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Archive for the ‘Miscelleanous’ Category

Today is August 16th.  If you are in the market to buy a home, you have approximately 45 days to find a home and get it under contract if you want to ensure you can take advantage of the first time home buyer tax credit.

Why 45 days?  Because in forty five days, it will be around October 1st which is the latest you can get a home under contract to purchase and still reasonably close  on the transaction by the November 30th.   Remember, it takes about 45 to 60 days to get to the closing table from the time the seller accepts your offer.  Thefore, if you expect to finalize your transaction by the November 30th deadline, you need to have found a property and come to terms with a seller by October 1st.

So get out there and find a home; $8000 is a lot of money to pass up.   Time waits for no one…

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Well, it looks like the rough economy is hitting T-Boz from 90’s R&B group TLC.   Mediatakeout.com is reporting that her house is being foreclosed…

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Many people have a phobia about the documentation needed to get approved for a mortgage. There really shouldn’t be any fear and the paperwork required really isn’t all that bad. When you apply for a mortgage, you should have the following documentation readily available as it will make the underwriting process smoother and faster. You will need to provide your lender with copies of the following documents:

Driver’s Licenses: This is to verify that you are who you say you are…

Proof of Citizenship: Yes, you have to be in the country legally to get a mortgage. If you are a permanent resident, we need your green card. If you are a non-permanent resident, we need the visa to show that you can legally work and live in the US.

Past two years w-2 statements: This corroborates income and work experience.

Most recent 30 day’s paystubs: Your paystubs should so year-to-date earnings and match your income claimed on the loan application. If you are self-employed or commissioned, in lieu of paystubs we will need your most recent two years of tax returns.

Most recent three months statements for savings and investment accounts: Funds available for down payment, closing costs, and reserves need to be verified. The banks will want to see all of your available liquid assets. Any large deposits on the accounts may also need to be explained. If you don’t get paper statements mailed to you, the online printouts are fine as long as your name and bank are clearly legible on the printout.

There may be other documents needed in certain circumstances, but the above is a good start.

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Like most of the good loan officers who are still in the business, I have been bombarded with phone calls from consumers looking to refinance over the past week. Always a day late and a dollar short, the media is reporting that mortgage rates are back at historic lows. I locked a number of borrowers at 5.375% over the past week with no points and no closing costs on thirty year fixed rate loans. However, given the number of calls I have taken, the number actually locked is relatively small.

The reality is that most people aren’t going to benefit from the ultra-low rates that are available and here is why:

Too Slow and Indecisive: The mortgage market is extremely volatile right now. Rates are changing multiple times in the day (usually for the worst). Last Tuesday, I could do 5.375% the first thing in the morning and by about noon, the market moved to 5.5 and then 5.625%. The bulk of the people who missed the opportunity did so because they had to “think about it…” C’Mon people. I am saving you $200 plus per month, not charging you a dime to do it and getting you a historically low thirty year fixed rate and you need to think about it??!! Discuss it with the wife?!

Second Mortgages: One of the insidious things that lenders are doing right now is refusing subordinations. When you have a second mortgage or home equity line of credit, that lender has to give you permission to refinance the first mortgage. In the past, this used to be no big deal. However, now that values are falling and second mortgage lenders bear most of the default risk, they are refusing to subordinate to a new first mortgage even if a refinance of the first mortgage is less risky than the original mortgage!! Very few lenders will subordinate a second mortgage if the combined loan-to-value is above 85%. I wrote about this practice earlier this year.

FICO Scores: Mortgage lenders love FICO scores. In fact, they love them so much these days that now you need a 740 or higher to qualify for the lowest rates available. In fact, if you have a 739, you are going to see your rate jump by at least .125%. Up to 1/2 percent higher or more if you have a 700 FICO or lower. That one late payment on the library book will cost you big time.

Expensive PMI: Private mortgage insurers bear the brunt of the loss when a home goes into foreclosure. Given the foreclosure records that have been broken, PMI companies have been losing their shirts. Now they are jacking up the cost of mortgage insurance. If you have a loan to value more than 80%, increased mortgage insurance costs may erode any savings from a lower interest rate.

Big Ass Loan: Otherwise known as Jumbo or non-conforming mortgages. In many cases, if you have a loan that is too big to sell to Fannie Mae or Freddie Mac (larger than $417k in Chicago), it is going to be much harder to find a good rate these days. Particularly, if you don’t have at least 25% equity in the property.

