Category Archives: Investing

CNN Money.com: Appraiser sues WaMu

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The intersection of ethics and real estate meet again

As if WaMu didn’t have enough on its public relations plate, CNN Money reports:

Jeniffer Wertz, who is seeking unspecified damages, says WaMu stopped accepting her appraisals in mid-2007 a month after she reported that her local housing market in California was “declining.”

Evidently, Wertz claims that Washington Mutual wanted her to change her forecast to “stable.”

And on the other side of the coin

Bloomberg reporting that inflated appraisals causing significant losses to lenders.

`You started to see more and more loan products that would keep payments low, and I see that as correlating with appraisal pressure because those products only work in a rising market.”

(and, which loan products might those be I wonder tongue in cheek?)

Former guest at Inman Connect, Jonathon Miller, a sought-after New York appraisal and real estate consultant remarked:

“Lenders and mortgage brokers routinely pressured appraisers to boost values, said Jonathan Miller, a New York property appraiser for more than two decades who writes a blog about the problem.”

And more from the Bloomberg article….First American and WaMu working together?

“In New York, Attorney General Andrew Cuomo subpoenaed Fannie Mae and Freddie Mac, the two biggest buyers of U.S. mortgages. He also sued First American Corp.’s eAppraiseIT LLC for allegedly caving to pressure from Washington Mutual Inc., its biggest customer and the largest U.S. thrift, to inflate values.”

Ethics in real estate: oxymoron?

Improving Your Credit Score

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With every point of your credit score being more crucial than ever, I thought it would be a good time to share some tips on how to improve your credit scores beyond paying your bills on time.   If you are considering obtaining a mortgage within the next 12 months, you should meet with your Mortgage Professional to help advise you on this process.   Some steps in repairing your credit may actually temporarily lower your scores (such as paying off a collection).   What steps you should take depends on how soon you plan on buying a home or refinancing.

  1. Obtain a copy of your report from www.annualcreditreport.com.  You are allowed one free report from each bureau annually.  This comes out to three free reports.   I recommend pulling one report at a time rotating the three bureaus every four months.   For example, this month, you could access your Experian report to review your credit and in May, pull your report from Transunion.  In September, you could obtain your report from Equifax.   This allows you to keep tabs on your credit for free throughout the year.   NOTE:  The bureaus will charge you a fee to access your credit scores (stinky, IMHO); if you’re really interested in obtaining your scores, I suggest you contact your Mortgage Professional and request a tri-merge report.  The cost should be around $20 and the scoring modules used for lenders is different than what you receive from www.annualcreditreport.com. 
  2. Review your credit report for errors and contact the creditors demanding they be corrected.  The contact information should be included with your credit report.   Keep a phone log of any conversations and follow up with a certified letter.  Request a confirmation letter for your records of any corrections the creditor offers to make.  
  3. Pay past due accounts current.  Your credit score is penalized for any accounts carrying a past due balance.    
  4. Keep your balances below 50% and 30% of their credit limit.  Review your credit report to see which accounts are just over 50% or 30% of the available credit line.   For example, if you have a credit card with a $1000 credit limit, and the balance is $550 pay down the account to where it stays below 50% of the line ($500 or less).   NOTE:  If you’re trying to reduce your credit debts, you should use a different strategy than maximizing your credit scores.
  5. Don’t close your old accounts in good standing. The scoring modules favor established credit and not new debt.  Keep your old card with a zero balance and use it once a month to fill your tank with gas and then pay it off each month.   Also, closing your accounts do not make them “go away” from your credit report. 
  6. Avoid obtaining new credit.  That new car will not only dramatically impact what you qualify for, it will also zap your credit scores as a new maxed out debt.   
  7. Before paying off old collections, contact your Mortgage Professional.   Depending on your scenario, you may be better paying off the collection after closing on your new mortgage than before.   The credit scoring modules will factor paying off the collection as new activity and ding your score as if the collection is currently “active”.  I actually had a loan declined last year after a client returned a library book that showed as a collection against my advice.   He just needed to wait until after closing (this was a condo conversion and there was a large time span for closing).
  8. If you’re allowing different LOs to pull your credit while “rate shopping” for your lender, do so during a short window (30 days) of time to avoid being hit for inquiries.  

The good news about your credit score is that it is not permanent.   It’s intended to reflect your current credit behavior.  If your credit is a mess, it will take more time, effort and determination to repair it…but it can be done!  

An Early Holiday Present

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Yesterday, The Mortgage Foregiveness Act of 2007 was passed effectively getting rid of the question, “will I be taxed on a short sale?”

Prior to this action, the forgiven mortgage debt due to foreclosure, short sale, or deed in lieu of foreclosure was potentially taxable to the borrower. As agents we always have had to warn our clients in short sale positions about the potential of receiving a 1099 from the shorted mortgage lender, thus triggering a potential tax.  In one situation I’m involved in, the potential deficiency is 1 million and the tax hit would have been devastating.

Now however, those owners in that situation, at least until 2009, are having their taxes waived, too (at least up to 35%).  For those in this situation, this is really great news and likely the best holiday present they could hope for.

