Biggest Defaulters on Mortgages Are the Rich. The article reports that 1 in 7 million dollar plus loans are now seriously delinquent compared to 1 in 12 in the below million dollar loan market. Surely these folks are seeing job losses like the rest of the economy but they’re also likely more quick to walk away from an investment property or simply being savvy about dropping a bad investment.

Fannie Mae gets tough on homeowners who walk away. Interesting “get tough” talk from Fannie Mae first about seeking delinquency judgments against borrowers who walk away from a home but can afford to pay the mortgage. Also, Fannie Mae also said it would make new mortgages harder to obtain for borrowers if it can be proved that they engaged in a “strategic default” — abandoning a home to foreclosure not because the required payments are unaffordable but because the mortgage is larger than the value of the residence. For such a borrower, Fannie said it would not buy or guarantee another home loan for seven years. Borrowers who worked in good faith with their loan servicers to try to stay in their homes would be barred from Fannie loans for only two or three years, even if they eventually lost their homes after attempts at loan modifications failed. How will Fannie determine when there has/hasn’t been a “strategic default”??

V.A. Loans Harder to Get. No surprise as the VA loan market has tightened with the general mortgage market. VA loans have typically been rather friendly because the federal government’s Veteran’s Affairs Department insures a quarter of these loans to lenders.  Major lenders like Bank of America, Citigroup and JPMorgan Chase, typically will not offer V.A. loans to borrowers with credit scores below 610. Debora Blume, a spokeswoman for Wells Fargo, said the cutoff score for her bank’s V.A.-insured loans was 600.

How to Start (And Survive) As a Mortgage Broker. Well, for starters there’s a lot less competition than a few years back…there are 2/3rds fewer mortgage brokers today than 2007.

He launched his business in 2007 with a relatively small capital investment, spending about $4,000 for equipment, services and other basic necessities. To this day, he has no employees and works primarily with lenders with whom he already has relationships, from large players such as Wells Fargo & Co. to smaller, established lenders like Flagstar Bank in Troy, Mich. Mr. Huettner makes money in three ways: by charging borrowers a fee, charging bankers a fee or a combination of the two.

He stands apart from competitors, Mr. Huettner says, by specializing in mortgages for customers with complex financial situations, such as self-employed individuals, second-home buyers and anyone dealing with tricky life matters.

Find a NICHE, great business advice always!

FHA Health Better than Expected. Here, here and 3 cheers for the Federal Housing Administration and the stronger-than-expected performance of FHA-backed loans.

Delinquencies on FHA-backed loans rose slightly to 12.4 percent in May from 11.7 percent in April, but were down from 13.6 percent a year earlier after stronger-than-expected performance in the first half of 2010.

Personally I think the performance of FHA is rather impressive considering the dramatic increase in their usage from the height of the boom years up to now.

FHA and Fannie Mae Getting Tougher on Reverse Mortgage Borrowers. Not a surprise, the reverse mortgage market has been greatly hurt due to home value depreciation. A rare time of government actually squeezing seniors.

Here’s a sobering message for anyone who has a federally insured reverse mortgage or plans to apply for one: If you don’t pay your local property taxes or hazard insurance premiums, you should know that the risk of losing your house to foreclosure is about to increase.

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In Sour Home Market, Buying Often Beats Renting. I love a good article that really looks into the facts under-girding the “home ownership myth.” A simple way to do the buy vs. rent comparison is to look at something called the rent ratio: the purchase price of a house divided by the annual cost of renting a similar one. The number 20 provides a useful rule of thumb. When you do the math, you discover that a ratio above 20 means you should at least consider renting, especially if you may move again in the next five years or so. When the ratio is well below 20, the case for buying becomes a lot stronger. Here’s a great buying vs. renting calculation tool included in the piece.

10 Things Home Inspectors Won’t Say. I love some of these ’10 Things’ lists from SmartMoney…hey they rip on lawyers too sometimes. It’s amazing for someone who has/does handle a pretty high volume of residential real estate legal work the HUGE variety of thoroughness and quality that I observe in written home inspections. Not that the number of pages is a perfect indicator but I’ve seen home inspections range from 3 to 50 pages. The points I would highlight from the list are the downside of an inspector being too loyal to a real estate agent and lack of malpractice insurance. Like attorney selection, this isn’t an area to trust an agent on and simply you cannot use an inspector who does not have errors/omissions coverage…if there’s a problem that’s your potential recovery pot of $$.

