Tag: real-estate

Home Buyers: Don’t Move Your Money!

~ Carolyn Warren ~ 3 Comments

account closed If you plan to apply for a home loan within the next three months, do not move your money around. Here are three tips:

• Don’t consolidate bank accounts.

• Don’t close a bank account.

• Don’t open a new account at a new bank.

If you want an easier, smoother loan closing, just leave your money as it is. Here’s why.

Right now, underwriting guidelines are super strict. Underwriters are expected to triple-verify everything. They want ironclad proof that down payment money and reserves (money in savings) are your own, not borrowed. In the past, borrowers who did not have enough cash to qualify for the home they wanted, used trickery to get qualified. They borrowed money from friends, took out cash advances on credit cards, or magically made cash appear from God-knows-where. There are tales of cash coming from drug sales, lap dances, and dumpster diving. I even heard a story from a loan officer friend about cash for the down payment coming from a giant garbage bag hidden in the kitchen. (He was visiting the home to take a loan application when the client showed him a hundred grand in bills in a big, black bag that was under the sink.)

Underwriters do not like what’s called “mattress money.” Why? Because money you pulled out from under your mattress might have actually been a secret side loan that has now pushed your debt-to-income ratio too high.

All down payment money must have a clear, proven, verified paper trail showing the money is and has been your own. Therefore, you are required to submit two months’ bank statements verifying the funds. If the bank statement shows a large deposit coming from a different bank account, that is a problem. Now you have to provide two months’ bank statements for that account. If you have shut down or opened new accounts, this gets complicated.

The last thing you want is complicated! Complications add more paperwork, more letters of explanation, more underwriting supervisors getting involved, more time to get your final approval, more time to close, and more headaches for you.

I’ve had clients who thought they were simplifying things by consolidating their accounts right before applying for a mortgage, but they ended up doing just the opposite. I’ve also had clients move large sums from investments to checking accounts in order to “get ready” to buy a house. Don’t do that. Leave your funds where they are and then ask your loan officer how to best transfer your down payment to the closing agent.

You might have a bank account in another state that requires three-days’ notice to move the money. This is okay. You will move the money and paper trail it, according to your loan officer’s instructions, at the appropriate time — not right before getting your pre-approval.

The exception to the above is if you will not be buying a house for at least four months. In that case, you have time to move your money, because you don’t have to show bank statements from that far back.

If you have any questions about this, please let me know. My goal is to help you have a pleasant, stress-free loan experience. When you are well-qualified and do everything according to the (underwriting) book, then it is possible to have a good finance experience–even now.

Big Settlement Helps Tax Payers

~ Carolyn Warren ~ Leave a comment

banker regretHave you ever made a purchase you regret? Probably so, but not as much as the purchase made by Bank of America.

At the cusp of the housing crash, Bank of America bought Countrywide, a lender that did both good and bad loans. Then Bank of America turned around and sold these loans to you and me — by selling them to Fannie Mae. I’ll explain.

Fannie Mae is the nickname for FNMA (Federal National Mortgage Association.) FNMA buys loans from banks and other mortgage lenders. It is owned primarily by American taxpayers. The U.S. government took 79.9% stake in Fannie Mae and its brother, Freddie Mac, in September 2008.

Fannie Mae didn’t like being sold a boatload of bad loans by Bank of America and cried, “FOUL!” There’s been an ongoing argument ever since. But today, Bank of America announced a settlement agreement with FNMA.

Bank of America has agreed to pay Fannie Mae $3.6 Billion and buy back 30,000 mortgage loans that were originated between January 2000 and December 2008, the years of the infamous “bad credit, no problem” loans.

This settlement and buy-back is in the best interest of taxpayers, because those risky and rotten loans are now back in the hands of BOA.

Now that Bank of America has that regrettable purchase-and-resell issue resolved, they can get on with the business of making more money. In spite of the settlement, they project a modest profit coming up.

So, today’s news is good news for everyone involved.

 

 

Loophole in the SAFE Act

~ Carolyn Warren ~ Leave a comment

testing How safe are you really with the SAFE Act?

The SAFE Act (Secure and Fair Enforcement for Mortgage Licensing Act of 2008) mandates nationwide licensing and registration for residential mortgage loan originators. The law was enacted with the idea of making borrowers safer from loan fraud, fee scams, lies, and hidden tricks.

While that sounds good, there is a loophole you might not be aware of (but should).

Namely, the SAFE Act supposedly ensures that all loan salespeople, brokers or bankers, receive an adequate base of training in order to get licensed. However, only non-supervised institutions have to pass the NMLS testing process. This means that bank employees are except from this training and testing.

Yes, you got that right! Loan officers at Bank of America, Wells Fargo, Chase, and other registered banks only have to register–not pass a test.

Listen to what one insider says:

I have files of cases of loan originators who failed the test and ended up working for a bank.

Here’s what another insider said:

For the past year I have been helping loan officers prepare to pass the federal and state test. The potential mortgage loan originators are new, and a large percentage are from the banking side of the industry. The 80 loan officers I have worked with shows me that the loan officer coming from the banking side are not understanding of the laws and are having a very difficult time passing the test. In some cases, it is like deer in the headlights.

This is one of the reasons why I say you do not choose your lender according to the institution. You are not assured of working with a higher level of expertise with a banker than you are with a broker. More often, it’s the other way around. It is truly an individual consideration. You must not execute blind trust in a loan officer simply because he or she works for a Big Bank.

