Category Archives: Investing

Question for Attorneys: Federal Tax Liens & Foreclosures

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tax lienCould someone with Foreclosure sale experience answer the question below?  Or, at least discuss the possible outcome?

Scenario:

A homeowner has a Federal Tax lien against the property.  The homeowner is delinquent on their mortgage and it goes to Foreclosure.  At the Foreclosure sale, the property then goes back to the lender because there were no bidders for the home.

1)   Is the Lender required to pay off the Federal Tax lien at Foreclosure or resale of the home?

2)  If the Lender pays off the Federal Tax lien, what recourse does the Lender have against the borrower?

3)  If the Lender pays off the Federal Tax lien,  has the delinquent borrower just handed off their tax burden to the Lender and walked away with no liability?

Thanks!

A buyer's right to do "an additional inspection"

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This is a “real estate is local” post, as it refers to an option generally afforded to buyers in our local standard inspection clause (Form 35 item 1) b. on page 1).  Here in the Seattle Area, a buyer usually has the right to do “additional inspections”, IF the original Home Inspector recommends in writing that there be an additional inspection by a “specialist”.

When I am at an inspection I am listening very carefully to the inspector and waiting for him to red flag an item that needs an additional inspection.  It is the ONLY time I tell an inspector that I need him to say that, in writing, in the report.  They usually get mad when I do that and I try not to interfere with the inspector and his written report.  But if he says the buyer should get an additional inspection, but does not include the wording I need to invoke the “additional inspection” clause in the Inspection Addendum, we have a problem.

The buyer usually has X additional days to do the additional inspection (buyer pays for it), and the inspection response in its entirety is extended.  BUT the buyer must respond, in writing, by the end of the 1st inspection timeframe that they are doing a 2nd inspection, in order to gain the extended timeframe.  That request must include the portion of the 1st inspection that indicated the need for an additional inspection by a specialist.  There is a response form where you check a box noting that you are invoking your right under the original addendum section 1) b. to do an additional inspection, and you attach the 1st inspector’s recommendation regarding the need for a specialist inspection.

Everyone’s Inspection Addendum will be different as to the number of days you have for the 1st inspection and for additional inspections, so read your Addendum carefully.  The default in the forms I use show 10 days for the 1st inspection and an additional 5 days for additional inspections, but your contract may have a different amount of days written in the blank spaces.   The additional days are not automatic.  You must respond within the timeframe of the 1st inspection, and indicate your intention to do an additional inspection, in order to gain the additional days.  I can’t say this enough and so apologize if I have repeated it.

I don’t want to get bogged down in the forms here.  I want this to be a practical guide that focuses on how these situations actually play out.  The items that I have seen that required an additional inspection are:

Heater (“recommend the heater be checked by a qualified HVAC contractor)”

Roof (“recommend that the roof be inspected by a qualified…”

Septic System, Drainage Expert (evidence of water in crawl space or basement, either current or old water line mark), Structural Engineer for foundation cracks, fixes and shifting evidences, electrical, etc…

Generally speaking, an additional inspection involves a very costly item that is not obviously, currently, defective.  When a hot water tank is past its life expectancy, an inspector usually calls for it to be replaced, and not that it be inspected by a specialist.  When a heater or roof is nearing the end of its life expectancy, even if it is currently functioning adequately, the inspector usually calls for an additional inspection by a specialist.

The heater is often easier to deal with than a roof, in my experience.  The inspection cost in most cases is under $100.  I usually call for the specialist to service AND inspect it, as the service cost is about the same as an inspection cost, and includes an inspection.  I need the seller’s permission to service his heater, but I have yet to have a seller object.  If there is nothing wrong with it except that it is old, then a general home warranty that covers many items including the heater, is often part of the resolution to the heater being old.  The specialist will install new filters and note any parts that should be replaced.  Pretty simple stuff.

