The Negative Equity Carryover Model: A Practical and Effective Solution to Our Housing Crisis and the Epidemic of Negative Home Equity
Negative home equity for America’s Homeowners has become an epidemic problem. Nationwide, homeowners are chained to their homes unable to sell due to the shackles of negative equity. This lack of mobility comes at a cost to society and at a time when the public’s need for mobility is at its greatest.
Industry needs this mobility to balance labor requirements, labor needs this mobility to find and create job opportunities, families need mobility to consolidate households and care for aging relatives and others to simply downsize into homes that they can manage and afford financially.
Banks are resistant to negotiate short sale settlements for the fear that the losses on these mortgages will spiral out of control and bring the banks to their knees. Many borrowers are choosing to strategically default in an effort to break the chains of negative equity in order to get on with their lives.
Negative equity, short sales and foreclosures have become a lose-lose situation for both homeowners and lenders.
The Federal Government needs to create legislation making it practical and feasible for banks to offer a safe and equitable alternative.
The “Negative Equity Carryover Model” proposes that negative equity be carried forward to the purchase of a subsequent home purchase or as a personal loan to the homeowner after the property sale.
Homeowners and banks won’t need to negotiate the loss of equity as is currently being done through short sales and foreclosures. Negative equity can be “carried” by a homeowner as a second lien into the purchase of another home or onto a credit report as a personal line of credit. The Model suggests that rather than write the loss off at time of sale through a short sale or foreclosure, the negative equity can be carried into the future as an independent debt/lien and slowly forgiven over an amortized timeframe. The homeowner’s credit would be saved and we as a nation could avoid the wholesale destruction and lockout of a future homeownership class due to damaged credit. Lenders could amortize the negative equity over years while still maintaining some lien position just in case homeownership equity returned.
Gil Kerbashian (847) 873-7295
Home Loan Closing Costs
Ahead of the Curve
Gil's Mortgage Resource Letter
Gil Kerbashian
"Understanding Closing Costs"
-Processing Fee Estimate: $350
This fee is charged by us to pre-approve, pre-underwrite and make sure your
loan fits program guidelines prior to us submitting the loan to an underwriting
unit for full approval.
We will review all documents, submit your package, insure compliance, attend
closing and maintain support all the way to closing. Fee paid directly to us at
closing. This fee also
includes credit reports, approval certificates and document gathering expenses.
-Discount Points to Buydown Rate:
Normally not charged unless a buyer requests or needs to buydown an interest
rate in order to qualify for the loan.
-Appraisal Fee Paid Directly to Independent Appraisal Company Estimate:
$275-$450 Upfront Cost
This fee is paid directly to an independent appraiser to determine the maket
value of your property. The appraiser is chosen by a neutral third party and
you must pay this fee
at the start of the loan process once a property is determined.
Underwriting Fee Paid to Independent Undewriting Unit Estimate: $600-$800
This fee is paid by you directly to the loan underwriting entity at loan
closing. Once we have pre-underwritten your loan and we have determined the
best lender able to actually fund your loan, we submit it to them for review,
approval, legal documents and funding.
-Homeowners Insurance Paid to Your Insurance Company Estimate: $300-$600
Upfront Cost
You will contact your personal insurance provider two weeks prior to your
closing date to determine the cost of a homeowners insurance policy. This will
be paid in advance of closing directly by you to the company you have picked. A
one year policy must be paid for in advance of closing. If the property is in a
flood zone, you will also be required to get flood insurance also.
-Mortgage Interest Payment at Closing Estimate: Depends on closing date.
Depending on the day you close, you will pay for the days of homeownership from
the day of closing to the last day of the month. Example: if you close on the
15th of the month
you will pay from the 15th to the last day of the month for each day you own
the home.
-Tax Escrow Paid Directly to Lender Estimated: Monthly property taxes times two
Most loans require borrowers to have the lender pay the property taxes on
behalf of the buyer. Unless you are putting in 10-20% downpayment, expect to
"escrow" for taxes. Lenders typically require a 2 month cushion placed into an
escrow account. Ex: $500x2=$1000
-Homeowners Insurance Escrow Paid Directly to Lender Estimated: $60-$120
Like taxes above, lenders will want to pay for your homeowners insurance when
it comes due. Most lenders will require a 2 month cushion placed into your
escrow account at closing.
-Settlement Costs- Closing Attorney, Title Insurance, Closing Company, County
Recording Fees Paid Directly to Providers Pre-Chosen by Others Estimate:
$1500-$2500
These are standard fees required to purchase a home. Refinances are much lower.
