CNNMoney.comHow the housing rescue bill can help youWednesday July 23, 3:45 pm ET By Les Christie, CNNMoney.com staff writer
If the bill is then passed by the Senate and signed by President Bush, who today withdrew his threat to veto the legislation, thousands of at-risk borrowers will be able to refinance their unaffordable old mortgages into new, low-cost fixed-rate loans insured by the Federal Housing Administration. The Congressional Budget Office estimates that 400,000 borrowers with $68 billion in loans may benefit from the program - but the bill allows for as many as one or two million borrowers to participate in the program.
Here's what homeowners need to know.
Who's eligible?
Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must spending at least 40% of their gross monthly income on all household debt to be eligible for the program.
They can be up-to-date on their existing mortgage or in default, but either way borrowers must prove that they will not be able to keep paying their existing mortgage - and attest that they are not deliberately defaulting just to obtain lower payments.
Before a homeowner can get an FHA-backed mortgage they must first retire any other debt on the home, such as a home equity loan or line of credit. Borrowers are not permitted to take out another home equity loan for at least five years, unless it's to pay for necessary upkeep on the home.
To get a new home equity loan, borrowers will need approval from the FHA, and total debt cannot exceed 95% of the home's appraised value at the time.
How can I apply?
Borrowers can contact their current mortgage servicer or go directly to an FHA-approved lender for help. These lenders can be found on the Web site of the Department of Housing and Urban Development.
How does the refinancing process work?
This is a voluntary program, so lenders holding the original mortgage have to agree to rework a given loan before things can get started. The bill requires lenders to make major concessions, writing down the value of the loan to 90% of the home's current value. In areas where prices have plummented by as much as 20%, that will mean a substantial loss for the lender.
But lenders won't sign off on a workout unless they think that they'll lose less money on that than they would by allowing a home to go through the costly foreclosure process.
Each loan will have to be underwritten by an FHA lender on a case-by-case basis. That means the banks will do a new appraisal to determine the home's current value, as well as examine and verify income statements, bank accounts, job histories and credit scores.
Based on that new appraised home value, the FHA lender determines how much the original lender has to reduce the original mortgage by, so that it will reflect 90% of the home's market value.
If the original lender agrees to the write down, the new lender buys the old loan and takes over the reworked mortgage.
As part of the deal, the old lender writes off any fees and penalties on the original mortgage, including prepayment penalties, and accepts the proceeds from the new loan on a paid-in-full basis. Additionally it pays the FHA an up-front premium equal to 3% of the mortgage principal.
What does it cost?
There should be little up-front costs for borrowers to bear. Loan origination fees will vary by lender, but these can usually be paid by the borrower over the life of the loan in the form of a slightly higher interest rate.
However, the refinanced loans do come with many strings. For one thing, borrowers are responsible for paying an insurance premium to the FHA guaranteeing the loan, which will be 1.5% of the principal annually.
Borrowers also agree to share any profits from future home price appreciation with the FHA. To do that, they'll pay a "3% exit fee" of the mortgage principal to the FHA when they resell or refinance.
Plus, they'll agree to pay the FHA 100% of any profits they realize from higher home prices if they sell or refinance within a year. So if the original loan principal is $200,000 and the home sells for $250,000, the borrower will owe the FHA $50,000, minus costs.
After a year, borrowers will share 90% of the profits with the FHA. The percentage keeps dropping in 10% increments to 50% after the fifth year, where it stays.
What will I save?
Savings depend on what borrowers are paying for their present loan and where they live, but for most people it will be substantial, even factoring in the FHA fees.
In areas that have sustained huge price drops, such as Sacramento, where prices have fallen about 30% over the past year, some loans might be reduced by more than 40%.
Additionally the FHA loans carry reasonable interest rates which are fixed for the life of the loan, as opposed to a subprime adjustable rate mortgage that can jump higher every six months.
Many first-time buyers qualify with lower credit score, smaller down payment June 01, 2008 05:01 PM By Ilyce Glink Inman News If you're a first-time home buyer, you'll find it a little harder to qualify for a mortgage than the first-time buyer who walked in your shoes two years ago. The credit crunch on Wall Street and record foreclosure rates have made investors nervous about home buyers who have small down payments and lower credit scores. While the number of first-time buyers is down, there are plenty of folks who are tempted by falling home prices and low interest rates. What kind of loans are out there for them? The kind of loan you're offered starts with your credit score. According to Philadelphia-based mortgage lender and real estate broker Fred Glick, Fannie Mae and Freddie Mac are looking for credit scores of at least 660. "We're absolutely accepting loans where borrowers have credit scores in the 600s," said Craig Nickerson, Freddie Mac's vice president of expanding markets. "There's no question that the stronger the credit of the borrower, the better product they can obtain." "But there is a matrix based on the credit score and the down payment" that can change that number, Glick explained. "If you put down 5 percent, you'll need a credit score of at least 660. But if you go with an FHA loan, you can put down [as little as] 2.25 percent and allegedly they'll take a 580 credit score." "With a credit score over 700, you can still get 100 percent financing," Nickerson noted. FHA loans are making a strong comeback, according to Allen Jones, a spokesperson for Bank of America. "In the calendar year 2006, Bank of America originated $1.5 billion of FHA loans. In April 2007, we originated $1.1 billion in FHA loans," he explained. In 2008, Bank of America expects to fund $5 billion in FHA loans. "With the changes FHA has made over the past year, it has become a sweet spot for us." Who is a good FHA candidate? "Someone in a first or second job out of high school or college, who is working and can afford the property but might need help with the down payment. With FHA, a parent can provide the down-payment assistance as long as the borrower can afford the payment," Jones said. Jones said that the average credit score of an FHA borrower is about 620, although "there are plenty of 500s and plenty of 700s" as well. In San Francisco, RPM Mortgage's Dick Lepre said that his company no longer accepts applications from borrowers who have a credit score of less than 680. "Everything is being ratcheted up. It's as if somebody took every credit guideline and raised it 20 points," he said. When it comes to down payments, lenders want to see at least 5 percent down for a normal conforming loan of up to $417,000, according to Victor Benoun, owner of The Mortgage Source, a mortgage brokerage based in Studio City, Calif. "If you're borrowing more than $417,000, lenders want to see at least 15 percent equity in the property, although they're cutting that back to 10 percent to make up for a declining market," Benoun said. That makes FHA's 3 percent down-payment requirement seem doable. In addition to having the cash for a down payment, Benoun said many first-time buyers are having trouble coming up with enough income to support their mortgage. "Lenders would normally say they'd like to see 25 to 28 percent of your gross income going against your housing expense, and now that has been relaxed a bit more to include ratios of up to 40 percent of your gross income. Once you get past the ratio of 42 or 45 percent of your gross income, you may not be able to do a conforming loan," Benoun explained, adding "I have clients now who are self-employed and they're not showing enough income to qualify." Next week: Is there any place to get a 100 percent loan? We'll take a look at the few remaining options, including what's new at the U.S. Department of Veterans Affairs.