A roof is harder to deal with for many reasons.  Replacing the roof is not usually part of a home warranty like a heater is.  Some home warranties include leak patch work, some don’t deal with a roof at all, and I have yet to see one cover roof replacement.  Even if a roof is not currently leaking, the first inspector is often calling for a second inspection based primarily on the age factor.  Roof Math = Life Expectancy of that particular roof minus it’s current age.  A 20 year shingle that is 18 year’s old is often worse than a 35 year shingle that is 18 years old.  So age alone is not the issue, nor is currently defective or not defective  the only parameter that needs addressing.

Even if a roof is not leaking, if the 1st inspector says that the buyer should “plan for roof replacement” within 3-5 years, often the buyer wants the seller to address the issue.  Sometimes the buyer wants to STOP after the 1st inspection, and just ask for a new roof or a new heater or generally ask for all items to be replaced or fixed, when they should be moving to the “additional inspection” phase.

How you handle the matter is between you and your agent and the seller and the seller’s agent.  If the roof or the heater is 30 years old, often everyone agrees it needs a new one, even though it is not currently “defective”, without the need for an additional inspection.  But it often takes time to negotiate these things, and having a 2nd inspection gives you additional time and also pinpoints the actual cost involved.  The original inspector may give you a ballpark replacement cost, but a specialist will give you an actual “work order” and a cost the seller is more likely to consider valid.  The seller can then get his own estimate during his response timeframe to counter your request and estimate.

Jumping to asking for a repair based on the original inspector calling for an additional inspection by a specialist, is usually the wrong way to proceed, unless you know the seller is aware of the issue and has already anticipated it.  Sometimes the buyer wants the seller to pay for the additional inspection.  The contract indicates that the buyer pays for the additional inspection.  The seller should pay for any subsequent inspections that are needed for his counter proposal.  Say you submit a request for $17,000 for a new roof.  The seller would pay the cost for an additional inspection to counter with a different amount, attaching the work order from a different specialist.  He has a timeframe to respond in the original inpsection addendum as well.

There is no one right answer except TIME IS OF THE ESSENCE.  If you don’t want the house even if the seller fixed the problem, then you can cancel without calling for an additional inspection.  But if you still want the house as long as the seller adequately address a specific item, buy yourself that extra time to negotiate, by calling for and doing an additional inspection.

HUD Passes RESPA Reform, New GFE Coming in 2010

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Now I know that true miracles happen. We have all been waiting for RESPA reform for as long as I’ve been in the industry, which has been over 25 years.  Here’s what the new Good Faith Estimate will look like.  Everyone has all of 2009 to get their systems ready because the new form won’t go into effect until Jan of 2010.  The winds of change are blowing in favor of more consumer protection and more duties owed to the consumer by retail mortgage lenders.  Didn’t I just say this was going to happen? From HUD:

Brian Montgomery, HUD’s Assistant Secretary of Housing, Federal Housing Commissioner, said, “We have carefully considered the concerns expressed from every corner of the mortgage market in developing this rule. I am convinced that we successfully balanced the needs of consumers with those in the business of homeownership. None of us can lose sight of the fact that millions of Americans simply don’t understand all the fine print of their mortgages and this, in many respects, is at the heart of today’s mortgage crisis.”

Since 1974, little has changed about the process Americans endure when they buy and refinance their homes. Now, HUD’s final reform will improve disclosure of the key loan terms and closing costs consumers pay when they buy or refinance their home.

What I like about the new three page Good Faith Estimate (GFE):

Page 1:
Important Dates: “your interest rate may change” notice
Loan Summmary: Easy, plain language, Yes or No explanations
Page 2:
Understanding Estimate Charges: explains credits better than most verbal explanations I’ve heard over the past year.
Breaks down other charges that the homeowner can shop for, in order to receive a lower fee
Page 3:
Further explains pages one and two and makes it crystal clear what charges can and cannot change at closing. 

