Tri-Valley Mortgage News

I wanted to take a moment to make sure you are familiar with events surrounding a sweeping set of policy changes for FHA announced earlier this week. The announcement details the changes that Secretary Donovan promised to deliver by the end of January when he testified before Congress last month.

 

The new policies are designed to strengthen the FHA's capital reserves so we can continue to fulfill our mission of serving underserved communities.  In addition, we were determined that these changes should support, not disrupt, the nation's housing market recovery.  Bringing these changes to market has been the result of a lot of hard work and long hours.  And, I am proud to have worked with so many of you on this initiative.

 

What changes will be implemented?  We announced the following on January 20:

1. Increase the up-front mortgage insurance premium (MIP) to 2.25%;
2. Update credit score and down payment requirements for new borrowers;
3. Reduce seller concessions to three percent, from six percent; and
4. Implement a series of significant measures aimed at increasing lender enforcement. 

 

When combined with the risk management measures announced in September of last year, these new changes are among the most significant steps ever taken by FHA to address risk.  Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing market's recovery.  Importantly, FHA will remain the largest source of home purchase financing for underserved communities.

 

Let's go into more detail:

 

Announced FHA Policy Changes:

 

1.      Increase the MIP to build up capital reserves and bring back private lending.

o    The first step will be to raise the up-front MIP by 50 basis points to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.

o    If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.

o    This shift will allow for the capital reserves to increase with less impact on the consumer because the annual MIP is paid over the life of the loan instead of at the time of closing.

o    The initial up-front increase is included in Mortgagee Letter 2010-02 and will go into effect in the spring.

 

2.      Update the combination of credit scores and down payments for new borrowers.

o    New borrowers will now be required to have a minimum credit score of 580 to qualify for FHA's 3.5% down payment program.  New borrowers with less than a 580 credit score will be required to put down at least 10%.

o     This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.

o    This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

 

3.      Reduce allowable seller concessions from 6% to 3%.

o   The current level exposes the FHA to excess risk by creating incentives to inflate appraised value.  This change will bring FHA into conformity with industry standards on seller concessions.

o   The change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

 

4.      Increase FHA lender enforcement.

o    Publicly report lender performance rankings to complement currently available Neighborhood Watch data which will be accessible via www.hud.gov on February 1.

§  This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.

o    Enhance monitoring of lender performance and compliance with FHA guidelines and standards. 

§  Implement Credit Watch termination through lender underwriting ID in addition to originating ID.

§  This change is included in Mortgagee Letter 2010-03 and is effective immediately.

o    Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process.

§  Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.

o    HUD is pursuing legislative authority to increase enforcement on FHA lenders.  Specific authority includes:

§  Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders.  This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite.

§  Legislative authority permitting HUD maximum flexibility to establish separate "areas" for purposes of review and termination under the Credit Watch initiative. 

 

Note:  This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches.

 

In addition to the changes I have outlined, we are continuing to review FHA's overall response to housing market conditions, to evaluate its mortgage insurance underwriting standards, and to improve its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward.

 

I know this is a lot of information to absorb.  Listed below are links to some of the major stories about the announcement.  I promise to keep you aware as we implement these changes going forward.

 

Wall Street Journal (Nick Timiraos, 1/20) "FHA Sets Tighter Lending Requirements" The Federal Housing Administration is implementing more-stringent lending requirements and higher borrower fees to cushion against rising defaults and stave off the need for a taxpayer bailout of the agency. LINK

  

Washington Post (Dina ElBoghady, 1/20) "FHA plans to require borrowers to produce more cash for downpayments" The Federal Housing Administration plans to increase the amount of up-front cash paid by all new borrowers and to require higher down payments from those with the poorest credit, according to agency officials. LINK

  

Chicago Tribune (Mary Ellen Podmolick, 1/20) "FHA homeownership rules to change" The Federal Housing Administration announced changes Wednesday that will make it more expensive for homebuyers to secure agency-backed mortgages while some consumers will be priced out of the housing market. LINK

  

CNNMoney.com (Tami Luhby, 1/20) "FHA loan requirements will make it harder to get a mortgage" It's going to be harder to get a government-backed mortgage from now on. LINK

CNBC.com (Diana Olick, 1/20) "FHA Boosts Insurance Premiums to Cushion Defaults" In a move to shore up the FHA's beleaguered balance sheet, Commissioner David Stevens on Wednesday announced big changes at the government mortgage insurer that now backs about half of all home loans to the nation's minorities. LINK

 

I want to thank you for your efforts to keep this housing system on track. The role of the Real Estate Agent, Mortgage Lender, Settlement Service Provider, and all who make the dream of homeownership a reality, is critical to stabilizing this economy.  Your work is for a good cause.  We really are making a difference in people's lives.  Thanks for the partnership!

 

Credit Repair - Is it the right thing to do?

