Mortgage Market Minute

What is LQI and why does it matter to you?

Thomas Crate, CA DOC, NMLS #332624 (Mountain West Financial) — Fri, 17 May 2013 10:16:43 -0700

LQI is Fannie Mae's "Loan Quality Initiative." Fannie Mae buys loans from lenders and consolidates them into mortgage-backed bonds for investors to purchase. As such, Fannie Mae wants to make sure that every loan it buys meets its basic standards in order to insure the quality of its bonds. The Loan Quality Initiative requires lenders to re-verify the Borrower's credit profile just prior to closing and to look for changes. Although your credit was pulled at the start of the application process, Fannie Mae wants your lender to pull it again just in case something changed. Some of the changes they are looking for include: •Did you add any new debts while your loan was in-process? •Did you apply for new credit cards while your loan was in-process? •Did you run up existing cards while your loan was in-process? •Did you finance an automobile while your loan was in-process? •Did you make some other major purchase while your loan was in-process? Fannie Mae's Loan Quality Initiative does not apply to FHA loans, USDA loans, VA loans or jumbo loans, however, it's still critical to keep your credit clean while your loan is in-process or your loan may be subject to a delays, and, in a worst-case scenario, a loan application denial.

3 Steps Your Buyer Can Take to Get Their Offer Accepted

Thomas Crate, CA DOC, NMLS #332624 (Mountain West Financial) — Fri, 03 May 2013 11:25:05 -0700

1. Take care of repairs 2. Pay Seller's closing costs 3. Show more cash in the bank regardless of the down payment

Home Improvement Lending Will Boom with Remodeling

Thomas Crate, CA DOC, NMLS #332624 (Mountain West Financial) — Thu, 25 Apr 2013 13:56:43 -0700

Remodeling activity is expected to gain steam over the next 12 months as more and more owners regain some—or perhaps all—of the equity they lost in their homes during the recession. The latest forecast from the Remodeling Futures Program at Harvard University's Joint Center for Housing Studies is that spending on new roofs, kitchen updates and other projects will accelerate as the year progresses. And that, in turn, means an increase in home improvement lending. ... "Existing home sales were up almost 9% last year, and house prices are increasing in most markets across the country," said Eric Belsky, managing director of the Joint Center. "This has increased the home equity levels for most homeowners, encouraging them to reinvest in their homes." By the fourth quarter of 2013, the program expects home improvement spending to reach an annual rate of $150 billion. Current conditions are "world's away from March of last year," says Tom O'Grady, a spokesman for the National Association of the Remodeling Industry. "Remodelers nationwide are not only experiencing increase activity right now," the Drexel Hill, Pa., contractor says, "but many have a backlog of projects [that will take them] well into the fall." Owners who have decided to stay put in their homes rather than move are tired of waiting to make improvements and "better financial positioning has them actively approaching professionals to get work done," O'Grady says. Source: National Mortgage News

FHFA Extends HARP

Thomas Crate, CA DOC, NMLS #332624 (Mountain West Financial) — Fri, 12 Apr 2013 10:16:35 -0700

The Federal Housing Finance Agency (FHFA) Extends Home Affordable Refinance Program (HARP) to December 31, 2015.

USDA Loans – Extension of Funds

Thomas Crate, CA DOC, NMLS #332624 (Mountain West Financial) — Tue, 26 Mar 2013 10:12:59 -0700

Effective March 21, 2013, Congress passed a continuing resolution through the end of the fiscal year September 30, 2013 to extend funds for USDA loans. Current USDA designated areas are to remain the same.

"Investopedia explains 'Goldilocks Economy'

Thomas Crate, CA DOC, NMLS #332624 (Mountain West Financial) — Mon, 11 Mar 2013 11:41:13 -0700

Everything in the Goldilocks economy is fine until the three bears (or bear market) come home for their porridge!