What I do not like about the new GFE:

Where’s the Yield Spread Premium (YSP)? 

Some state laws may not comport with this new federal law and will have to be revised, hence the year waiting period before we begin using the new form.

Links
Housing Wire HUD Revises RESPA Rules
HUD Press Release

Fannie and Freddie to Announce Mass Loan Modification Program

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From the Wall Street Journal:

Fannie Mae, Freddie Mac and U.S. officials are expected to announce plans Tuesday to speed up the modification of hundreds of thousands of loans held by the housing finance giants, marking the latest effort to try and prevent more foreclosures, people familiar with the matter said.

The announcement could mark the government’s most assertive use of Fannie Mae and Freddie Mac to help homeowners since the companies were taken over in September.

The streamlined effort will target certain loans that are 90 days or more past due, these people said. The program will aim to bring the ratio of mortgage payments for these homeowners to 38% of their income by modifying interest rates and in some cases forgiving portions of principal debt, these people said.

Borrowers would have to provide a statement or affidavit showing that they have encountered some sort of hardship that has impacted their ability to pay their mortgage. It would only apply to loans made on or before Jan. 1, 2008, and borrowers will be disqualified if they file for bankruptcy. The homes must be owner-occupied and escrows for real estate taxes and insurance must already be set up.

U.S. government officials plan to encourage big banks that hold loans in their portfolios to take similar streamlined modification measures.

The announcement is expected to come at a press conference at 2 p.m. at the Federal Housing Finance Agency, which temporarily has Fannie Mae and Freddie Mac in conservatorship because of their shaky financial condition.

Spokespeople for the companies, the Treasury Department and the Federal Housing Finance Agency weren’t immediately available for comment.

Servicers are expected to be paid $800 for a successful modification and loan investors are expected to reimburse servicers for certain fees associated with the modification. There will be a 90-day trial period, and if borrowers successfully make payments for those 90 days the modification will be formally approved. 

This is the beginning of massive government intervention to try and slow foreclosures. On a positive side, Fannie and Freddie could provide a template for servicers to follow which may help homeowners receive a “yes” or “no” answer faster.  On the down side, this may also slow the recover of the housing market, prolonging the decline of home prices. Currently 40% of loan modifications re-default. This may also further erode investor confidence in residential mortgage backed securities, the impact being even tighter underwriting guidelines than what we’re now experiencing.

I’d like to see provisions in there regarding proof that the homeowner did not commit fraud when receiving the original loan, and proof that the homeowner has the ability to re-pay the modified loan.  But these things take time to ascertain.

Update from Calculated Risk:

Here is the press release from the FHFA. Note that this does not include principal reduction as a solution to create an affordable payment, and is limited to: “extending the term, reducing the interest rate, and forbearing interest”.

This is intended to help “thousands” (a drop in the bucket unless it is several hundred thousand), and seems to encourage homeowners to stop making payments until they are 90 days late.

Don't Pay Off Bad Credit

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Step three in the “Should I Buy a House Now” series is somewhat of a sidetrack.  In Step 1 people learned the difference in calculating your current gross income, especially if any part of your income is not guaranteed “salary”.  In Step 2 you were sent off on a long project of accounting for your past practices of spending that gross income.  By finding the money you wasted, and taking steps to waste less of your earnings, you were able to find additional monies to put towards housing payments.

Step 3) Start Improving Your Credit Rating This can take a long time, as does Step 2.  I am suggesting you do these simultaneously.  Don’t think that because you pay your bills on time, that you have good credit.  Paying your bills on time only accounts for 30% to 35% of your credit standing.

Get all copies of your credit history.  Generally there are three sources (or more) and you don’t want to get your credit score, you want full copies of your credit report.  Go through the reports and make sure the history pertains to you.  The more comon your name, the more likely you will have something of someone else’s on your report.  If you are divorced, you want to remove things that you are no longer legally responsible for by divorce decree, even if the item has a high rating.