June 01, 2008 05:01 PM
By Ilyce Glink Inman News
If you're a first-time home buyer, you'll find it a little harder to qualify for a mortgage than the first-time buyer who walked in your shoes two years ago. The credit crunch on Wall Street and record foreclosure rates have made investors nervous about home buyers who have small down payments and lower credit scores. While the number of first-time buyers is down, there are plenty of folks who are tempted by falling home prices and low interest rates. What kind of loans are out there for them? The kind of loan you're offered starts with your credit score. According to Philadelphia-based mortgage lender and real estate broker Fred Glick, Fannie Mae and Freddie Mac are looking for credit scores of at least 660. "We're absolutely accepting loans where borrowers have credit scores in the 600s," said Craig Nickerson, Freddie Mac's vice president of expanding markets. "There's no question that the stronger the credit of the borrower, the better product they can obtain." "But there is a matrix based on the credit score and the down payment" that can change that number, Glick explained. "If you put down 5 percent, you'll need a credit score of at least 660. But if you go with an FHA loan, you can put down [as little as] 2.25 percent and allegedly they'll take a 580 credit score." "With a credit score over 700, you can still get 100 percent financing," Nickerson noted. FHA loans are making a strong comeback, according to Allen Jones, a spokesperson for Bank of America. "In the calendar year 2006, Bank of America originated $1.5 billion of FHA loans. In April 2007, we originated $1.1 billion in FHA loans," he explained. In 2008, Bank of America expects to fund $5 billion in FHA loans. "With the changes FHA has made over the past year, it has become a sweet spot for us." Who is a good FHA candidate? "Someone in a first or second job out of high school or college, who is working and can afford the property but might need help with the down payment. With FHA, a parent can provide the down-payment assistance as long as the borrower can afford the payment," Jones said. Jones said that the average credit score of an FHA borrower is about 620, although "there are plenty of 500s and plenty of 700s" as well. In San Francisco, RPM Mortgage's Dick Lepre said that his company no longer accepts applications from borrowers who have a credit score of less than 680. "Everything is being ratcheted up. It's as if somebody took every credit guideline and raised it 20 points," he said. When it comes to down payments, lenders want to see at least 5 percent down for a normal conforming loan of up to $417,000, according to Victor Benoun, owner of The Mortgage Source, a mortgage brokerage based in Studio City, Calif. "If you're borrowing more than $417,000, lenders want to see at least 15 percent equity in the property, although they're cutting that back to 10 percent to make up for a declining market," Benoun said. That makes FHA's 3 percent down-payment requirement seem doable. In addition to having the cash for a down payment, Benoun said many first-time buyers are having trouble coming up with enough income to support their mortgage. "Lenders would normally say they'd like to see 25 to 28 percent of your gross income going against your housing expense, and now that has been relaxed a bit more to include ratios of up to 40 percent of your gross income. Once you get past the ratio of 42 or 45 percent of your gross income, you may not be able to do a conforming loan," Benoun explained, adding "I have clients now who are self-employed and they're not showing enough income to qualify." Next week: Is there any place to get a 100 percent loan? We'll take a look at the few remaining options, including what's new at the U.S. Department of Veterans Affairs.
If you're a first-time home buyer, you'll find it a little harder to qualify for a mortgage than the first-time buyer who walked in your shoes two years ago.
The credit crunch on Wall Street and record foreclosure rates have made investors nervous about home buyers who have small down payments and lower credit scores.
While the number of first-time buyers is down, there are plenty of folks who are tempted by falling home prices and low interest rates. What kind of loans are out there for them?
The kind of loan you're offered starts with your credit score. According to Philadelphia-based mortgage lender and real estate broker Fred Glick, Fannie Mae and Freddie Mac are looking for credit scores of at least 660.
"We're absolutely accepting loans where borrowers have credit scores in the 600s," said Craig Nickerson, Freddie Mac's vice president of expanding markets. "There's no question that the stronger the credit of the borrower, the better product they can obtain."
"But there is a matrix based on the credit score and the down payment" that can change that number, Glick explained. "If you put down 5 percent, you'll need a credit score of at least 660. But if you go with an FHA loan, you can put down [as little as] 2.25 percent and allegedly they'll take a 580 credit score."
"With a credit score over 700, you can still get 100 percent financing," Nickerson noted.
FHA loans are making a strong comeback, according to Allen Jones, a spokesperson for Bank of America.
"In the calendar year 2006, Bank of America originated $1.5 billion of FHA loans. In April 2007, we originated $1.1 billion in FHA loans," he explained. In 2008, Bank of America expects to fund $5 billion in FHA loans. "With the changes FHA has made over the past year, it has become a sweet spot for us."