When Not to Pay Down a Mortgage. This piece does a great job crunching the numbers to settle this question, particularly in a low mortgage interest rate environment. First, you don’t even think about making extra mortgage payments unless you’ve paid down all high interest rate debt, have a decent emergency fund set aside, and you’re maximizing things like employer match contributions to a retirement account. Then you sort of balance the potential return of investment on an alternative investment versus paying down the debt of your mortgage interest. But the article does point out that your real interest rate on your mortgage isn’t what’s on the Note but also to knock off the mortgage interest tax deduction to see your real interest rate. And there’s also the empowering concept of being 100% debt free too.

And, surprise surprise, another government attempt to deal with the housing crisis…here and here. Anyone else cynical about another use of taxpayer funds to “help” homeowners in financial difficulty? I ask the question in no way meaning that I lack empathy for people in tough financial situations but rather as someone who has followed the general ineffectiveness of government attempts to assist mortgage-holders over the last 1-2 years. The new efforts target three areas:  **Giving the unemployed a 3 month pass on mortgage payments; **FHA refinance incentives for underwater mortgages; and, **giving lenders incentives to write-down loan balances.

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Can Living Near a Train Station Save you From Foreclosure? Well, this piece reported on some research which found that mortgage default rates were higher in locations without ready access to public transportation. Not too surprising as we’ve seen gas prices spike over the last few years. Some interesting discussions about “location efficient” mortgages too. Personally I’m very glad I’ve never been a “car person” and scaling back to one car in our family shortly after my wife and I got married has been a great and relatively easy move for us.

Citi Lets Distressed Homeowners Stay 6 Mos. Free. Hey, foreclosure ain’t a bouquet of roses but this seems like a positive step. Under the recently announced program, eligible delinquent homeowners must have their primary mortgage owned by CitiMortgage and must first be considered for a permanent loan modification. If that is not possible, a short sale will be considered. If neither of those alternatives works, the homeowner could stay in the home for up to six months and at the end receive $1,000 in a cash-for-keys transaction. Program participants also would undergo financial counseling. The program is not being offered to borrowers who have second mortgages on their properties.

FHA Changing Policy on Credit Score, Down Payment. No surprise as FHA loans increased by nearly 100% in 2009 from 2008. To be able to make a down payment of just 3.5 percent on an FHA-insured loan, home-buyers would have to have a minimum FICO credit score of 580, rather than the current 500 FICO outlined in FHA guidelines. New borrowers with less than a 580 score would have to put down 10 percent on a home purchase. The FHA also will increase the upfront mortgage insurance premium to 2.25 percent of the total loan amount, from 1.75 percent. I’ve been rather impressed with FHA’s ability to handle its renewed prominence…they were a non-factor 4 years ago.

Florida asks FEMA to Provide Help in Chinese Drywall Problems. This Chinese drywall endemic in some of the southern U.S. is eye-opening. Florida reports some 2,500 homeowners impacted by this problem. If you haven’t been following the issue too closely, defective, Chinese-imported drywall used to build new homes primarily in the southeastern U.S.  I recall Sean Payton’s home, the New Orleans Saints coach, was impacted by the problem. Again, what’s the worst type of residential real estate to buy?

They Padlocked my Parrot. Squawk, Squawk. Well, I’m not a car guy nor a pet guy but who doesn’t appreciate some litigation against an abusive lender. And the borrower wasn’t even near foreclosure…she wasn’t behind on a single payment. Wonderful business practices, NOT!

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Here’s a sad example that I’ve been dealing with lately…

Clients purchase a modest home earlier this year…just barely. Meaning, they barely have adequate funds to bring to closing. Well, several months post-closing I get a call about some flooding that they’re experiencing in the home’s basement (they did do an inspection). Sadly upon review it seems like the property Sellers were fraudulent and that a claim under the Residential Real Property Disclosure Act seems likely. Yet enforcement of legal rights usually requires a little upfront investment….RETAINER!

Perhaps more importantly, if you don’t have $5,000-$10,000 in an emergency fund to deal with something like flooding/plumbing, etc. you likely can’t afford to own that home.

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Just a quick follow-up on our recent post about the chances for the first time homebuyer tax credit extension. NYTimes reports that the extension was discussed in the President’s meeting with Senate Majority Leader Reid and Speaker Pelosi yesterday…

Extending and possibly expanding the popular home-buyers credit, which is due to expire after November, is high among options for further stimulating the economy and creating jobs, Congressional aides said, though a White House official said it was only briefly mentioned on Wednesday in an Oval Office meeting between President Obama, Speaker Nancy Pelosi of California and Senator Harry Reid of Nevada, the Senate majority leader.

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Housing trouble down at Millikin in Decatur.  The small liberal arts school was charged with violating the Fair Housing Act for refusing to allow a blind student live in the dorms with her guide dog. It’s just an allegation at this point but I was suprised to see Millikin mentioned in a HUD press release.