Absolutely! If you have been turned down as a result of bad credit, have a higher interest rate on any Line of Credit, or if you are paying more for insurance than you should - you MUST take action! Here is the good news: YOU can do something about it!

Myth #1:  

When I pay off a past-due account, such as a Charge Off or a Collection Account, it will be listed as "paid" and no longer be reported as negative.
It is difficult to fully restore your credit if your outstanding debts have not been paid. However, paying off a debt can actually hurt your credit. Negative items on your credit report are allowed to stay on your credit report for a maximum of 7 years, except for a bankruptcy which can remain on your report for up to ten 10 years. This 7 or 10 year clock begins ticking on the last "entry" date of activity, meaning - If you were to make a payment, it automatically is presented as "new activity" thus, the clock is restarted. To make a payment, it automatically is presented as "new activity" thus, the clock is restarted. When paying an outstanding debt, you will change the account status to a "Paid Collection", "Paid Charge-Off", "Satisfied Judgment", or "Paid" but, X amount of days late". This is still considered as negative activity and appears as though you were "strong-armed" by the credit bureau to pay the account. It is almost always prudent to hire a professional assistant to prevent further damage to your credit although you were simply attempting to do the right thing.

Myth #2:  
If a negative item is successfully deleted from my credit report, it will reappear on my report.
The credit bureaus have cleverly and purposely spread this myth through the news media and government agencies. However, the truth of the matter is the credit bureaus will often temporarily delete a negative listing if they have not heard from the credit grantor within 30 days since an item was disputed. Should the credit grantor submit verification a week or two later,  it will be re-inserted - this is called a "soft delete". Most of the time the creditor simply fails to respond and the negative item is permanently deleted. If the creditor verifies the item the account may still be deleted at a later date when the "challenge" process is intensified.

Myth #3:  
There are items such as bankruptcies, foreclosures, and tax liens that are impossible to remove from a credit report.

There is NOTHING in the law that states a negative item must remain on a credit report for any period of time.

Myth #4:  
Disputing a credit report is easy - anyone can do it themselves.
Disputing a credit report is easy. However, getting results from the credit bureaus as a "layperson" is amazingly difficult, complex, and infuriating. The Federal Trade Commission receives more complaints against credit bureaus than any other type of business. In February 2000, the 3 major credit bureaus paid a 2 million dollar fine for ignoring consumers after they requested information regarding their files. Remember, the credit bureaus are primarily interested in protecting their profits. Investigating consumer disputes consumes these profits. Sparking an enormous number of lawsuits, the bureaus do everything in their power to impede any progress you might attain when attempting to restore your own credit. Trying to restore your own credit is likened to blindly representing yourself in a court of law. Restoring your own credit is like repairing your own transmission or representing yourself in court. It is possible, but you have to be willing to invest a great deal of time educating yourself about the law, courtroom procedures, etc. You will also assume the risk of your inexperience by realizing it will take you much longer than you expected and even more important; your own efforts will be less effective than that of a professional.

Myth #5:  
Credit bureaus allow me to submit a 100 word explanation. Creditors will read my statement and take it into consideration.
Not so! This statement only verifies some of the negative items on your report. Your explanation should be the FIRST thing deleted from your credit file. No creditor will consider the information submitted in your statement.

Myth #6:  
Credit bureaus are affiliated with the government, infallible, and above reproach.
Credit bureaus are publicly traded companies in business to impress stockholders - They are not government agencies. They are one of the most heavily regulated industries. The strict regulations stem from a public outcry of abuse and mistakes. A recent survey by an independent research group revealed more than 70% of credit reports contained mistakes or errors. The prevalence of errors led to consumer protection legislation that allows consumers to challenge the bureaus and force the removal of inaccurate, outdated or unverifiable information.

Myth #7:  
I can create a totally new credit file by getting a Federal Tax ID number or changing a few numbers on my social security number.
This fraudulent scheme is complex, but more importantly - ILLEGAL. Lying on a credit application is a criminal offense. With modern technology linking computer systems, it is virtually impossible to pull off. It is in your best interest to hire adequate representation and confront the credit bureaus armed with the "rights" congress granted YOU through the consumer protection laws.

Myth #8:  
If I build enough good credit, it will offset my bad credit and make me credit worthy.
The slightest amount of bad credit is devastating to your chances of being approved by a creditor. The approval is almost never in the hands of a human sitting at a desk across from you - an approval is derived from a computer achieving a "point" total. Generally, even the slightest amount of negative credit (regardless of the amount of good credit) will result in a declination.

Myth #9:  
Nonprofit organizations like Consumer Credit Counseling Service (CCCS) can help me restore my credit.
Nonprofit debt counseling services assist people who are in debt over their heads and seeking an alternative to bankruptcy. CCCS are funded and controlled by credit grantors and credit bureaus. When you are working with CCCS your creditors will often note this on your credit report. This is a huge red flag for prospective credit grantors. Some of the very worst credit reports we see are participants in CCCS or similar programs.