These fees are not chosen by us but rather chosen by your attorney or the
sellers attorney.
-Home Purchase Transfer Tax Stamps Estimated:
Call your city to see if buyers pay these Most common in the city of Chicago
and a few others. Not all cities or villages charge buyers a transfer stamp
tax. Usually a sellers expense. Can be expensive for buyers are charged.
**** In a home purchase transaction you may have the Seller of the Property pay
for some, most, or possibly all of the above expenses. This is called a "Seller
Paid Closing Contribution". This is highly recommended if you are short on
funds to close or currently only have your downpayment and no other funds
available.
If the Seller picks up your closing costs, any monies you pay up front other
than the home inspection (ie appraisal and homeowners insurance up front) will
be applied to your downpayment commitment.
Please call with questions
Tired of waiting for loan approvals? Worried if your home buyer will qualify?
Deal getting messed up at the bank and you want to move the file? I offer 24-48
hour full underwriting on FHA and Conventional home purchase transactions.
Think SERVICE From a committed purchase money specialist!
Industry Updates:
JULY 1st, now implemented: Fannie Mae's loan quality initiative is starting to
be implemented. 2nd underwriting signatures called for on some files prior to
funding, 2nd credit reports pulled prior to funding on all loans. CTC's may not
come until just prior to close. You may get conditions on files just days
before close. BE PREPARED.
FinReg looks to change the landscape of mortgage lending. Banks will be severly
impacted by the new regs causing delays while implementation occurs. Call me if
you need a bank alternative delivered with great service.
SAFE national mortgage act tests and background checks are now starting for
mortgage loan officers. Low credit scores, judgements, bankruptcies and other
character issues will be a factor going forward. Start working with a
responsible loan officer today!
The House has passed FHA reform legislation and MI Premiums look like they are
going up substantially (Senate to determine). Notify your homebuyers today-
dragging their feet to make an offer could get more expensive real soon!
$8,000 homebuyer tax credit extended until 2011 for Service Personnel working
overseas. Take advantage of VA 100% financing for veterans returning from Iraq
in August. No news as of yet about the extension on todays deadline.
Please don't hesitate to call if I can help.
Gil Kerbashian
Mortgage Lending Since 1997
Gil's Loan Pre-Approval and Funding Hotline: (847) 873-7295
Northwest Mortgage Services, Inc
7808 Virginia Road, Crystal Lake Il
Owner of Record Doesn't Work for Seller Designations on Purchase Contracts
ARC Loans
The term ARC Loans is another name for a regular mortgage refinance. The difference is that with ARC Loans the fee's for the refinance are usually buried in the rate, which means a borrower will usually pay a higher rate in order to defer loan fees. Paperwork is still required and if the borrower doesn't qualify for a streamline, as most do not due to declining value markets, a new appraisal will have to be ordered.
ARC loans can be executed by any mortgage lender or broker. for the purposes of arranging a plan to reduce a borrowers mortgage interest rate at specific intervals.
ARC stands for Automatic Rate Cut.
This is not a Fannie Mae, Freddie Mac nor an FHA designated program. This is not a government program nor an industry wide secondary market type regime. This is a marketing effort to repackage refinances into an easy to remember package or hook.
Each time a homeowners mortgage rate drops by a .25% as the rate market improves, the or a lender will notify the borrowers that the rate can be refinanced into a lower rate. It's really more a reminder system than anything else and its most effective with loan amounts greater that $150,000. Trying to do an ARC Loan with smaller loan amounts is not profitable for the lender and usually not all to attractive for the lender to execute.
Some lenders have set up automatic triggers for each of their loans in their system to let the lender and the borrower know that it may be time to look at refinancing.
If a borrower is saving $150 a month, a refinance may be worth looking at. The con's are that the loan term will restart and the borrower will lose the months or years they've already paid into the loan.
Most borrowers are looking for a convenient way to save money on their monthly mortgage payment, and a way to refinance that isn't as intense as most big banks make it. Borrowers should look for someone that is local and can offer the service they need.
Borrowers shouldn't fool themselves into thinking that a lender will lend 100 of 1000's of dollars on a property that they haven't re-appraised or lend to a borrower that the bank hasn't verified income or assets on.
There's just too much risk in lending today to think that easy money or easy qualifications is a smart thing to fool around with.
24-48 Hour Underwriting
Who Owns My Loan?