‎12 Debt Myths That Trip Up Consumers (#1, #2, #3)

Thomas Crate, CA DOC, NMLS #332624 (Mountain West Financial) — Wed, 06 Mar 2013 11:38:27 -0800

#1. Once you marry, you're responsible for your spouse's debt. Many couples think marrying each other means merging their debt loads, but that generally is not the case. While many couples opt to pay down debt together, neither spouse is usually legally obligated to pay off debt that the other incurred before marriage. ... However, be aware that a spouse could lose that protection. If you refinance a loan with your significant other and put your name on the loan's promissory note, or add yourself as a joint account holder of a credit card, you'll likely become responsible for those debts, even if your spouse took them on before marriage, he says. #2. Credit cards from your favorite retailers are a good deal. The pitches for store-branded credit cards can sound enticing, with lures like interest-free financing and rewards. But the deals may be much less appealing if you tend to carry a balance. Some of the cards operate like payment plans where borrowers make a purchase from the retailer on the card and then have a number of months to pay it back, interest-free. But if you don't pay off the whole balance in the allotted time, you'll typically have to pay interest on the entire amount you initially charged retroactively—often at a higher rate than a typical credit card. #3. You're too rich for federal student loans. Some well-off families figure they won't qualify for federal aid and don't apply. But that means they may have to turn to private loans instead. In recent years, as many as 41% of families earning $100,000 or more didn't file the Free Application for Federal Student Aid, or FAFSA, which is necessary to land federal loans, according to a Sallie Mae survey. But passing up on that chance can be a mistake. For one thing, well-off parents and students can get federal loans, as a number of them have no income limits. And private loans can come with higher rates than federal loans, or variable rates that could very well rise in coming years. Another key drawback: Private loans generally don't offer the flexible repayment plans, tied to a student's income, that federal ones may. If that's not convincing enough, consider that even private lenders recommend that you consider federal loans in the college-funding process, no matter what your income. Source: WSJ

‎12 Debt Myths That Trip Up Consumers (#4, #5, #6)

Thomas Crate, CA DOC, NMLS #332624 (Mountain West Financial) — Wed, 06 Mar 2013 11:36:49 -0800

#4. Dutifully paying off your mortgage each month will do wonders for your credit score. The typical scoring model from FICO, standard bearer of the credit score, will cut your score for missing mortgage payments. But don't expect to get a lot of points added to your score for making those monthly payments on time. That's because, in FICO's models, missed payments say more about your riskiness than regular on-time payments do. ... #5. Money from a family member makes an easy down payment on a home. Even if people don't buy a home entirely with cash, they're being more careful to put down big down payments. And often that means turning to family members for money. But those kinds of gifts may set off red flags for lenders. With much tighter lending standards than before the crash, banks are looking closely at where the money for your down payment came from. #6. Today's tight lending criteria apply to auto loans too. Lending criteria for mortgages remain tight. But standards for car loans are comparatively looser. A January Federal Reserve survey of senior bank-lending officers found 16% reporting they had eased standards for making auto loans in the preceding three months—compared with 6% for prime residential mortgages. That's in part because auto loans come with lower delinquency rates and are therefore less risky. Source: WSJ

‎12 Debt Myths That Trip Up Consumers (#7, #8 & #9)

Thomas Crate, CA DOC, NMLS #332624 (Mountain West Financial) — Mon, 04 Mar 2013 10:06:26 -0800

#7. If you agree to separate your debt in a divorce, it's separate. While a legally binding divorce decree is an important step in separating marital debts, it does not alter your agreements with lenders. ... What you'll need to do is call the lender and figure out how the joint debt—whether it's a credit card, student loan or mortgage—can be placed in the name of only one ex-spouse. Sometimes, a lender will require you to close the joint account and transfer the debt balance into a new account held by one individual. Other times, an ex-spouse may need to refinance the mortgage or other loan independently, obtaining the new loan based on his or her own financials. #8. A high income and credit score means you'll be pitched the lowest interest rates on credit cards. Credit-card companies and issuers are currently sending bevies of offers to affluent people with good credit. The rewards on some of those cards—like cash back and airline points—can look appealing. But they often come with higher interest rates than the lowest-rate cards, with or without rewards. The lowest-rate rewards cards go for around 11%, while the typical higher-end rewards card, like the Visa Black Card, carries a rate around 15%. Plus, the higher-end cards usually have annual fees. Meanwhile, the lowest-rate cards without rewards go for between 7.25% and 8.00%. #9. If you've looked up your credit score, you know your credit score. You know one credit score. The problem is that lenders may be looking at a different credit score than you are—and there's no easy way for you to know if it's better or worse. Consider the widely used FICO score. There are actually 60 slightly different iterations of FICO, and lenders may pull a different score depending on what kind of credit you're applying for. If you're applying for a mortgage backed by Fannie Mae or Freddie Mac, lenders typically pull three FICO scores available directly from each of the three major credit bureaus. But if you're applying for an auto loan or credit card, the company will likely pull a score tailor-made for that kind of credit product. While the various FICO scores are usually in a similar range, that's not always the case. For instance, certain scores ignore collections below $100. In some cases, a person's FICO score that falls into this category could be 100 points above a score that doesn't ignore such collections. Source: WSJ