These gotcha’s can be overcome, however, it you need to make sure you are working with a knowledgeable professional. It is important that you talk in detail with your lender (hopefully me!) and really figure out how you can better position yourself to take advantage of the current low rates that are available. As I keep trying to tell people who keep putting off refinancing or buying a home, the risk isn’t if rates are going to be lower, the risk is will you actually qualify!

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If there is one great thing that may come out of this housing crisis is that banks may develop more innovative mortgage products.  In the past, innovation at banks meant figuring out how to fleece consumers.  Now that banks are failing left and right, maybe they will develop mortgage products that are more focused on keeping borrowers in their homes.

For the most part, foreclosures are caused by job loss, divorce, and medical issues that result in the borrower losing the ability to pay the mortgage.  Over the past several months, mortgage lenders have been working to modify mortgages to more affordable terms for in trouble borrowers. 

I wonder if a bank will come out with a mortgage that doesn’t need “modification”.   Lenders should have built in modification processes and terms for borrowers who are truly in a tough spot temporarily.  For instance, a borrower loses a job and they are able to postpone payments up to six months without penalty once during the life of the loan.  The postponed payments would be added back into the principal.  Maybe the borrower would also need to get permission and show hardship before being able to exercise the option. 

There will always be people who would not be able to make their payments under any circumstances, but having this type of flexibility built into a mortgage would be a much more cost effective way for banks to work with borrowers who are truly in a temporary hardship.

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The mortgage market has created a sort of no-man’s land in Chicago with non-conforming financing.  A no-man’s land is an area that you don’t want to be.  In Chicago, it is selling a luxury condominium priced between $475k and about $650k.  Recent changes in mortgage guidelines are going to cause condo units in this price range to fall into a death spiral value wise.

Over the past year, mortgage lenders and private mortgage insurance companies have been slowly but surely tightening up underwriting requirements to minimize risk.  In particular, the changes overtly affect loans that are larger than the maximum loan amount that Fannie and Freddie Mac will purchase from banks of $417,000.  

For loans larger than $417,000, private mortgage insurance companies (PMI) will not provide insurance coverage.  The second mortgage market is all but dried up, so it is nearly impossible to get a second mortgage with combined loan-to-values greater than 85% and even those are hard to come by.  In fact, some lenders are just saying no to condominiums altogether.  The bottomline is that if you need a loan larger than $417,000 to buy a condo in Chicago, it is going to be damn near impossible to without a 20% down payment. 

Herein lies the problem.  The buyers…

The typical purchaser of units in no-man’s land tend to be high income young professionals (usually couples).  These are buyers who have very high incomes, but generally have not been working a very long time – attorneys, bankers, doctor’s finishing up residencies, etc.  They may earn household incomes of $200k plus per year and can easily afford the mortgage debt from a cash flow standpoint, but they do not have a lot of liquid savings available to sink into an illiquid asset such as a home when a 20% down payment is required. 

The issue with the Chicago market is obvious.  The borrowers who would normally buy all of these high end condo’s downtown cannot readily get financing because of lack of large down payments.  They are being forced to save up for a long time if they want to stay in that price range or are setting their sights on cheaper units.  The owners of these units in no-man’s land are going to have to drop their prices to make them more attractive to the most borrowers or hope they are one of the lucky ones that appeal to well heeled empty-nester with 20% or greater down payments.

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The New York Times has an interesting graphic showing the areas of the country where home owners owe more than their home is worth.  In other words, Joe Homeowner has a $300,000 mortgage on a home that is now just worth $250,000.  This is called being underwater by about $50,000. 

Being underwater is not a good thing.  Ever.   One of the reasons there are so many foreclosures is that many home owners who are in trouble financially are unable to sell their homes at prices that would pay off their current mortgage and they are also unable to refinance because no lender is going to grant a new mortgage on a property that is worth less than the loan amount since it is the home that is securing the loan.

What is interesting is that Illinois has a fairly sizable bubble indicating a decent number of homes underwater.  My guess is that the much of that bubble is driven by the far flung suburbs.  Like many areas in the country, Illinois had unchecked development out in the middle of the sticks as homeowners moved further out into the exburbs due to cheaper prices.  However, as gas prices surpassed $4.00/gallon, living in a bland McMansion in a former cornfield didn’t seem so appealing when you have to drive 30 miles each way to work everyday in a SUV.

Most my clients that live in the city haven’t had any problems getting the needed appraised value on refinances.  Typically, we have been assuming that the home is worth what the borrower paid for it if bought within the last two years.  Generally, this hasn’t been an issue.  So while the Chicago market certainly isn’t booming anymore, it also isn’t totally cratering either.

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