Here are two links and phone numbers that you might find useful. Many borrowers are getting the run-around when they call their mortgage servicer to find out if their loan is a "Fannie or Freddie" loan and if the loan might qualify for a loan modification. Call or email the below numbers to Fannie Mae and Freddie Mac to find out if your loan is "held" by the government sponsored loan agencies.
Many of us in the mortgage brokerage business understand borrower frustration, we've been dealing with it for years when trying to get mortgages approved.
Does Freddie Mac have my mortgage online request form 1-800-FREDDIE (8am to 8pm EST)
Does Fannie Mae have my mortgage online request form 1-800-7FANNIE (8am to 8pm EST)
May House Prices Show Highest Increase Since 2006
House prices climbed 6.8% in May 2010 from last year, the largest yearly increase since July 2006, according to a report from real estate data provider Clear Capital.
In June 2009, Clear Capital reported a 19.3% drop in May house prices, a "far cry" from the increase shown in this report a year later, said Alex Villacorta, senior statistician at Clear Capital. The rolling quarter-over-quarter number, which measures houses prices against those three months ago showed a 1.8% decline, an improvement from the 5% drop in April.
"We continue to see sustained price growth throughout much of the country with yearly price gains reflecting the housing recovery off of last year's lows," Villacorta said. "The expiration of the tax credit at the end of April has certainly contributed to the growth of prices we are observing and as more sales close before the June 30 deadline we expect that markets across the country will continue to see strengthening of prices."
The amount of REO properties on the market seems to be dropping, too, according to Clear Capital. The national REO saturation rate dropped to 27.8%, down from 41.7% last year.
"This dramatic shift in price trends reflects the unprecedented volatility over the last couple of years and the delicate state of local real estate markets around the country," Villacorta said.
While quarterly prices in three of the four regions remained below levels from three months ago – the 0.3% increase in the West being the only exception – prices should maintain positive momentum heading into the summer, according to the report.
Prices in Dallas, Texas increased 3.4% from the end of 2009, the highest jump for all markets over the last quarter. The REO saturation rate dropped to 36.6% from 41.1% there as well, but the largest reduction in REO saturation came in San Jose, Calif. There, the amount of REO on the market fell to 19.6%, and helping prices gain 2% from the previous quarter and 20.2% from last year.
The worse performing market in May was Detroit. There, prices dropped 10.7% from the previous three months, but it's an improvement from the 14.4% drop seen in the previous month. The REO saturation rate in Detroit reached 48.9% in May.
Fannie Mae's New Loan Quality Initiative
Lenders and Realtors can expect increased quality control (QC) measures on the pre-closing (and post-closing) sides of loan transactions. The big news here is the pre-funding QC and how it will impact purchase transactions timelines. In an effort to increase loan quality and decrease non-prime borrowers, Fannie has introduced additional review requirements.
I have in the last 60 days been experiencing a higher level of "nuisance conditions" which tells me that the QC process has already commenced with some lenders prior to the proposed rollout date.
The proposed changes:
1. Two different underwrites on not all but many files
2. Resolution of defects prior to closing with a possible second set of borrower/property conditions before the loan funds
3. Numerous back office reporting and management issues that LO and Realtors may feel but won't directly see
And don't forget about the new credit report pulling change.. new credit reports to be pulled on all borrowers before closing.. this starts JUNE 1.
Expect delays. Be mindful that you may see a 2nd set of closing condition prior to funding.
DON'T OVER SIMPLIFY THE LOAN PROCESS WITH ANY OF YOUR BUYERS/BORROWERS. TELL THEM THE TRUTH AND ENCOURAGE A REALISTIC COMMITMENT TO THE PROCESS.
Three topics: IRS 2106, Credit Report Changes, $100 down payment for Teachers, Police Officers, EMT's and Fireman
Ahead of the Curve
Working Around The Mortgage Hornets Nest
IRS 2106 Form.. Something to Keep in Mind
I've gotten a handful of calls in the last few weeks regarding borrowers that
were prequalified but are now experiencing trouble in underwriting due to their
tax returns. One of the buyers is going to lose their $8,000 tax credit because
the preapproval letter was written without proper documentation review. 2106's
and unreimbursed expenses have started to become much more scrutinized..
It starts with a 4506... The 4506 form authorizes a lender to pull a copy of
the borrowers tax returns to match against the W2's or tax returns the borrower
has submitted with their loan application.
If a loan officer does a simple phone prequal and simply "asks" about income or
he/she just reviews paystubs and W2's, you and your buyer may be in for
a surprize when the underwriter pulls the 4506. Sometimes underwriters wait
until the loan is going to funding to pull a 4506- a terrible idea but done to
save money on 4506 expenses.