Who is a good FHA candidate? "Someone in a first or second job out of high school or college, who is working and can afford the property but might need help with the down payment. With FHA, a parent can provide the down-payment assistance as long as the borrower can afford the payment," Jones said.
Jones said that the average credit score of an FHA borrower is about 620, although "there are plenty of 500s and plenty of 700s" as well.
In San Francisco, RPM Mortgage's Dick Lepre said that his company no longer accepts applications from borrowers who have a credit score of less than 680. "Everything is being ratcheted up. It's as if somebody took every credit guideline and raised it 20 points," he said.
When it comes to down payments, lenders want to see at least 5 percent down for a normal conforming loan of up to $417,000, according to Victor Benoun, owner of The Mortgage Source, a mortgage brokerage based in Studio City, Calif.
"If you're borrowing more than $417,000, lenders want to see at least 15 percent equity in the property, although they're cutting that back to 10 percent to make up for a declining market," Benoun said.
That makes FHA's 3 percent down-payment requirement seem doable. In addition to having the cash for a down payment, Benoun said many first-time buyers are having trouble coming up with enough income to support their mortgage.
"Lenders would normally say they'd like to see 25 to 28 percent of your gross income going against your housing expense, and now that has been relaxed a bit more to include ratios of up to 40 percent of your gross income. Once you get past the ratio of 42 or 45 percent of your gross income, you may not be able to do a conforming loan," Benoun explained, adding "I have clients now who are self-employed and they're not showing enough income to qualify."
Next week: Is there any place to get a 100 percent loan? We'll take a look at the few remaining options, including what's new at the U.S. Department of Veterans Affairs.
Comptroller Dugan provides the OCC's views on the agreement between the Office of Federal Housing Enterprise Oversight, the New York Attorney General, Fannie Mae, and Freddie Mac. Download OVV_HVCC_letter_20080527.pdf
The letter, dated May 27, 2008, characterizes the Home Valuation Code of Conduct (or HVCC) as having “adverse consequences … for the safe, sound, and efficient operation of national banks’ residential mortgage lending activities, as well as for the cost of mortgage credit to consumers.” “The OCC endorses the principle that real estate appraisals must be conducted free from influence or coercion by any party,” Dugan writes in the letter. “But this objective should be achieved directly … not by dictating the corporate and internal organizational structures of lenders.” Source: HousingWire.com
The letter, dated May 27, 2008, characterizes the Home Valuation Code of Conduct (or HVCC) as having “adverse consequences … for the safe, sound, and efficient operation of national banks’ residential mortgage lending activities, as well as for the cost of mortgage credit to consumers.”
“The OCC endorses the principle that real estate appraisals must be conducted free from influence or coercion by any party,” Dugan writes in the letter. “But this objective should be achieved directly … not by dictating the corporate and internal organizational structures of lenders.”
Source: HousingWire.com
The nationwide average for a gallon of regular unleaded rose to $3.937, up slightly from $3.936 the previous day.
The climb in gas prices, which have steadily risen over the past three weeks, comes amid the start of the summer driving season, which unofficially kicked off over the Memorial Day weekend.
The AAA survey shows gas prices are up about 9% from a month ago and nearly 23% higher from year-ago levels. The average price for gas has passed the $4 a gallon mark in 11 states, as well as in Washington, D.C.
The most expensive state for buying gas is Alaska, where a gallon of regular unleaded costs an average of $4.201. The second most expensive state is Connecticut, where a gallon of gas costs $4.196, according to AAA.
The least expensive state for purchasing gas is Wyoming, where a gallon costs $3.751 a gallon on average. The second least expensive state for gas is Missouri, where a gallon runs $3.753 a gallon.
In the face of surging prices, consumers are cutting back on the number of miles they clock on the road. Americans drove 11 billion miles less in March this year than the same month a year ago, the Department of Transportation said Monday.
The Federal Highway Administration's "Traffic Volume Trends" report, produced monthly since 1942, showed that estimated vehicle miles traveled on all U.S. public roads in March fell 4.3% - the sharpest drop for any month in the report's history.
Gas prices have increased by a quarter over the past year, while the price of crude oil has more than doubled.
The July futures contract for crude is trading around $132 a barrel on Tuesday morning, after hitting a record high price above $135 a barrel last week. Crude prices have been pushed to hit record highs on supply concerns, a weak dollar and increasing global demand for diesel fuel.
The latest niche product designed to tap the trillions dollars of equity tied up in seniors' primary residences has spread not only to second homes but also to residential rentals and commercial properties.
Equity Key has rolled out an equity-share option that differs from a reverse mortgage in that the program does not charge interest on money taken out of the home. Instead, it gives Equity Key an equal share in the future appreciation of the property based on its present market value.
The concept is similar to the Rex Agreement, another new equity-sharing vehicle that also claims a share of future appreciation. The main differences are that the Rex Agreement has no age restriction while Equity Key is aimed at homeowners between the ages of 65 and 85. The Rex Agreement is not available for second homes and investment properties at this time.
According to Equity Key, it pays the property owner a specific lump sum (approximately 12 percent to 15 percent of the property's value) or an annual recurring payment in the approximate amount of 0.9 percent to 2.4 percent of the home's value. In exchange, Equity Key splits any future appreciation on a 50-50 basis with the property owner. The owner retains the equity he or she has accumulated.
When the owner moves out or passes away, Equity Key sells the property, and the accumulated equity (all the equity the owner had prior to the Equity Key transaction plus 50 percent of what accumulated subsequently) goes to the owner's heirs. The homeowner's estate has the first right of refusal to purchase the property at the current market value, according to the company.
Here's how equity-sharing agreements work in a typical situation: Let's assume a home is valued at $500,000 and the owner signs an equity share for a $50,000 advance. If the house sells seven years later for $600,000, the equity sharing company gets $100,000 -- $50,000 in repayment and half of the $100,000, the home's appreciation since the deal was signed. If the value is flat after seven years, the sharing company gets only $50,000. (With Equity Key, the owner does not have to repay the initial advance if the owner meets the term of the agreement.)
