABSOLUTELY, but isn’t anything that is truly awesome to accomplish more work than the things that are easy? Isn’t that the way life works? If it were easy, everyone would be doing it and then the payoff would not be nearly as great. So I say go for it, jut know it’s going to be a bit of a challenge, but well worth it in the end.

Carpe Diem...

Bye bye FHA Financing on Condos (Video)

New Project Eligibility Requirements

• Projects must consist of two units or more. (This used to be 4)
• Projects must be covered by hazard and liability insurance, and flood
insurance if applicable.
• Right of first refusal is permitted unless it violates discriminatory conduct
under the Fair Housing Act. This is new and a welcome change. FHA used to
require complete removal of the language from the HOA’s document which excluded a lot
of projects who’s Home Owners Association fervently wanted to retain that right.
• No more than 25% of property’s total floor area can be used for
commercial purposes. Commercial portion must be free of adverse
conditions to occupants.
• No more than 10% of units may be owned by one investor. This applies to
developers/builders that rent vacant and unsold units. For two and three
unit projects, no single entity may own more than one unit; all units and
common areas must be 100% complete; and only one unit can be
conveyed to non-owner occupants.
• No more than 15 % of total units can be in arrears (more than 30 days
past due) of their condominium association fee payment.
• At least 50% of the total units must be sold prior to endorsement of any
mortgage on a unit. Valid presales include an executed sales agreement
and evidence lender is willing to make the loan.This was reduced from the
previous presold requirement of 51%.
• At least 50% of the units must be owner-occupied or sold to owners who
intend to occupy the units. For proposed, under construction or projects
still in their initial marketing phase, FHA will allow a minimum owner
occupancy amount equal to 50% of the number of presold units (the
minimum presales requirement of 50% still applies).This also is reduced from
the previous owner-occupancy requirement of 51%.
• Legal Phasing is permitted for condominium processing. It is
recommended that developers submit all known phases for initial project
approval. For purposes of calculating the owner-occupancy percentage:
• On multi-phased projects the owner-occupancy percentage is
calculated on the first declared phase and cumulatively on
subsequent phases if the ownership of the project remains the
same;
• If multi-phasing includes separate ownership per phase, each
phase is calculated individually; or
• Single-phase condominium project approval requests must meet
the owner-occupancy percentage requirement.
• FHA Concentration
• Projects of three or less units will have no more than one FHA
insured unit.
• Projects of four or more units will have no more than 30% of total
units insured by FHA.

FHA has had concentration requirements, but has never provided a method to track them. That is going
to change since it’s a huge part of what got them in so much trouble. Not only are they working on
tracking the number of FHA insured units in each project, they will make this information readily available
to the public so that it can be easily accessed by Realtors, lenders, etc.Why will we care? Well let’s say,
as a lender, a realtor comes to you asking you to submit an existing project for approval or recertification.

Tough Times Ahead for Condos

FHA financing on Condo Projects is about to go from flood to trickle on October 1, 2009. These new guidelines announced in Mortgagee Letter 2009-19 will apply at that time:

• The spot approval process for condominium projects is eliminated.

• All current condominium project approvals will be invalid (with the exception of projects approved on or after October 1, 2008) and projects must be re-approved under the new options available. Going forward, all projects will require recertification every two years.

• There will be 2 approval process options:
1. HUD Review and Approval Process (HRAP)
2. Direct Endorsement Lender Review and Approval Process (DELRAP)
(This option is available only to lenders who have unconditional Direct Endorsement authority and staff experienced in reviewing and approving projects.)
• HUD will only accept approval packages for review from
o Lenders or
o Builders/Developers.

Getting projects back on the approved list will be a long and slow process. And until a project is approved, FHA financing is not an option. Early submission to beat the October rush is not allowed.
Now is the time to get those condo listings sold and your condo buyers off the fence!
Wondering what the new Project Eligibility Requirements are? Email me for a full list of the new requirements.

Unintended Consequences of Government Intervention (Our Biggest Risk to Economic Recovery)

"Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."
- Ronald Reagan

I know last month’s news letter was about letting go of things outside of your control, but I just can’t control my mouth any longer. In the last 90 days the mortgage industry has seen sweeping changes to our practices in the name of “mortgage reform.” From the outside, the philosophies sound great, but in application they will end up taxing the mortgage industry (time, money, effort) and hurting the consumer.

You might have heard about the Home Valuation Code of Conduct (HVCC), which came from an agreement reached between the Attorney General of New York (Andrew Cuomo), the Office of Federal Housing Enterprise oversight (OFHEO), Fannie Mae and Freddie Mac. This regulation was intended to keep Loan Officers away from influencing Appraisers to hit a specific value, to stop PUSHING the value. A noble and worthy objective, unfortunately The Cure Is Worse Than The Disease (1) in practice.

The regulation makes me order the appraisal through an Appraisal Management Company (AMC), the AMC then randomly selects an appraiser for the job and sends them an order with no link to me, my company, or the value of the home until the appraisal is complete (so far so good). Here’s where it gets screwed up:

1. We have no idea and no say if this appraiser has 20 years experience or 2 months.
2. We have no means of communicating a rush situation for a short deadline.
3. We have no way to follow up with the appraiser to make sure they received the order and scheduled the appointment.
4. If an Underwriter has questions or problems with the appraisal, we have to try and communicate that back to the AMC, then on to the appraiser, who has no link to us or the client and looks at the Underwriter’s question as a nuisance.
5. If the appraiser makes a mistake or misses some comparables (they are human) we have no way of making him aware he missed something (remember we can’t influence value).

I just had a client whose appraisal was so bad, three Underwriters flat out rejected the report. Guess who had to pay for a new appraisal, rate lock extension, settlement deadline extension and rescheduling of movers? THE CONSUMER, THE ONE THE GOVERNMENT WAS PROTECTING…. Unfortunately this is happening all over the country, slowing the process and efficiency of a free market economy and costing the consumer money, time and energy, not to mention tremendous stress.

Or how about the Mortgage Disclosure Improvement Act, which was intended to keep consumers informed about APR changes and give the consumer time to consider their options in case of a change. I fully support the philosophy, but the problem is that we live in the real world. In the real world of real estate, purchase prices change, contracts get renegotiated (think closing dates, seller paid closing costs, repair items discovered during inspections, etc.) and the Loan Officer has to roll with the changes as quickly as possible to keep the closing on time and as scheduled.

That’s simply not going to happen any more thanks to the MDIA. The act now requires us to wait 7 business days from application to close any real estate transaction and re-disclose any APR changes greater than 1/8th of a percent and then wait 3 business days before closing. There will be countless consumer dollars lost to expired rate locks, buyers paying sellers to extend settlement deadlines, sellers paying extra interest on their mortgages because the buyer could not perform, not to mention the buyers who can’t close on time because of the law and end up losing deals all together. This is all because of the unintended consequences of lawmakers who don’t know ____ about the real business of loans and mortgages.

Government has a role in our society, but society is best served when government stays in the background. There’s a reason lawmakers are making laws and not running successful businesses, it’s because they don’t have a clue how to do it or they would be out doing it, trust me. Let’s keep the ugly dragon of government in the cave, once the beast is loose it’s almost impossible to contain!

"Government is not a solution to our problem, government is the problem."
- Ronald Reagan

(1)http://www.appraisalpress.com/news/articles/hvcc_the_cure_is_worse_than_the_disease

Mortgage Disclosure Act: 60 Seconds With Josh

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