The problem is common with borrowers that file a 2106 form for unreimbursed
expenses. Unreimbursed expenses don't show up on paystubs or W2's but they do
appear on tax returns. 2106 expenses are dollar for dollars reductions to
income.
Many professions that wouldn't file unreimbursed expenses in prior years are
now using the 2106 form to lower their tax obligation: Teachers for school
supplies, Tradespeople for equipment, Business people for office supplies and
marketing, etc..
Keep this in mind when your buyer or you ask for a "quick" prequal so you can
go out looking. Don't stick your head in the sand with the loan preapproval
process. QUALITY MATTERS NOW MORE THAN EVER!!
JUNE 1 Credit Report Changes
Fannie Mae will start requiring investors to pull a second credit report before
lenders fund a loan. If your buyer opens a credit card account, purchases
something that drives their debt ratios up or has a collection appear, YOUR
BUYER MAY BE DECLINED IN THE 12TH HOUR.
EDUCATE YOUR CLIENTS, WARN YOUR CLIENTS, COACH YOUR CLIENTS, TALK TO YOUR
CLIENTS ABOUT HOW SERIOUS THE PROCESS IS. 70% OF REALTORS ARE FAILING TO KEEP
UP WITH CHANGES, BE DIFFERENT BE BETTER !!!
$100 FHA down payment for Law Enforcement Officers, Teachers, Firefighters or
EMT's. Its a great time to buy and the down payment requirements are low if
your buyers quality!!
Please call me at (847) 873-7295 to discuss nuances regarding the above
information. Here to help you get homes financed.
Is your loan officer less responsive than you'd like? Cut yourself free
from bad service, poor communication and start enjoying incredible support
today.
Could your team use an updated presentation to get agents up-to-speed on loan
program changes? Lending is a huge part of transactional business, consider
scheduling my lunch and learn for your team.
Gil Kerbashian
Mortgage Lending Since 1997
Gil's Loan Answer Hotline: (847) 873-7295
Northwest Mortgage Services, Inc
7808 Virginia Road, Crystal Lake Il
It's a Great Time to Pick up a Deal!!
Home Ownership Costs Nearing Rental Rates..
Home Loan Prequals That Aren't Worth The Paper They're Written On
Have you been seeing a lot of unverified home loan prequalifications lately?
Recently, I've received a lot of calls asking me to issue quick prequals so an offer can be written in a hurry. Some agents and buyers get upset when I tell them that my preference is not to write prequals but rather to write a full preapproval. The fact is, that my commitment is to all sides of the transaction- buyers and listing side. To issue a "quick" prequal without looking at the buyers paystubs, w2's and bank statements would undermine the quality of my signature and the trust that all of my Realtors place on the quality of my preapprovals.
Avoid Prequal's Whenever Possible
I recently picked up a loan file from another mortgage office. The Realtor called me in the 11th hour in order to try and resurrect the deal. Apparently the buyer found the lender and the Realtor didn't look into the strength of the preapproval- It turned out to be not a preapproval but only a prequal.
Are you ever shocked by what you see in this business? The lack of organization and care? The mortgage office I picked the file up from looked like a tornado had come through years ago and they never got around to cleaning up. There were files all over the floors and the loan officers desk had documents on it that looked years old. I wondered how anyone could work in such chaos.
The file I picked up was declined because the buyers loan officer wrote a prequal based solely on credit plus what the client had told the LO on the phone as to income and savings. After working with the client for two months and looking at upwards of 80 properties (1.5 hours x 80 = 120 hours), the Realtor and buyer found a home they liked just in time for the tax credit. The LO finally collected income and savings verification but found out that the buyer was not W2'd but rather 1099'd. It was a job that is normally a W2'd profession but in order to reduce expenses, the owner of the company started 1099'g their employees in 2008.
Some people aren't aware of how 1099's versus W2's can dramatically change loan underwriting. Buyers often feel that there is enough wiggle room for them in the loan process and that "if there is a will, there is a way". Some buyers feel that if they find the right home first "they can find a way" to finance it or "find someone" to make the deal work.
The loan process has become very rigid and looks to be that way for years to come. Taking the extra hour or two to secure a full preapproval is time well spent up front. 1-2 extra hours upfront submitting the basics could save a 100 hours with a nonqualified buyer.
Please call me at (847) 873-7295 to discuss nuances regarding the above information. Here to help!