If the house's value decreases by $100,000, the sharing company and the homeowner would share the loss equally -- $50,000 each. The equity-sharing company would receive no money upon the sale while the homeowner would be liable for the remaining $50,000 of loss.
Owners must continue to maintain the property while keeping taxes, insurance and any mortgage payments current, and not exceed the agreed-upon limit on the total principal amount of any loans that may be secured by the home.
Providers of reverse mortgage alternatives are betting they will draw customers because of their fewer upfront fees and costs and absence of an interest-bearing mortgage. The big unknown is the future value of the home. Regardless of the peaks or valleys of appreciation, the owner will owe the equity-sharing company 50 percent of the value from the time the agreement was signed until the day the property is sold.
Reverse mortgage funds can be distributed either in a lump sum, regular monthly payments, line of credit or in a combination of those options. When the house is sold, or the last remaining borrower dies or moves out of the home, the loan amount plus the accrued interest is repaid. The borrower can't owe more than the value of the home. There are no restrictions on how reverse mortgage funds are used.
If Equity Key acquires the property at the end of the agreement term, it will charge an acquisition cost equal to actual third-party costs to sell it. This cost will not be greater than 8 percent of the fair market value of the house at the time of sale.
In order to participate, homeowners must be in good health and able to qualify for a life insurance policy. Ineligible homeowners include smokers, those with Type 1 diabetes and others who've had recent bouts with cancer. Equity Key takes out an insurance policy to protect its interests in case the homeowner dies before the company recovers its initial investment. If the owner does not meet the Equity Key requirements, the $300 application fee is refunded.
If you plan to tap in to any property equity -- primary residence, second home or rental -- do so wisely and with the help of professional advice. Depending upon your circumstances, one way might be better than another.
During today’s Committee vote, an amendment offered jointly by Sen. Robert Casey (D-PA) and Sen. Mel Martinez (R-FL), was approved to revamp requirements for eligibility to the FHA Appraiser Roster. Under the amendment, all new FHA appraisers must be members of nationally recognized professional appraisal organizations or state Certified, in addition to having completed education on FHA appraisal requirements. The amendment is recognition that FHA appraisals are unique and should be performed by experienced and qualified appraisers. Further, the amendment adds to requirements for appraiser independence in FHA appraisals and new appraisals as part of the proposed foreclosure prevention program at FHA also supported by the Appraisal Institute.
“We strongly support the Casey/Martinez FHA appraisal amendment and the appraisal requirements contained in the Senate bill,” said Bill Garber, Director of Government and External Relations of the Appraisal Institute. “With FHA playing an increasing important role in the housing market, and given the importance of appraisals to foreclosure prevention efforts outlined in the bill, it is critical that FHA appraisals be accurate and reliable and performed by competent appraisers. This amendment and the underlying provisions of the bill are a sound and reasonable step forward for FHA appraisals, and complement the work performed by Rep. Paul Kanjorski on this issue in the House.”
An amendment proposed by Sen. Elizabeth Dole (R-NC) to supersede the recent appraisal agreement between the Attorney General of New York, Fannie Mae, Freddie Mac, the Office of Federal Housing Enterprise Oversight failed to be included in the bill passed by the Committee and was not offered as an amendment because of heavy opposition from several Committee members, including the Committee Chairman, Sen. Christopher Dodd (D-CT) and Sen. Charles Schumer (D-NY).
The bill, entitled the Federal Housing Finance Regulatory Reform Act, is the companion bill to legislation that passed the House last month (H.R. 3221). For more information on the Senate bill, visit the Senate Banking Committee at http://banking.senate.gov/public/index.cfm?FuseAction=Articles.Detail&Article_id=60e2e758-a69d-4ce5-b1a1-efe4e9ef58d2&Month=5&Year=2008
As many of you may or may not know, there has been quite an upheaval in the real estate appraisal profession, that is due to change the face of the appraisal and lending world as of January, 2009 if the new HVCC regulations pass as written. (Home valuation Code of Conduct.) This started when Attorney General Cuomo was investigating Fannie Mae and a large Appraisal Management company for fraudulent activity as it relates to the foreclosure mess we are in today.Ever since appraisers have been doing business, lenders have applied pressure to "hit a number" to make the deal work, Realtors and homeowners have also applied their fair share of pressure, but it was the lenders that basically threatened to take business from the appraiser if they did not make the deal work.Well many appraisers folded and did some unscrupulous things, but for many, it meant you either make the lenders happy or lose your livelihood. The ironic thing is that the sole reason appraisers exist is to PROTECT the lenders from making risky loans on real estate, but since brokers were not the ones LENDING the money, they were not too concerned with risks to the lender!Unfortunately the general public feels that the sole responsibility for this HUGE foreclosure mess we are in is due to APPRAISER fraud...Well they did not do this without help...the lenders had a big hand in this but whenever a home went into default, who did they penalize and punish....the lender....Oh no, it was and always is the appraiser. We are always the fall guy and it gets tiresome for many of us as we are really trying to do our jobs to the best of our ability.The whole point of this BLOG is this: If the HVCC passes as it is written, most mortgage brokers will be taken out of the appraisal ordering process and the only ones who will be doing the ordering will be the BANKS and Appraisal Management Companies. This affects Homeowners, Realtors and Brokers by removing ANY influence you feel you have with any mortgage brokers with whom you do business. There will be no relationship between the person ordering the appraisal report and the appraiser, total independence. Get ready for most of your deals going south due to the appraisal not meeting the value.This is not all bad, as the appraisal should be what prevents the loan from taking place IF the home is not worth the price and if you are a Realtor who represents buyers, you want your buyers protected too right? But having total independence from the appraiser does not necessarily mean an accurate and fair appraisal.What if the BANK who is randomly selecting appraisers uses one who has no