Myth #10:  
It is illegal for creditors to remove a negative, "accurate" listing off my credit report. The law requires that these items remain on the credit report for at least 7 years.
When you speak to credit grantors, collection agencies or credit bureaus, their typically uneducated staff may tell you all kinds of pseudo-legal nonsense. The law limits negative information from appearing longer than the legal 7 year maximum. The credit grantor or credit bureau can delete the item if they choose to.

 On average, credit scores are increased by 127 points after just 6 months using National Credit Federation "attorney" facilitated credit repair.

You should take some time to research "credit" and visit National Credit Federation or on Wikipedia since they are very useful and can give you an informative perspective on all the subjects related to "credit" and the industry it has created.

 

Michael S. Richardson

Director/Mortgage Fraud Services

Office (Direct) 888-877-7951

Mobile- 352-474-0726

Fax- 888-745-7951

Email: michael@mortgagefraudsolutions.com                                   

Website: www.mortgagefraudsolutions.com 

 Author of "An American Epidemic, Mortgage Fraud a Serious Business"

 

If you are planning the purchase of a resale home, you may be considering the purchase of a home warranty. While home warranties offer peace of mind, the important issue is whether or not you’ll have coverage when you need it. It’s important to understand the home warranty coverage you are buying and its limitations or exclusions.

 

If having a home warranty is important to you, you should read the policy or brochure carefully. While one company may offer coverage for serious structural defects and mechanical systems, another may cover mechanical systems and appliances, but eliminate coverage for the structure. Make certain that the warranty you purchase or receive covers the items that are important to you.

 

You should also be aware that what you interpret to be a serious structural defect may not be covered under the terms of your policy. Read the information carefully and understand what is covered. It can be both frustrating and expensive to discover that the coverage you received does not apply to your specific issue.

 

Home warranties, like coverage on other purchases, vary widely in what is covered, the terms of coverage, and the actual value to a purchaser. The following list should help you compare home warranty policies.

 

The name of the company providing the coverage

The name of the person to whom coverage applies

The length of the warranty

An explanation of all items covered by the warranty and which items are excluded

Whether or not the warranty is transferrable

Whether or not there is a deductible or base fee for warranty claims

The procedure for filing claims for service

The company responsible for making the actual repairs

The time allotted for responses to claim service

A clear explanation of how coverage disputes are to be resolved

 

Having a home warranty can be reassuring; and the right coverage can be a godsend if covered problems arise during the warranty period. Also, since the price of a home warranty is small—usually only a few hundred dollars—it’s often possible to have the seller pick up some or all of the cost.

 

The Housing Guru: The one source for all your housing questions

 

Owners of detached single family homes pay condo fees, they just don't know it.

You say, "What?"

When buyers are considering a single family detached home purchase vs. a condominium purchase, one of the biggest objections for buyers is the monthly condo fee. For those considering a condominium purchase, they need to look at the condo fee differently.

The amenities offered by many condominium communities are services that owners of single family detached homes are paying for anyway. Those expenses really add up, the difference being they are not included in a lump sum in the mortgage payment.

Some of the more obvious expenses include (numbers are just examples and vary from area to area, property to property and facility to facility):

- Lawn mowing, leaf removal, etc for a single family home - $220 month at $50 a week

- Gym membership - $100 for a couple, average $50 month a person

- Pool membership - $75 a month($800 a year)

- Garbage removal - $35

$425 total to this point for a couple, $375 single owner

Some of the expenses that are less obvious and most don't think about:

-Homeowners insurance(exterior coverage)

-This is a BIG one, reserves for big ticket items such as a roof, driveway paving, exterior painting, etc. that everyone faces periodically in a single family detached home

-If the community has a marina, part of the condo fee is devoted to maintenance, but if you needed to rent or a purchase a slip, there would be an additional lump sum outlay or a monthly fee

-Plowing and shoveling

-Exterior lighting of a home is normally part of your personal electric bill, but is part of the monthly condo fee

-Gated community minimizes security concerns - some people elect to have security systems which is an additional expense

-Some communities have walking trails with picnic facilities that require maintenance, minimizing the fees you would pay going to parks if some of your walking or picnicking is done within the community instead of parks, not to mention the convenience of not having to drive to a park.

And the list goes on..........

Potential purchasers of condominiums need to look closely at the amenities offered by the condominium community vs. the fees charged and then look at what their outlay for these services would be if they were paying for them separately if they purchased a single family detached home.  Everyone hates condo fees - but you are probably paying them anyway - and maybe this issue should not weigh as heavily in your decision to purchase a condo if the amenities offered mesh with your lifestyle.