Let’s assume you have at least one item that you didn’t pay well.  Don’t pay it off!  This is the biggest mistake I see people making.  You need to turn bad credit into good credit.  Paying it off does not remove it from your credit history, so paying it off simply locks in a bad credit item.  You want to “pay it as agreed”.  Sometimes you do that by agreeing to a new payment schedule and then paying the new payments on time for a year.  Sometimes you pay off the balance, but leave the card open, and charge one small item every month and pay that item off every month.  I’m not a credit expert for sure, but this issue goes back long before scoring was used.  All too often people pay off the balance on a bad credit item thinking they made it good.  No.  You locked in the bad long term.

Here’s a story from back when I was 25ish.  My Mom needed me to co-sign on a house.  I had a bad charge card at a department store that was charging me 3% of the balance due until it reached near the max, and then wanted 20% of the now higher balance each month.  There was no way on my income that I could pay 20% of the balance, so it got behind.  It was a ding that was potentially going to cause my Mom to not get the house and everyone panicked. 

I went to the store with the full balance due in my hand, and after a lengthy conversation with the credit manager, I was very angry and said I hated the store and would never buy anything there again.  The Manager said to me, “You can’t hate us.  In fact you have to buy from us.  You can’t just pay off the balance to restore your credit.  If you never buy from us again, that bad rating will sit on your report for years.  The only way for you to improve your credit is to buy more from us and pay off that more well.”  That made me angrier and I started to leave when a lightbulb went on.  I turned around and said, “Are you telling me that I can go downstairs right now and buy something on this card?  He said absolutely, please do.  I said can you give me a letter to that effect.  He said sure.  I took that letter to the mortgage company and said how can you deny my Mom a mortgage based on a bad credit item, when the bad credit item doesn’t think it’s so bad, in fact they invite me to continue shopping there on credit.  I handed them the letter from the Credit Manager on the store letterhead, they agreed and my Mom got the house.

Lesson learned:  Turning Bad credit into Good credit involves not simply paying off balances, but continuing to charge and pay as agreed until the credit rating for that item improves.  Then you can close it after it has a good rating.

I have to meet someone at a house shortly, so I’m going to end here though this post could be a 20 page short story, if I highlighted all the ways to good credit.  The point is EARLY in the process, here at Step 3, know your credit score, review your credit history from 3 credit bureaus, and improve as needed.  Even if your score is high, go through the detail and make sure you correct anything that needs correcting.  It takes a long time for the credit bureaus to reflect change…so don’t wait until the last minute to work on this step in the series.

2009 FHA Loan Limits for Seattle-Bellevue and Beyond

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King, Snohomish and Pierce Counties loan limits effective January 1, 2009 are:

  • Single Family: $506,000
  • Two Family:  $647,750
  • Three Family:  $783,000
  • Four Family:  $973,100

The new loan limit is lower than the current FHA Jumbo limit of $567,500 and is happens to be the same as the jumbo-conforming (aka high-balance) loan limits for our area for 2009.

Loan Modifications

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This is Part Three of a series of articles on the foreclosure process.
This article does not constitute legal advice.
Foreclosure laws vary from state to state.

Homeowners in financial distress should always hire legal counsel. Call your local state bar association for a referral.  Reduced or free legal aid may be available in some states. Ask for a referral from the state bar association or through a LOCAL HUD-Approved Housing Counseling Agency.

Loan modifications are becoming quite fashionable at the moment.  With underwriting guidelines continuing to tighten, some folks facing financial distress and possibly foreclosure may not qualify for a refinance at the retail level, meaning, going back to the bank, credit union, or mortage broker that helped the first time around.