clue about a particular type of property. In our case we specialize in Lakefront property. With the new HVCC rules, Realtors, Homeowners and Brokers will not be able to intervene and say....We must have an experienced appraiser in a given field, be it Lakefront, Oceanfront, Riverfront, Golf Course, Condos, etc etc. You get my point!Lenders and Realtors and even Homeowners will be subject to federal offenses if they pressure the appraiser in any way to "hit a number".Personally most appraisers are happy that for ONCE, we can just do the jobs that we were trained heavily for and that is to provide an unbiased opinion of value for the subject property, however many of us spent years developing our business relationships with the mortgage brokers, Realtors and homeowners only to have that taken away.There were thousands of appraisers that wrote to the Attorney General and to Fannie Mae & Freddie Mac (including yours truly) to voice their concerns about the way the new guidelines were written, so we shall see.One big issue we have is that lenders can use AVM's (automated valuation models), BPO's or other avenues to obtain a value for the subject property, without having to disclose this to the potential homeowner, in other words, they can play the system until they get the number they want without consequence. Lenders will not be held accountable by using these forms of unregulated and unrestricted forms of valuation but are held accountable when an appraiser is providing the valuation product.The end result is they will avoid appraisers and use these less than reliable forms of valuation and we are right back where we started, faulty loans on properties that have not been properly appraised.So if you are asked to join in on the protest against the HVCC as currently proposed, please consider joining us in this fight, because WE ALL LOSE, Realtors, Lenders and Appraisers and of course the HOMEOWNER!As I mentioned above, I am all for punishment of lenders who apply pressure on appraisers, we need to be left alone to do our jobs! But I am not for throwing the Baby out with the Bath water, which is what is happening and it will affect your business!Just thought you should know what is going on in the appraisal world. Have a great day!Mary Thompson
Q: We are looking to consolidate our debt. Our mortgage lender turned us down for a home equity line of credit (HELOC), so what are our other options? We have been in our home for only 18 months so there is not much equity.
And, we have tried approval for other loans from the same lender but were denied. Should we try other lenders?
A: No. You're done for the moment. Every time you apply for credit and are denied, you hurt your credit history and your credit score goes down. The lower your credit score, the less likely you will be approved by another lender.
If you've been turned down for a loan, you're entitled to see a copy of your credit history and credit score to find out why they've turned you down. In your case, however, it sounds as though you're trying to get blood from a stone.
If you don't have any equity in your property, you cannot refinance in order to consolidate debt. Mortgage lenders are getting picky about how much cash you can borrow against your equity. These days, they're not doing 100 percent loans, or anywhere close to that. If you're in a declining market, where home prices are falling, they might not refinance you if you have less than 5 percent or even 10 percent equity in your home.
Since you're out of refinancing options for the time being, if you want to get your debt under control, you'll have to do it the old-fashioned way: Stop spending and find a way to bring in more income each month, even if it means taking a second or third job.
Q: I have two primary homes but would like to buy another. A friend wants to live in one of my primary homes and pay me rent.
My question is: How do I structure this in order to deduct taxes/interest on all three homes? I was thinking about setting up a sole-proprietorship on my current home that's to be leased out to my friend. Also, if the homeowner association does not allow tenants, can I get in trouble by law if I rent the property out?
A: No one can have two "primary" homes. The word "primary" means first. The home in which you live most of the time is considered your primary residence. The other house you own is your second home, or perhaps a vacation home.
The IRS currently permits you to deduct the interest you pay on up to $1 million in mortgages and $100,000 in home-equity loans on your primary and secondary residence. There are additional restrictions on these limits and these amounts are for married couples. Likewise, real estate taxes paid on a primary and secondary residence are generally deductible.
So, now you want to buy a third "primary" home. There is no provision in the IRS code for deducting the interest and taxes on a third "primary" residence. In fact, it sounds like you are about to start being an investor in real estate. If your friend starts to pay you rent, you can claim that property as an investment property. You'll be able to write off the expenses of owning the property (mortgage interest, insurance, taxes, maintenance, etc., along with other investment benefits) against the income you receive from your tenant.
The problem you may run into is with your homeowner association. If the HOA does not allow rentals, and you rent out your home, you run the risk of being fined by the HOA, or worse. They could sue you for violating HOA rules. You don't want to go there.
What I suggest you do is sit down with a knowledgeable real estate attorney who can discuss these issues with you in detail and provide some sort of workable structure for what you're trying to do. For more details on tax deductions, please go to IRS.gov and read Publication 936, Home Mortgage Interest Deduction, and Tax Topic 505, Interest Expense. You may also find Publication 530, Tax Information for First-Time Homeowners, of interest as well.
PITTSBURGH, April 17 /PRNewswire/ -- ValuAmerica, Pittsburgh, a leading developer of settlement services technology, today announced a new release of its ValuNet xsp software that will prevent directed appraisals and ensure compliance with current valuation requirements of the Federal Reserve, Federal Deposit Insurance Corporation, Office of The Comptroller of the Currency (OCC) and Office of Thrift Supervision (OTS).
The system will also help lenders to comply with the terms of the recent agreement on appraisals between the New York Attorney General and Fannie Mae, Freddie Mac and OFHEO.
Since the passage of FIRREA, in 1989, various types of lenders -- commercial banks, thrifts, mortgage banks and credit unions -- have been required to put in place safeguards to ensure against loan officer influence in the appraisal selection process and interference or pressure to 'hit a number' for an appraisal. Recently the GSEs and the New York Attorney General agreed on a new Home Valuation Protection Code that puts new appraisal rules in place for lenders that sell to these agencies.