Gil Kerbashian
Mortgage Lending Since 1997
Gil's Loan Answer Hotline: (847) 873-7295
Northwest Mortgage Services, Inc
7808 Virginia Road, Crystal Lake IL
New Lead Based Paint Protocol for Homes Pre 1978- Got Peeling Paint?
New EPA Requirements
Per EPA "Common renovation activities like sanding, cutting, and demolition can create hazardous lead dust and chips by disturbing lead-based paint, which can be harmful to adults and children.
To protect against this risk, on April 22, 2008, EPA issued a rule requiring the use of lead-safe practices and other actions aimed at preventing lead poisoning. Under the rule, beginning in April 2010, contractors performing renovation, repair and painting projects that disturb lead-based paint in homes, child care facilities, and schools built before 1978 must be certified and must follow specific work practices to prevent lead contamination."
Hope this helps. Please call me if you are in need of support from a professional transactionally oriented lender.
HUD Condo Approval Matrix
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Condominium Project Approval Matrix |
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Proposed/UC |
Existing |
Conversion |
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1 |
All Condominium Legal Documents |
x |
x |
x |
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a |
Recorded Plat Map indicating Legal Description |
x |
x |
x |
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b |
Recorded Covenants, Conditions and Restrictions (CC&R’s) |
x |
x |
x |
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c |
Signed and Adopted Bylaws |
x |
x |
x |
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|
d |
Articles of Incorporation filed with the State |
x |
x |
x |
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e |
Recorded Condominium Site Plans |
x |
x |
x |
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2 |
Plan or Evidence of Transfer of Control |
x |
x |
x |
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3 |
Proposed or Actual Budget |
x |
x |
x |
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4 |
Management Agreement, if applicable |
x |
x |
x |
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5 |
Equal Employment Opportunity Certificate (Form HUD 92010) |
x |
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6 |
Builder’s Certification of Plans, Specifications and Site, Form HUD-92541 |
x |
x |
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7 |
FEMA Flood Map |
x |
x |
x |
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8 |
Estimated Construction Completion Date |
x |
x |
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9 |
Outstanding or Pending Litigation Analysis |
x |
x |
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10 |
Pending Special Assessment Analysis |
x |
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Tips for First Time Home Buyers
Tips for First Time Home Buyers
Before first time buyers begin looking at properties, they need to make sure they can qualify for a mortgage. The first thing any soon to be homeowner should do is obtain a credit report. Once a credit report is in hand, analyze it and determine what the monthly expenditures are.
Most banks and lenders allow borrowers to have a total debt-to-income ratio up to 45% or higher with strong compensating factors (or 41% max with private mortgage insurance).
By taking the total liabilities and adding it to a monthly housing payment, then dividing that number by the monthly gross income a home buyer can come up with a debt to income ratio.
Let’s use the numbers for and example:
$10,000 monthly gross income
$1,500 total monthly liabilities
We know from the above example that total monthly payments can’t exceed $4,500 or 45% DTI based on $10,000 gross monthly income.
So if the home buyer already has $1,500 in total monthly liabilities, the buyer can add a housing payment of $3,000 a month. $1,500 plus $3,000 equals $4500 or 45% of income
There are a number of mortgage calculators out there that will give the buyers a better idea of what they can qualify for. They can google Freddie Mac mortgage calculator to find an easy to use payment calculator.
Now that the home buyer has their credit profile in check and they know what they can afford, they'll need to show or secure verifiable seasoned assets for at least the down payment.
Funds to close can be gifted to first-time homebuyers using the FHA or VA program. Make sure the homebuyer has an account with at least the down payment available- a seller can pay for closing costs in most cases. Also, make sure the money in the savings account has been there for at least two consecutive months to ensure that it is seasoned (NO UNSOURCED CASH SHOULD BE USED). Banks and mortgage lenders don’t give much weight to unseasoned or cash assets because any friend, relative, Realtor or loan officer can easily dump assets into the buyers account before they apply for a mortgage to boost their net worth.
With all this preparation done, the loan flow will be a comfortable process with few surprises. It might not be perfect, but if the home buyer follows these steps they will definitely save money and reduce stress!
Let’s review the tips for first time home buyers in a condensed format:
- Order a credit report
- Review credit and clear up any derogatory accounts
- Do NOT open any new credit accounts or make any large purchases
- Calculate total monthly liabilities
- Figure out DTI and what can be afforded
- Make sure the homebuyer has a seasoned asset account with at least the down payment (for FHA a gift can be utilized as long as it can be fully sourced)
- Find the dream home and secure the purchase
- Lock your interest rate