On their behalf, thank you congress [photopress:applause.jpg,thumb,alignright]

This week according to 4realz…

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I can tell from the comments that many regular readers of RCG have been checking out the what I’ve been doing on 4realz.net. It’s been fun to try out something a bit different as I do my best to summarize the news and gossip of the real estate technology and RE.net communities.

However, besides blogging on 4realz, I’m also committed to sending out a weekly email that summarizes the news and gossip that I think the typical real estate executive should know. Interestingly, I did something like this at Move and I know from feedback I got that the email was definitely appreciated since most executives don’t have the time to follow all the blogs and news sites that they wish they could. However, I do say “executive” pretty broadly since there are a lot of people who would appreciate a weekly summary of news and gossip from the online real estate community.

I’m extremely hesitant to republish the email on 4realz as a blog post each week (despite requests) because it feels like it would be repeating the same stories that would have already been covered on the blog earlier in the week. I still haven’t figured what I will do each week, but this week I thought I would post the email here on RCG!

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While I expected it to be a slow week thanks to the holiday season, there was more than enough action to keep a blogger busy with all the big names making news week:

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By the way, if you want to subscribe to my weekly email (similar to notes above), it is 100% free and 100% opt-in. To get on the list email me at thisweek@4realz.net with a request (a simple “please include me on your weekly emails

What it's like to be a mortgage originator today

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As a Correspondent Lender, it’s difficult for me to call myself a mortgage broker or a mortgage banker since I’m an odd [photopress:scrooged.jpg,thumb,alignright]mix of both.  I’m sure my sister-in-law who happens to be the President of our company would prefer to say the “best of both worlds” and she could be right.   This is not what this is post is about.  As a correspondent, we work with about 70 or so different lenders and all of their guidelines; the main difference between us and a broker is that we close in our credit line (more like a bank).   Although we process, underwrite and draw loan docs at our office, we still get to react to what our lenders send us as far as ever changing guidelines.   Here is one example.

At 4:45 p.m. today I received a memo from one of our lenders dated today stating important changes effective tomorrow.  I’m honestly not sure if this lender operates based on west or east coast times.   The memo states:

[Major Lender] is deeply committed to achieving two extremely important short-term goals: 

1) Responding to the current market turmoil in a manner that ensures continued strength and prosperity. 

2) Communicating these changes in a manner that reduces confusion and allows you to focus more time and energy on your customers. 

As new information is processed regarding loan credit performance, we all must be prepared to react quickly and decisively to eliminate the problem areas….This announcement is the result of feedback received from our investors and has our own analysis of the guideline characteristics that are driving under-performance of some loans, and an exhaustive project involving all areas of [Lender] to find opportunities to preserve the intended value proposition of our products while solving the specific credit problem. 

We have new memos constantly being issued per each individual lender we work with regarding what loans they’re wanting and not (what their new guidelines are).   We’re going through another “tightening” with underwriting.   Here are a few samples of what I’m witnessing from various lenders:

  • Credit based pricing all ready in effect for Fannie/Freddie (conforming) loans.  (Some banks are taking advantage of the circumstances and are increasing the rate now.  Possibly to re-coup current or future losses).
  • Non-conforming mortgages topped out at a 90% total loan to value.
  • Stated income and no-income verified mortgages are the ghost of Christmas past. 
  • 45% debt to income ratios for non-conforming no matter what your AUS (computer response) says.
  • Second mortgages are less available (we’ve gone from several lenders offering them to just a couple).
  • Bridge loans are less available.

Not all lenders (banks) have the same guidelines so as a Loan Originator who has many lenders to work with, you need to know you client and put on your dancing shoes!   As a potential home buyer or someone considering a refinance, the more time you have to work with a Mortgage Professional to get yourself in the best postion to have a mortgage, the better off you will be.

A D-I-Y Don't: Divorce

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Legal disclosure:  I am not an attorney, nor do I play one on TV.  Please do seek legal council if you are considering a divorce and before DIY legal documents relating to your marriage or mortgage or real estate.  🙂

I recently met with newlyweds who wanted to start developing a plan to purchase a home together.   The bride was previously married and terminated that union with a do-it-yourself divorce decree and saved money (or thought she did) by not utilizing an attorney.  When they did this several years ago, it made sense to them.  They were amicable and agreed to how they would divvy up their debts and what assets they had acquired at that time.   He would keep the house and the mortgage.   She would sign and record a quit claim deed.    This is where the trouble begins.

A quit claim deed does not remove borrowers from the mortgage and a divorce decree does not remove one’s liability from a mortgage (or other joint debts).

In my clients case, she is now liable for a mortgage on a property she has no interest in except for the debt. 

You would think a borrower could contact the lender and ask to have the mortgage modified by removing one of the ex’s assuming the person retaining the property qualifies for the debt on their own.    This is just not the case.