"Despite repeated warnings from these regulators, very little has been done in retail lending channels to create a firewall between loan officers and appraisers," said Robert Murphy, Chairman and Chief Executive of ValuAmerica. "It's the industry's worst-kept secret: some lenders apparently would rather face a fine from their regulators than risk alienating their commission-based loan officers by preventing them from meddling in the appraisal selection and review process. Inflated appraisals were a major part of the S&L crisis twenty years ago, and they are a significant factor in today's credit/housing crisis -- just read the headlines.
"Now that Fannie and Freddie have developed their new code, lenders should be looking for new ways not only to end appraisal pressure but to document their compliance," said Murphy.
ValuNet xsp is designed to prevent loan officers from selecting or contacting appraisers. The system automatically selects appraisers for each assignment, based on their licensing, skill levels, location, price, workload and past performance.
While loan officers and processors can use ValuNet xsp to order appraisals, AVMs and other valuation products, as well as a complete suite of title and settlement services and products, they can not specify who gets the order. "It's all done by a 37-point algorithm," said Murphy. "The lender does not know who is doing the appraisal until it is returned. If there is a reasonable question about a comp or how a value was derived, it goes through us to the appraiser, so there is no chance to influence or pressure the appraiser. The system typically does not share information on the contract price, in a sales situation, or the amount the borrower is looking for in a refi.
"Aside from an initial set up and support fees, there are no transaction costs for the lender with our software, and it can connect to tens of thousands of licensed appraisers in all 50 states. If used properly, it finally puts an end to this problem," said Murphy.
ValuNet xsp enables lenders, title companies and other settlement services providers of all sizes to access technology and products previously available only to large vendor management captives. It gives them immediate access to thousands of embedded settlement services providers: appraisers, abstractors, title underwriters, credit, flood and tax services, etc. ValuNet xsp helps them reduce their costs of managing settlement services -- activities that account for as much as 40% of origination costs.
ValuNet xsp was jointly developed by ValuAmerica and Deloitte Consulting, and today the platform is hosted by Computer Sciences Corporation (CSC). To date, more than 60 million transactions have been completed using the ValuNet platform. Mortgage Technology Magazine selected the ValuNet platform as the recipient of the Mortgage Technology "Synergy" Award.
For more information on ValuNet, go to valuamerica.com or call Shawn Murphy 440-539-0967.
About ValuAmerica
ValuAmerica is a national, high-tech provider of settlement services and a leader in supply chain management. The company was founded by a management team that pioneered the concepts of appraisal and vendor management. In addition to developing and licensing settlement services technology, ValuAmerica is also an independent vendor management company that delivers a full range of products to lenders.
CONTACT: William F. Campbell of Campbell Lewis Communications forValuAmerica, +1-212-995-8057, or Mobile, +1-917-328-6539,bill@campbelllewis.com
Web site: http://www.valuamerica.com
Both companies charge borrowers higher downpayments and fees when properties are located in areas where the companies believe prices have dropped.
Private mortgage insurers -- who work hand in hand with Fannie and Freddie by writing coverage on loans with downpayments less than 20 percent -- are enforcing even more extensive and restrictive lists of declining markets. Some industry estimates put the total number of Zip codes affected across the country at between 8,000 and 12,000.
Critics say such designations are simply a new form of redlining: Timothy Sandos, president and CEO of the National Association of Hispanic Real Estate Professionals, says they make buying homes disproportionately more costly for minorities and moderate-income families who can't afford the higher downpayments and fees.
Labeling an area as "declining" becomes a "circular, self-fulfilling prophecy," says Sandos -- lowering sales, and ultimately prices.
Joining with the National Association of Real Estate Brokers, which represents black realty professionals, and the Asian Real Estate Association of America, Sandos' group recently asked Fannie Mae and Freddie Mac to "reverse" their punitive policies, or to create a single, transparent list that all industry participants could follow.
The National Association of Realtors, in letters last week to Fannie's and Freddie's chief executives, want a step further: N.A.R. president Richard Gaylord asked the companies to "discontinue the policy of stigmatizing entire Zip codes or metropolitan areas" as declining since they "typically include widely differing" local neighborhood conditions.
The Realtors carry a lot of weight with Fannie and Freddie - and have been among their most steadfast defenders on Capitol Hill. A Fannie spokesman said the company has heard the critiques on declining markets designations, "and we take (them) seriously."
Freddie Mac said through a spokesman that it is "re-evaluating" its policy.
So, should buyers, sellers and real estate professionals expect any big changes in the numbers of areas tagged as declining and hit with higher downpayments and fees?
Not overnight. But Fannie and Freddie are politically-savvy. They know it's never in their interest to have Hispanic, black and Asian groups upset with them.
Nor is it smart to ignore the 1.3 million-strong Realtors, who have direct access to the Senate and House leaders who control Fannie and Freddie's destinies.
Look for some form of overhaul of the declining markets system in the months ahead … and perhaps some finer tuning on how to handle metropolitan areas that contain both appreciating AND depreciating sub-markets within their boundaries.
We'll keep you posted.
All the major players -- from the heads of the key housing committees to the presidential contenders -- now agree on one central point: There will be no new agency created to deal with the national foreclosure crisis. Instead, all the work will be loaded onto the shoulders of the Federal Housing Administration -- the FHA.
Earlier this year, there were moves in Congress to revive some version of the Depression-era Home Owners Loan Corporation, which bought up hundreds of thousands of delinquent mortgages and replaced them with more affordable government-backed loans. The agency, which ultimately turned a small profit for the U.S. Treasury, closed its doors in the early 1950s.
But now top Democrats on both sides of Capitol Hill, along with presumptive Republican presidential nominee Senator John McCain and Democratic contenders Hillary Clinton and Barack Obama, all agree: Hand the ball this time around to the FHA.
House financial services chairman Barney Frank is putting together legislation that would authorize up to $300 billion in special funds to cover potential losses on FHA financings of loans to people with the most serious delinquency situations -- homeowners heading into foreclosure.
Under Frank's plan, FHA would acquire distressed mortgages -- sometimes in bulk packages -- at discounted prices from bond investors and lenders. The sellers would have to agree to substantial writedowns of principal balances.