‎12 Debt Myths That Trip Up Consumers (#10, #11 & #12)

Thomas Crate, CA DOC, NMLS #332624 (Mountain West Financial) — Fri, 01 Mar 2013 17:14:41 -0800

#10. A late credit-card payment will damage your credit. Late payments can bring fees and interest charges—but unless you're really late, they may not put a dent in your credit. It comes down to standard practice in the credit-reporting business: companies usually don't report a late payment to a credit agency until your payment is 30 days past due. It takes time for other kinds of late payments to hit your credit report, too. Medical debt, for instance, usually won't show up until the bill goes to collection. #11. All mortgage and home-equity interest is deductible. Deducting interest is one of the big appeals of a home loan. But if your mortgage is too big, you won't be able to deduct all of the interest you paid. The federal government has set a cap on the mortgage-interest deduction: You can generally only deduct interest on mortgages up to $1 million. So, if your mortgage is $2 million, you can typically deduct only half of the interest paid. The typical threshold is even lower on home-equity debt: $100,000. #12. Buying a home with cash is the best option, if you have the money. Covering a home purchase with cash is in vogue. With the housing market heating up, the tactic may help a buyer win a bidding war—and the idea of not living under a mortgage can be appealing. But going with cash isn't always the best financial choice. Mortgage-interest payments can be deducted on your tax return, which can save you a bundle. Then there's the opportunity cost of handing over that much money. Some people prefer to invest the money they would have spent on the home purchase, betting it will earn a higher return than the interest rate on the mortgage when considering the tax deduction. Source: WSJ

Six Reasons Housing Inventory Keeps Declining

Thomas Crate, CA DOC, NMLS #332624 (Mountain West Financial) — Fri, 08 Feb 2013 15:06:26 -0800

Here’s a breakdown of why inventory has continued to drop this year: Many homeowners are underwater: Underwater owners aren’t likely to sell unless they need to move due to changing life (marriage, divorce) or financial circumstances, and they’ll take a hit on their credit for pursuing a short sale. Others don’t have enough equity to “trade up”: Traditionally, homeowners have relied on home equity to make the down payment on their next home, and to pay their real-estate agent to sell their current home and buy their next one. Everyone wants to buy at the bottom, but few want to sell: Even those people who do have plenty of home equity are likely reluctant to sell if they think prices will be higher tomorrow. More purchases from investors of all stripes: Investors have increasingly bought homes that can be rented out rather than flipped and resold for quick profits. This is further keeping inventory off the market in two ways: Homes that are bought at courthouse foreclosure auctions never show up on multiple-listing services when they’re initially sold. They’re also held out of the for-sale pool because they’re being rented out. Banks have been slower at foreclosing: Banks and other companies that process delinquent mortgages have had trouble proving that they’ve followed state law in taking title to homes ever since the “robo-signing” scandal surfaced in late 2010, and they’ve also had to meet a host of new state and federal rules governing loan modifications and foreclosures from settlements spawned by the robo-scandal. Banks have also become better about approving short sales and loan modifications, which has curbed the flow of foreclosed properties onto the market. Builders have been putting up fewer homes: There’s been much less new home inventory being added to the market at a time when demand is picking up. Source: WSJ

Investopedia explains 'Velocity Of Money'

Thomas Crate, CA DOC, NMLS #332624 (Mountain West Financial) — Fri, 25 Jan 2013 10:39:10 -0800

Velocity is important for measuring the rate at which money in circulation is used for purchasing goods and services. This helps investors gauge how robust the economy is, and is a key input in the determination of an economy's inflation calculation. Economies that exhibit a higher velocity of money relative to others tend to be further along in the business cycle and should have a higher rate of inflation, all things held constant.