Please don’t misunderstand. I know expert, experienced, ethical loan officers who work at Chase and Wells Fargo. But I consider them to be above the norm: the Mortgage Stars. I am not against getting a loan at a bank, but I am against having more faith in a bank than in a mortgage broker, because that is not the reality.

At present time, the law favors the bank employees with an advantage, so when you’re loan shopping, keep that in mind. Choose your lender by the individual loan officer, not by the type of lending institution or by the name on the building.

What took you so long, Mr. Bernanke?

~ Carolyn Warren ~ 3 Comments

Today, Ben Bernanke, U.S. Federal Reserve Chairman, said mortgage lending standards appear to be “overly tight.” Well, finally! I don’t mean any disrespect, but what took you so long to come to that conclusion? Mortgage professionals have been saying this for a couple years now.

Our economy will not fully recover until the housing market improves. And with the current extreme underwriting guidelines, that is not happening fast enough.

We went from “if you have a pulse, you’re approved,” to “if you have perfect credit, high income and low debt, you may or may not be approved.” Underwriters are running on FEAR. They’re scared to death of approving a loan that might go into default. Consequently, the approval process at the big banks and with many other lenders has gone over the line of common sense.

I’m calling for REASON and COMMON SENSE to come back to underwriting. For example, if an otherwise perfect borrower had one weird credit snafu, give the person some grace and let them buy a house. What’s the point of denying someone with a good income and good down payment just because of one “oops” on their credit report?

Here’s another true scenario for you to start using common sense on: A self-employed married couple, both attorneys, have $1 million in liquid reserves. They want to refinance their $500K mortgage to get a lower rate and lower payment. Look at the picture: they could choose to pay off the mortgage, if they desired; but their tax adviser has told them to refinance and keep their cash in investments. What did the lender say? DENIED! That’s right, their request to refinance was denied by several banks and lenders. Why? Because their tax returns showed they made less money this year than in their previous year.

Declined income = no loan. (Even if the debt-to-income ratio was still reasonable.)

I could give you more real life scenarios like this, but I think you get my point. Let’s bring common sense back into underwriting, loosen the ridiculously over-tight rules, and get our economy moving up again.

To comment, see the top of this post. As always, thank you for stopping by.

Urgent Messages to President Obama

~ Carolyn Warren ~ Leave a comment

The housing industry has sent urgent messages to President Obama following his re-election. The reason this is important to all of us is because what happens in the housing market affects the entire U.S. economy.

In a nutshell, here are the urgent messages sent to the President after his re-election. I will skip the obligatory congratulatory remarks and get right to the nitty-gritty:

 Mortgage Bankers Association: Strongly urge that burdensome regulation and exposure to litigation do not cut off the supply of mortgage credit to consumers.  In other words, don’t strangle us with your pedantic red tape; let us make loans to good people.

 SIFMA, which represents securities firms, banks and asset managers: Fix the Dodd-Frank law.  In other words, fix that horrid law you passed that has hurt real estate all across America.

National Association of Home Builders:  Make sure creditworthy consumers and small businesses can get mortgage loans, tackle housing reform in a responsible manner, and resolve the foreclosure crisis: all of which are vital to spur job growth and strengthen the housing and economic recovery.  In other words, let us get back to work so that all Americans can get back to work.

American Institute of Architects: We urge the White House and newly elected Congress to launch a new era of statesmanship by putting aside differences… solve the impending budget impasse…where mandatory budget cuts and tax hikes threaten to cost more than 60,000 construction jobs. In other words, stop fighting and fix the economy already.

There is nothing in any of the above messages to disagree with. We all want a more robust economy, and the housing industry is a key factor. The question now is whether or not President Obama can lead us to it. Time will tell.

The Trouble with The Perfect House

~ Carolyn Warren ~ 1 Comment

This two-story bamboo home (www.luxuo.com) is perfect for withstanding earthquakes and hurricanes. A bamboo resort on the Cook Islands outlasted three hurricanes, tidal waves, and 170 mph winds.  Originally designed for the tropics, bamboo homes are now available with insulation, making them suitable for any climate. The 2,500 square foot home above was built on the Big Island of Hawaii in just eight days.

If a bamboo homes isn’t your style, how about a log cabin?

No? Then how about a dude ranch or a hexagonal home?

If your dream home is unique or unusual, stop and consider two things before you proceed.

The Trouble with a Unique House

1) If you aren’t an all-cash buyer, you could hit a snag with it comes to financing. Your lender will order an appraisal report to establish value. Ideally, they want to see five comparable homes within five miles that have sold within the last six months.

If the appraiser cannot find another house like yours or has to travel 20 miles to do so, the underwriter might reject your loan, regardless of perfect credit, high income, low debt ratio, and good down payment.

If you don’t need a loan, then consider another possible challenge.

2) If you decide to sell in the future, your pool of prospective buyers will greatly be reduced. If you couldn’t obtain a loan, neither will someone else, and you might be limited to attracting another all-cash buyer. Are you willing to take that risk?

Before you settle on a unique home, drive around the area. Are there any other homes like it within a five-mile radius? How unusual is the home for the locale? After you get an idea of how difficult it will be to appraise, consider your resell situation. If you plan to keep it “forever,” possibly even turn it into a rental home in the future when you move on, then a eco-friendly bamboo home or even a guitar shaped house.

Would you ever seriously consider buying or constructing a unique house? Hey, if worse comes to worse, maybe you could turn it into a bed and breakfast someday.