Senate banking chairman Chris Dodd is pushing a broadly similar concept, and now even Republican candidate McCain -- who says he is opposed to bailouts -- has come out in favor of an FHA-directed refinancing program.
But there are some potentially tough questions that come with this consensus approach.
Number one: Will investors agree to participate in large enough numbers to make a dent in the foreclosure problem? One industry consultant who works with loan servicers and bond investors told Realty Times last week that if the required writedowns are too large, many of his clients would "take their chances" and stay with the voluntary Hope Now Alliance plan, which emphasizes five year rate freezes and various forms of loan modifications as foreclosure alternatives.
A second potential fly in the ointment: Is the FHA -- which is already loaded down with new financing volume and has seen its market share explode from 3 percent to more than 20 percent in six months - staffed up and ready to handle even more complicated, high-risk refinancings?
Congress will need to come up with answers to both questions before putting the wraps on its final relief bill next month.
Investing in real estate used to be considered a "no brainer," a can't-miss investment.
But these days, this sure thing isn't so sure. Home prices keep falling. Standard & Poor tracking shows prices down 7.7 percent nationally in November 2007.
The National Association of Realtors, or NAR, reports that sales of single-family homes were down by 13 percent in 2007, the biggest drop since a 17.7 plunge in 1982.
Representatives of the NAR say that this makes it the best buyer's market in a long time. Prices are down, interest rates are near a 45-year low and the supply of houses is high.
But others argue that with the real estate market in a tailspin, it might be a very long time before prices rebound -- making it a poor market at this time.
Even those who advocate real estate investing concede that you need the right circumstances before you take the plunge.
Who Should Buy a Home?
"Dual-income customers should definitely buy a home now," says George Kaiser, vice president of banking operations for Northbrook Bank and Trust and West America Mortgage Co., its sister company. "People with assets in reserve and a credit score of at least 680 should buy as well. Anyone with a credit score less than that will have to verify their income."
Renters who have stable jobs might find this a good time to try homeownership because of the lower prices, says Scott Rose of Coldwell Banker in Deerfield, Ill.
William Chu, senior mortgage loan consultant, American Chartered Bank, suggests it's a particularly good time to look at the higher end properties if you can afford them because with the pool of buyers shrinking, upper market sellers are lowering their prices to attract a larger pool.
"So if you qualify, you could purchase a more expensive home at a much lower price than you could a few years ago," he says.
However, as always, consumers need to shop intelligently, avoid risk and buy what they can afford.
Kaiser warns that potential homebuyers must not get in over their heads. They should feel comfortable with their mortgages and be confident they can handle the payments along with taxes and insurance.
Those with lower credit scores will find it a little tougher.
"If you have some credit challenges or less than 20 percent down, be prepared for higher interest rates due to risk-based lending," says Rose.
Who Should Not Buy Now?
While prices are more attractive these days, not everyone should be in the market.
"There is no hard and fast rule that applies in all cases, whether it be a good market for real estate or a down market, such as we are currently experiencing," says Valerie Anderson-Jones, CPA, JD, CVA at Kessler Orlean Silver & Co. PC. "Tax advantages can make the ownership of real estate quite appealing, but the decision whether or not to own a home should be based on many factors.
"The size of the down payment and resulting mortgage will play a large part in this decision, as well as the amount of any other assets and debt one currently has."
Brent Kalka, Certified Funds Specialist, or CFS, and financial adviser at Mueller Financial Services Inc., Elgin, Ill., points out there are times a person or couple should not consider buying in this market.
"For example, if a retired couple is thinking of selling their home in order to downgrade and gets less than fair market value, they will lose more financially then what they gain by getting a good deal on a less expensive house and are better off financially by waiting until the market turns around."
A second consumer who ought not consider changing residences is a homeowner who, prior to the market downturn, had 20 percent equity in their home and didn't have private mortgage insurance, or PMI payments.
"With home values down," he says "their equity has dropped, and they no longer would have the 20 percent down payment necessary in a lateral or upgrade purchase to avoid PMI, which can run anywhere from $50 to $150 per month."
Kalka also believes that potential homebuyers should consider the fact that the real estate market could be no better or even worse a year from now, so they have to decide if they want to wait it out.
People whose jobs are shaky should wait until their situation is more secure.
"To buy on what you are making now if future income is not stable is asking for trouble," Rose says.
Also, if you are experiencing a life change, such as an upcoming job transfer, getting married, planning to move geographically within the next two years or struggling financially, you should wait.
"People who are thinking of flipping a home should not buy," says Walter Molony, spokesman for the National Association of Realtors. "Housing is a long term investment, and if you're only planning to be there for a year or two, keep renting."
According to Karen L. DeRose, CFP, DeRose & Associates, Chicago, renovating and flipping homes is much harder today and not something she is recommending to any of her clients. She says several of her clients now have to sit on these properties and the gains they thought they would get have been eaten away by the decline in home prices.
People with heavy credit card debt should not consider buying now. "They must clean up their credit first," Chu says.
Should You Buy a Home in Foreclosure?
The Census Bureau reported that the number of vacant homes in 2007 climbed to 2.8 million from 2.07 million. This is the biggest one-year jump on record. What does that mean to potential homebuyers?
Although property is available, Marsha Schwartz, a broker associate from Coldwell Banker Residential Brokerage in Northbrook, Ill., and Rose believe that buying a home in foreclosure can be a challenge and not always a good deal. Sometimes the home has been neglected for a long time due to financial reversals. Be prepared to invest money in the property.
Before you purchase it, have a professional inspection done, even though most of the time the home is being sold "as is." It also pays to research comparable prices to make sure the price of the foreclosure is significantly below values in the area.
"You can always buy a home in foreclosure, but it depends on how much the lender is willing to lose to get rid of the property," Kaiser adds. "Sometimes you can get a good deal."