At the present time, loan modification salespeople are completely unregulated.  This means a person can be working at Taco Time in the morning and selling loan modifications in the afternoon.  This is similar to the situation with unregulated loan originators during the real estate bubble run-up.  Advertisements that say, “Earn Six Figures. No Experience Necessary” are now making the rounds in the mortgage lending community. (Don’t believe me? Go to craigslist jobs and do a search under “loan modifications.” Current ads are saying: Make $15,000/month and Make $5,000/day). For the consumer, this means you are once again in the one-down position and it brings me great unhappiness to tell you that at this time you cannot and should not trust your loan modification salesperson.  This problem stems from the unfortunate situation LOs face as their six figure income dried up during the subprime meltdown but their desire for a six figure lifestyle is still around.  This is a systemic problem that our government regulators seems uninterested in addressing at this time. I’m predicting mass government intervention in foreclosures anyways. Perhaps the government is not worried about loan mod salesmen because they’re going to whack them with a big ugly stick quite soon.

In the meantime, we’re stuck with loan modification salesmen. The author of this blog post is of the opinion that consumers should be extremely wary of salemen asking for an upfront fee, even if they are claiming that all or most will be refunded if the modification should fail to be approved.

A loan modification is a good choice for a consumer whose financial distress is such that they are currently unable to pay their mortgage, prefer to stay in the home and not sell (I’m assuming owner occupied property), WILL be able to pay if the loan were modified at a lower interest rate or longer term, and the homeowner is able to fully document income and assets. The idea here is that it’s in everybody’s best interest to keep the homeowner paying the mortgage, even if it means lower bank earnings. (For other options, see part 2 of this series.)

Terms
Common loan modification terms include fixing the interest rate at a lower amount for a short period of time.  3 years, 5 years, 3 years with a gradual, stepped-up interest rate after the third year, longer amortization times such as amortizing the loan over 40 years instead of 30, are very common. Voluntary, principal balance haircuts offered by your bank are not common at this time, unless you are working with an attorney or an aggressive, pit-bull non-profit housing counseling agency. Before you think that a loan mod is the answer, take a long time to consider how much interest you’ll be paying over the life of that 40 year loan.  If you’re thinking “I can just refinance later” there are many people who now have a foreclosure in their recent past, who were given that same sales pitch in 2006.

Past Predatory Lending
If you were a victim of predatory lending, your attorney can use the evidence to extract better terms for your loan modification.  FIND YOUR ORIGINAL LOAN DOCUMENTS from the last time you refinanced or purchased the home: The original disclosures and then the final disclosures you recieved when you signed papers during escrow. If you cannot find them, call any local title insurance company. Give them your address. Ask them to pull the last deed recorded against your property. On that deed, the title company’s order number will be hand-written in the margin.  Call that title company, ask them to pull your file, and to tell you who the escrow company was that handled your file.  If your escrow company went out of business, your state department of financial institutions will have information on where those files are now.

State or Federal Law Violations
If your loan originator violated any state or federal laws when originating your loan, an attorney will be able to spot this information, which becomes extremely valuable when hammering on your lender to offer you the best loan mod terms, or to even bring action that will slow down the foreclosure process, buying you more time.

Process
Loan modification salesmen do nothing except collect a finders fee for finding and delivering you to the people who really do the work.  The loan mod company will ask you to assemble a wide variety of documents similar to when you applied for the mortgage loan.  Unless you went “stated income” the first time around.  This time it will be different.  Common documentation required includes two years of tax returns, two to six months worth of bank statements, 2 years of w-2s, paystubs for the last 4 months, a list of assets and liabilities, and a household budget showing the amount of money you CAN afford to pay on a monthly basis. The most important things lenders must analyze are 1) determining that the homeowner has zero assets/money in the bank and; 2) the homeowner’s ability to pay the modified payment.  There will be a worksheet to complete in which you will lay out your monthly budget.  This is the tricky part. You’ll have to prove that you cannot qualify to repay your current mortgage but that there is enough income coming in to qualify for a modified loan.