Ten Questions on the New Mortgage Rules

Thomas Crate, CA DOC, NMLS #332624 (Mountain West Financial) — Fri, 11 Jan 2013 09:29:34 -0800

(1) What is a qualified mortgage? Congress amended federal lending laws in 2010 to give greater legal rights to borrowers who get mortgages they can’t afford. The new law, part of the Dodd-Frank financial-regulation overhaul, said if banks made a qualified mortgage—one that meets certain easy-to-identify criteria—regulators and courts would presume that lenders had reason to assume a borrower could repay. (2) When do the new rules take effect? In one year. (3) What is the Consumer Financial Protection Bureau’s role? Congress left it to the agency to spell out the definition of a qualified mortgage. (4) Do qualified mortgages have a minimum down payment or credit score requirement? No. Instead, the rules focus primarily on documenting a borrower’s ability to make monthly payments. (5) What kind of loans won’t be qualified mortgages? Certain product types are excluded, including interest-only loans that don’t require principal payments, and loans where the principal balance rises over time. Beyond that, banks must verify a borrower’s income, credit, and employment. Borrowers who take out jumbo mortgages, or those too expensive for government backing, can have no more than 43% of total debt as a share of their pretax income. (6) Will lending standards get tighter, looser, or stay the same? It’s too soon to tell and there are diverse opinions on this point. David Stevens, the chief executive of the Mortgage Bankers Association, said the debt-to-income requirements for jumbo mortgages could tighten standards for those loans, which have already become much harder to get. “It will restrict credit on the margin over the current environment and that’s something we cannot afford,” he said. (7) Will banks make loans that aren’t qualified mortgages? Lenders can make loans not considered qualified mortgages, but most say they won’t, at least initially, given the legal liability Fannie Mae and Freddie Mac are also unlikely to bundle such loans into securities. (8) Will certain loans become harder to get? Yes. Many exotic mortgages that proliferated during the subprime heyday have disappeared; they are now less likely to come back. Lenders also may be more reluctant to make other loans that have been popular in more expensive housing markets and among affluent borrowers, such as interest-only mortgages. (9) Are there certain lenders that will be at a disadvantage because of the rules? Most qualified mortgages will have a 3% cap on the amount of fees and origination costs that lenders can charge. Mortgage brokers are concerned that the way in which that rule is implemented could hurt their business model. (10) What happens if a borrower decides his loan is unaffordable? Borrowers can sue the lender or the investor for damages. Banks that prove they met the qualified mortgage definition will have a greater shield from liability for loans that carry a prime rate, and a smaller shield on high-cost loans, which are typically made to subprime borrowers. Source: Wall Street Journal

Q&A with Expert Appraiser Ken Graham

Thomas Crate, CA DOC, NMLS #332624 (Mountain West Financial) — Tue, 14 Aug 2012 09:59:38 -0700

Q: Why does the appraised value equal the exact purchase price on many residential purchase appraisals? A: Basically, when we are appraising a property for a purchase, our involvement is to let the Lender know that the price makes sense. We are not an advocate for the transaction, but a good Appraiser will review the listing history of the property, review the contract for any exorbitant concessions, and analyze whats happening with the current competition to see if the price is realistic. We assume the Buyer has done their due diligence, has looked at other competitive listings, and has decided that the negotiated price is reasonable. Often, the appraised value will equal the purchase price. But that tends to mean that the Appraiser, after analyzing all the above, agrees with the price. Like I always say, appraising is not a science but an opinion. Graham Enterprises has been a leading provider of real estate valuations and consultations for the Real Estate industry since 1978. With many years of experience in the business, they have an undeniable reputation of providing thorough reports in a timely fashion without any compromise in quality. Contact Information: Graham Enterprises 1016 E Cooley Drive; Suite Y Colton, CA 92324-3962 (909) 824-1168 (Office) (909) 824-9162 (Fax) myorder@grahamnetwork.com

Home Prices Continue to Rise in May 2012 According to the S&P/Case-Shiller Home Price Indices

Thomas Crate, CA DOC, NMLS #332624 (Mountain West Financial) — Tue, 31 Jul 2012 11:08:40 -0700

Data through May 2012, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, showed that average home prices increased by 2.2% in May over April for both the 10- and 20-City Composites. Source: HousingViews.com