Is Raw Land or Commercial Real Estate a Good Alternative Now?
"Now is a great time to acquire land, because when you look at the residential market, many homebuilders are looking to get their existing inventory off the books," says Ben Reinberg, Alliance Equities LLC, headquartered in Chicago.
"However, if you are going to buy land, you must have the ability to hold that piece of land until you have an opportunity for the next cycle to come around."
When purchasing land, investors should investigate if it has sewer and water, what type of zoning it has and what you can do with it as well as the location of the property. When buying a piece of land, lenders require 30 percent to 60 percent equity depending on where it's located and what the selling price is.
Reinberg believes if you have the opportunity to purchase the land at a discount (less than it would have sold for three to five years ago), buy it.
"There will be opportunities to buy land within the next 12 to 18 months, especially if we go into a recession," Reinberg says. "The market is correcting itself, and was very inflated. Now it's adjusting."
In addition, Reinberg expects the rental market to be strong compared to the condo market, so multifamily properties will be in strong demand as well.
But he does issue a word of caution. "Be careful what you buy in this down market. Due diligence is important, and if you are a novice you may want to hire a commercial real estate broker."
Why Not Wait Until the Economy Turns Around?
"If you wait till the economy turns around, the interest rates may not be as favorable, nor in all probability will there be as much inventory," says Schwartz.
She feels it's hard to predict when the market will bottom out, just as you can't predict when a stock has "bottomed out" until it has started to rise again.
Homes are starting to sell because prices have been lowered, but Kaiser doesn't anticipate home prices dropping much more. Interest rates are also dropping, and that is changing consumers' outlook.
When Will the Housing Market Turn Around?
The National Association of Realtors is projecting that home sales will trend up this year.
"The timing of the recovery is a bit ambiguous because there are buyers looking for a bargain, while others are looking for more signs of stability. Still others are looking for interest rates to keep lowering, with prices still bottoming out in their area," says Molony.
However, he suggests the window of opportunity for buying is within the next six months.
But there is serious disagreement on that point.
"Overall my consensus is to wait another year to see how the housing market settles and see how capital gains plays out," says DeRose. She bases her thoughts on the fact that Census Bureau Data indicates this is the highest housing inventory in history with 17.9 million housing units available. In addition, foreclosures are at an all time high.
"I am recommending to my clients that they do not purchase another home or one on contingency unless their home sells first. Otherwise, they could end up carrying two mortgages."
"Over all, the real estate market won't be strong till the spring of 2009," says Bob Mecca, CFP, MBA, RIA, of Robert A. Mecca & Associates LLC. He recommends that people look now, establish a list of priorities and amenities and do their homework. Then, negotiate.
"Of course, Realtors will say to buy now, but the investment has to make sense and have appreciation potential," he adds.
Mecca believes people should wait and see if the economic stimulus package takes hold as well as keeping an eye on the Federal Reserve rate. "If the Fed starts hinting that interest rates are done with, then is the time to start investing and flipping homes."
"Many people believe that the earliest turn around will be in the second half of 2008," Schwartz says, "while others believe it will not be till the first half of 2009. Other people think people will have a wait and see attitude until after the presidential election, which would prolong the market turnaround."
The bottom line, Molony points out, is that all real estate is local, and people need to understand what is going on in their local market area before they buy. Internet research is an important first step, and you need to know if it is a buyer's or seller's market locally or if it is balanced.
Molony projects that home prices will stay flat this year, but 2009 will lead back to more normal market conditions with prices rising 3.1 percent.
The National Association of Home Builders reports the "condo market is showing initial signs of a revival in some markets across the country." This latest "uptick" is also helping the apartment rental market, according to multifamily housing developers who spoke at the trade association's International Builders' Show in Orlando last month.
"We are definitely emerging from a difficult time and seeing some light in the condo market," says Bill Donges, CEO of the Atlanta-based Lane Company, which has condominium developments in several cities, including Hollywood, Fla. "The condo lifestyle -- especially in urban areas -- is very attractive, and with the interest rates low and the selection good, we are seeing buyers come back into the market," he says.
Donges adds that traffic has picked up in his company's sales office, resulting in buyers getting good deals with an industry-wide supply high-demand low scenario.
As builders draw down the level of new development, the inventory keeps sinking and that will help with the market turn, according to Steve Patterson, vice chairman of NAHB's Multifamily Leadership Board and CEO of ZOM USA, which builds and manages apartments throughout the Southeast.
During the boom, condominiums made up as much as 45 percent of all new multi-family construction. Experts say, the current market should return it to the normal 20 or 30 percent of new construction.
McLEAN, VA -- Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 6.13 percent with an average 0.5 point for the week ending March 13, 2008, up from last week when it averaged 6.03 percent. Last year at this time, the 30-year FRM averaged 6.14 percent.
The 15-year FRM this week averaged 5.60 percent with an average 0.5 point, up from last week when it averaged 5.47 percent. A year ago at this time, the 15-year FRM averaged 5.88 percent.
Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.58 percent this week, with an average 0.6 point, up from last week when it averaged 5.34 percent. A year ago, the 5-year ARM averaged 5.90 percent.
One-year Treasury-indexed ARMs averaged 5.14 percent this week with an average 0.7 point, up from last week when it was 4.94 percent. At this time last year, the 1-year ARM averaged 5.42 percent
"Average mortgage rates were up for all loan products reported," said Frank Nothaft, Freddie Mac vice president and chief economist. "However, for the first 11 weeks so far this year, the average 30-year fixed rate is still below 5.9 percent, and the average 30-year rate in January was the lowest since July 2005."
"The combination of lower house prices and lower mortgage rates contributed to a more affordable market for homebuyers. The National Association of Realtors® reported that January's Pending Home Sales Index held unchanged from December, contrary to the consensus expectation of a 1 percent slide, signaling that existing home sales in February could hold steady from January's level."
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