My client’s ex-husband decided to no longer pay the mortgage.   Foreclosure proceedings are scheduled to begin next month.   Her credit score has plummeted and the mortgage company couldn’t care less about her situation.   She is being sucked into the foreclosure on a property she has not lived in for years.    And she will not be able to qualify for a mortgage at this time.  It is emotionally and financially devastating.

Unfortunately, the only way to safely remove someone’s responsibility to the mortgage is by paying it off.   This can by accomplished by:

  1. Cash (paying off the mortgage)
  2. Selling the property
  3. Refinancing the mortgage

In addition, an ex’s debts from a divorce are factored into the debt-to-income ratio unless the ex has made the payments on time for the past 12 months and the debts are clearly listed in the divorce decree.   If the ex has been late once on an account over the past 12 months, that monthly payment is factored into the debt to income ratios of other ex trying to qualify for a new home.    This isn’t limited to mortgages; it can be joint credit cards, car payments…any joint debts. 

If you own mortgaged property with someone (married or not) and are considering dissolving your relationship, please do not “do it yourself

Major Proposed Changes for Residential Closings in 2008

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Alternative sexier titles to this post are: “Your Escrow Officer is a NARC” or “No More Quicky Closings” or how about “The Escrow Hills have [photopress:detctive_1.jpg,thumb,alignright]Eyes”. There are some major changes brewing with how escrow will be practicing their business in 2008. Escrow companies may become “undercover

Fed Funds Rate now at 4.25%

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The FOMC announced that the Fed Funds Rate and Fed Discount Rate are both being reduced by 0.25%.   Remember (I can never say this enough) this has no direct impact on your mortgage interest rate EXCEPT for home equity lines of credit which are based on Prime Rate.  If you have a HELOC, your rate will decrease by 0.25%.  Lucky you!

Mortgage rates are based on mortgage backed securities (bonds) and will adjust based on how the markets react to this adjustment.  The 0.25% drop is pretty much what was being anticipated by the markets and has been priced into mortgage rates.   This is why I’ve been urging borrowers to lock in before today and last Friday’s Jobs Report since mortgage rates (bonds) tend to react negatively to inflation.

What will happen now is everyone will be interpreting what the future may hold based on the Fed’s Statement.   Although this cut is what they expected, many are disappointed with the statement:

“Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending…. core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation.”

The closing comment suggests they are prepared to cut again or do what ever they feel is needed:

“The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.”

The Fed has now cut rates a full point since September.  Currently the stock market is reacting negatively.  I will update this post should we see dramatic changes to mortgage rates following this action by the FOMC.   

"Hope Now" program to curb delinquency/foreclosures fraught with problems

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The Hope Now program currently being proposed in the other Washington is designed to assist current homeowners with Adjustable Rate Mortgages (ARM’s) in which their ARM’s may adjust upward causing financial hardship. An issue of immense concern is how do you sift through the thousands of homeowners and qualify those who’s mortgages are about to recast to some ugly interest rate? Further, how do all the stakeholders and investors of these mortgages see this playing out—that’s the part Attorneys will have to fight about (what say you Attorneys?).

If the Government players in this program, including one of the lead Conductor’s in this orchestra, Treasury Secretary Paulson, have their way, the investors of these loans will have to be a good sport and play along, never mind losing copious amounts of money, nor the other legal implications.

‘The modification of existing contracts, without the full and willing agreement of all parties to these contracts, risks significant erosion of 200 years of contract law,’ said Joshua Rosner, managing director at an independent research firm in New York.

Let's Do Away with Loan Origination Compensation

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Following up with Tim’s post on getting rid of YSP, I thought I’d share my idea on just getting rid of commissions being paid to a Mortgage Originator all together.  Why stop at the misunderstood yield spread premium when the current system is flawed.   Why should be we be compensated based off of what size the loan amount is when we should be paid based on how much work and time is invested with the client.

Mortgage Professionals should be compensated based on how many hours they spend with each client.

  • This would eliminate steering to other mortgage products which might be more lucrative.
  • Assure that consumers would receive plenty of consultation from their Mortgage Professional.
  • Mortgage Professionals would be compensated for helping consumers with their credit, debt and asset management scenarios regardless of whether or not they ever finance a home using their services.
  • If a consumer really needed to reach a LO after hours or weekends; they could pay overtime to the Mortgage Professional.
  • Mortgage Professionals would change their directive from how many millions in loans they are originating to how much time is spent with each consumer.
  • Consumers could freely select one Mortgage Professional to help with getting ready to purchase or mortgage a home and another to finance the loan with no strings attached or hard feelings from the LO.   Perhaps some Mortgage Professionals would become specialist in such areas.
  • Consumers could select various Mortgage Professionals based on their experience which would be reflected in their hourly rate of pay.   This falls in line with suggestions that Jillayne has made on a having a tiered system of Mortgage Professionals.
  • No more YSP.  (Even though this is silly because mortgage bankers receive compensation on the back end and are not required to disclose it).
  • True Mortgage Planners and Consultants instead of “Originators”.

A big argument I would have against this is that I would not want someone to not call me because they’re afraid of the bill that would follow after I provide hours of advice.

Your thoughts?