Legal Counsel
All loan modification candidates should retain their own, LOCAL legal counsel.  Loan Mod salesmen will tell you that attorneys will cost thousands and thousands of dollars. In one letter, the salesman is saying that attorneys will charge tens of thousands of dollars.  Wow. I’m scared now.  I’m so scared that I polled a handful of local attorneys and found that loan modification charges range anywhere from $1500 to $2500 depending on how many liens there are against the home.  In contrast, loan mod salesmen are charging anywhere from $3500 to $5000 UP FRONT and they use “a pool of attorneys” in god-knows what state. If you can’t do the math on that, then it’s time for you to think about renting.

Questions to ask a loan modification salesmen
1) What is your fee and how is it split between you, the loan mod company, and the attorney?
Failure to answer this question in a swift and forthright fashion is a big giant red flag.
2) What will YOU be doing for the fee you earn?
Listen to the answer very carefully.
3) What will the loan modification company be doing for their portion of the fee?
This question will typically be answered like this “They process the paperwork.”  Now repeat question 2.
4) May I talk directly with the attorney?
If the answer is no, find a local attorney.

Finding a local attorney
Use your favorite search engine to find your local state or county Bar Association.  Look for their “Attorney Referral Service” and seek out a real estate attorney or a consumer protection attorney. Make an appointment with a local attorney that you can talk to face to face. Trust me on this. Interview at least two if not three local attorneys. All may have a varying range of fees. Compare them with the loan mod salesmen’s fee.

Selecting a licensed loan originator to help you
In some states, it is not even possible for a loan originator or a Realtor to collect a fee for loan modification services. In Washington State and elsewhere, loan originators who work for a mortgage broker owe fiduciary duties to their clients. They are able to charge a fee-for-service (provided the fee is disclosed prior to the work being performed.)  Loan originators who are still left in the business as of this writing, are generally likely to be somewhat more competent than Taco Time/Loan Mod salesman.  But I am making an overgeneralization. A licensed LO has at the very least a nominal background in computing debt-to-income ratios and gathering documents. At this time, there are approximately zero loan orignators who have accumulated some experience performing loan modifications.  This is because nobody needed one up until about the year 2008…..the industry just refinanced you over and over again. If you select an LO who owes you higher duties, you are more likely to select someone who is conscientious of these higher duties because if you are not well-served, the LO now holds higher liability.  Fiduciary duties means that LO MUST put their client’s interests above their own interest in making a buck. They must set aside self-interest and work on behalf of you.  Hiring a loan originator to do the paperwork-gathering seems reasonable.  The loan originator MUST hand off your file at some point to an attorney.  Consumers, please demand that the attorney be local.  A fiduciary may not engage in secret fee-splitting deals. The fiduciary owes the highest degree of honesty and good faith to the consumer.  The LO/fiduciary has a duty to answer you honestly about how much of the fee goes to the LO and how much will go to the attorney.  A good scenario is to hire the LO/fiduciary to do the nominal processing work, for which you would pay a nominal “paperwork processing” fee and then pay your local attorney separately.

Working with Non-Profits
A HUD-Approved Housing Counseling Agency can help homeowners obtain a loan modification at no cost. 

DIY
Lenders charge zero to perform a loan modification.  If you’re an adventerous type that does not need hand-holding, call your lender direct in order to begin your loan modification.  I still advise hiring a local attorney to review the lender’s loan mod paperwork with you.

Currently, 40 to 50 percent of all loan modifications are re-defaulting.  This is astronomically high and will translate into higher bank losses and lost time for the homeowner to begin rebuilding his or her credit rating. This means some folks may simply need to re-enter the housing market as a renter. In part 4 of this series, we will discuss what it means to start rebuilding after foreclosure and in part five we’ll tackle what is surely ahead: massive government intervention.

Part one: Foreclosure; Losing the American Dream
Part two: Options for Homeowners Facing Foreclosure
Part three: Loan Modifications
Part four: Government Intervention in Foreclosure
Part five: Foreclosure; Letting Go and Rebuilding

Credit Scores for the Ages

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It’s funny how sometimes a post will take on a life of it’s own within the comments…such is the case with my recent interview of Jillayne Schlicke.  My intentions were to call out to Washington State LOs to make sure they’re up to speed with the new year approaching…the comments have turned into a discussion of credit scores.  Most likely because of Jillayne’s prediction:

“I expect that underwriting guidelines will continue to go up as banks and conforming paper sold to Fannie and Freddie will raise minimum credit score requirements to 800 and require 20% down.  Everyone else will be pushed to FHA.”

Ardell offered stats from 2005 on credit scores and age so I thought I’d share credit score information from credit reports I’ve provided since the start of 2008.  Not all of the subjects obtained a mortgage loan.

  • Age 18 – 29: average credit score = 697.   Don’t let age fool ya, this group had a high score of 807 and a low of 513.  (This group = 12% of the demographic).
  • Age 30 – 39: average credit score = 735.  High score of 811 and the low at 614. (36% of demographic).
  • Age 40 – 49: average credit score = 739.  High score of 819 and a low of 592. (31% of demographic).
  • Age 50 – 59: average credit score = 759.  High score of 820 and the low at 680. (15% of the demographic).
  • Age 60 – 69: average credit score = 714.  High score of 813 and a low at 589.  (4% of the demographic).
  • Age 70 plus: average credit score = 805. High and low score: 805. (1% of the demographic).

The average mid scores, year to date credit reports I’ve ran is 732 for the borrower and 720 for the co-borrower.  This means that if they are considering locking, the rate would be based on the lower of the two mid scores.  I’m also pleased to see that the credit score criteria that I use (credit scores from 720-739) seems to be appropriate for when I’m post.

From the same interview with Jillayne post, Ardell asks:

“What good is it to say interest rates are at 5.875%, if only people 70 plus can get that rate? False advertising…no? If the average person buying a home can only get a rate of 6.5%, then we have to stop encouraging people to think their rate is going to be something that is unlikely”

Using the credit score data above, it’s very likely that the younger group would be FHA candidates.  Not just because of having an average credit score of 697, most are still working on building their savings and do not have 20% down payment.  Combine a 697 mid score with a 90% loan to value and (now costly) private mortgage insurance and FHA may be the better option.  The key is to investigate all available options if someone decides they should buy a home at this stage of their life.  

The next two groups, 30-49 year olds, would fit the rates that I quote at RCG since the credit score criteria I use is based on 720-739.  Based on Friday’s rates, their rate would be 5.875% at 1 point (total shown in lines 801, 802 and 808 of the Good Faith Estimate or HUD).   This combined group is 67% of the applications with credit reports that I have worked with year to date.

Credit scores 740 and above qualify for a slightly better rate.  Based on Friday’s scenario, they would have 0.25% improvement to fee–so 5.875% would be at 0.75% points (using the above example).  Or depending on how rates were, they could possibly obtain an 0.125% better rate.

The slight dip in average credit score to 714 for ages 60-69 I think just reflects that “life happens”.  Maybe something medical has taken place or you were on vacation and thought you paid that credit card or you’re helping your kids with college or you have an unknown parking ticket or an overdue library book turned into a collection.   I’ve seen many surprised people over the years where they had no idea their credit score dropped.   This is in no way a reflection on this age group, it’s just how the stats came in for this report based on my data.

FHA credit scores (where the credit report was ran and FHA was the identified loan program, the loan may be closed or just prequalified) averaged 680.  FHA is not as credit score sensitive as Fannie/Freddie.  FHA is looking for clean credit (no lates) in the past 12 months.

This data is hardly scientific and is really just a reflection of the people I work with which is really pretty diverse.  I don’t advertise or do cold calling or try to “specialize” in a niche market…so I’d like to think that this group is a good “norm”.

2009 Conforming and Conforming Jumbo Loan Limits for Seattle Metro

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Update April 9, 2009:  On February 23, 2009 FHFA announced that according to the American Recovery and Reinvestment Act, 2009 loan limits will be revised to the 2008 loan limits.  As of this update, we’re anticipating the higher revised limits to take place at any time (1-Unit for this area will return to $567,500).  FHA has all ready implemented the loan limit changes.   This serves as a reminder that any information on the internet regarding mortgages can be out dated in a fairly short amount of time.

This morning, the Federal Housing Finance Agency has announced the 2009 conforming and jumbo conforming loan limits for 2009.  The conforming loan limit will remain at $417,000.  The jumbo conforming was reduced to 115% of median home value from 125%, with the passage of HR 3221.   Based on the new lower estimated home values, the 2009 conforming jumbo limits for King, Snohomish and Pierce Counties are:

  • 1-Unit:  $506,000
  • 2-Unit:  $647,500
  • 3-Unit:  $783,000
  • 4-Unit:  $973,100

Some banks and lenders have all ready began to send notices that they will stop accepting locks for the 2008 conforming jumbo limits ($567,500 for 1-unit) effective later this month.    This is done so that once the loan is sold and closed to Fannie or Freddie, the loan limit is compliant.   (You may not have until the end of the year to take advantage of the $567,500 loan limit).

More to follow…including updated rates this afternoon.

"Should I buy a house now?"

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Q: Should I buy a house now?

A: NO!

Q: Why?

A: Because you should never buy a house when you are not sure that is what you want to do, and you should never let someone else make that decision for you.  Don’t EVER give anyone that much power over your life.

As part of our exuberant expectation of CHANGE, I will be starting a series called “First Hundred Days”.  It’s not enough to vote for change and then sit around waiting for change to come from someone else.  If each of us does something different every day for the next hundred days, that produces a change for the better…then change will happen.

I will tag all posts “First Hundred Days” and I will do my best to include all of the tools and skills you should employ to make your own decision about buying a home. We hear so much about “the stupidity” of people in trouble.  Instead of criticizing, let’s do our best to help the future buyers of homes make better decisions and choices by providing meatier, education oriented, instructional blog posts.

The first step in the home buying process does not start at the lender or the real estate agent.  It starts with you sitting in your own home working through some numbers.

1) Calculate your gross income.  If you are salaried, you have the number.  If you are commission based or hourly, add the last 12 months income to the previous 12 month income and divide by two.  Now double check it by taking the last 3 months income and multiplying it by 4.

Let’s say you are hourly or salary plus commission/bonus.  Note these are not lender guidelines.  These are old-fashioned and proven standards for responsible decision making and so will likely be more conservative  than lender guidelines.

Non-salaried income Last 12 months: $75,000

Non-salaried income previous 12 months $60,000

Current annual income for home buying purposes = $75,000 plus $60,000 divided by two or $67,500.

Now the double check.

Total income for the last 3 months = $14,000 (boss gave you fewer hours)

$14,000 times 4 (12 months) = $56,000.

The double check system suggests that you should not think about buying a home in the near future based on an income of more than $56,000 a year, and you should not buy a home until you are certain that the cut back in hours is not leading to no job at all or even fewer hours.  Stabilize your income situation before buying a home.

If the last 3 months income is $20,000 times 4 or $80,000, you still use $67,500 as your annual income and not $80,000, for homebuying purposes. 

You use the average two year income or 4 x your latest 3 month income, whichever is LOWER.

I’ll stop here and see if people have questions before going to the next post in the “First Hundred Days” series.  When you buy a house…if it is the wrong decision…you can blame lots of people, but you will be left holding the bag.  So let’s work together over the next hundred days to make sure you can answer the question for yourself without heavily relying on the opinion of others.

Treat the series like a workbook, get a notepad, and calculate your numbers.  Questions?  Ask them in the comments section.