Finally an interesting panoply of housng facts released by the Census Bureau regarding the state of U.S. housing…

Housing

• California homeowners with mortgages ($2,384) had the highest median housing costs in the nation. New Jersey had the second highest median housing cost ($2,360).  Hawaii ($2,265) and the District of Columbia ($2,218) followed, but were not significantly different from each other.  Rounding out the top six were Connecticut ($2,108) and Massachusetts ($2,105), which also were not significantly different from each other.
  

• Median selected monthly housing costs for homeowners with one or more mortgages, after adjusting for inflation, rose between 2007 and 2008 for nine states and declined for eight states. Five states that experienced increases were in the West (Hawaii, Montana, Utah, Washington, and Wyoming), three were in the Northeast (Connecticut, Maryland, and Pennsylvania), and one was in the South (Mississippi).
  

• Five states that experienced declines were in the South (Florida, North Carolina, South Carolina, Texas, and West Virginia) and three were in the Midwest (Michigan, Missouri, and Ohio). The average decrease in the median selected monthly housing costs for homeowners with mortgages in the United States was 0.3 percent between 2007 and 2008.
  

• The percent change in median home values decreased in the United States (-2.0 percent) and in 22 states between 2007 and 2008 – five in the Northeast (Massachusetts, Rhode Island, New Jersey, Connecticut, and New Hampshire); four in the South (Florida, Maryland, West Virginia, and Georgia); eight in the Midwest (Michigan, Minnesota, Ohio, Indiana, Missouri, Iowa, Wisconsin, and Illinois); and five in the West (Nevada, California, Arizona, Hawaii, and Washington). Although the rate of decline was not significantly different from each other, two states showed larger percentage declines than the other 48 states and the District of Columbia: Nevada (16.0 percent) and California (15.5 percent). Florida (8.6 percent) ranked third. (See: subject table S2506)
  

• States that experienced increases were Texas, Utah, Wyoming, Oregon, Pennsylvania, Tennessee, and North Carolina. Of those states, no one state had a rate of increase that was significantly higher than the other six.

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I see a bit of smoke coming from the White House and it seems tons of ‘loan modification’ law firms have popped-up but I have not seen a loan modified. And I’ve worked with several people in attempting to do this but the banks won’t do it. Here’s another piece describing the lack of help available. Great quote from Treasury Department spokeswoman about non-success:

A Treasury spokeswoman, Jenni Engebretsen, confirmed that homeowners like Ms. Ulery — current on their mortgages yet grappling with a hardship like unemployment — were eligible for loan modifications under the program. She said mortgage servicers had offered to modify more than 100,000 loans since the department announced the program.

But how many loans have been modified? Ms. Engebretsen declined to say, noting that the Treasury was working with mortgage companies to “fine-tune reporting systems.”

So how many loans have been modified?  My answer, virtually none.

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FHA’s reverse mortgage product known as the Home Equity Conversion Mortgage (HECM) will have a new national mortgage limit of $625,500, up from the previous limit of high of $417,000. Reverse mortgages allow homeowners age 62 and older to borrow against the value of their homes without selling them or having to make any monthly repayments. Homeowners can select a lump-sum payment, monthly payments or tap into a line of credit. No repayment is required as long as a homeowner lives in a home with a reverse mortgage. The reverse mortgage is repaid, with interest, when a homeowner sells the home or dies.

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Click here to view the embedded video.

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The full piece is a must read to better understand how to navigate the mortgage shopping process.

Remember…

Mortgage brokers work for themselves, not for you. They do not provide a personal shopping service and may compare only a handful of lenders on your behalf. If you want to be sure you’re getting the best rate and the lowest costs, the only way to come close to succeeding is to hunt extensively on your own…

Cost?

A study for the Department of Housing and Urban Development published last year examined 7,560 30-year, fixed-rate Federal Housing Administration loans that closed in the middle of 2001. It found that when mortgage brokers were involved, borrowers paid about $300 to $425 more in fees than when consumers worked directly with lenders, other loan characteristics being equal.

Shop around…

Start with a credit union or two. Hit a few community banks. Then try a few big national banks nearby. Give your investment firm a shout and the bank that has your checking account, since they may offer you a deal. And if you’re refinancing, don’t forget your current lender.

Next, call a few mortgage brokers recommended by people you trust. Talking to more than one isn’t a breach of etiquette.

Two questions:

First, ask if they’ll guarantee the rate and costs in the good faith estimate they give you when you apply with a lender. “Good faith estimates are nothing but a sham,” said Mr. Stoffer, who has tried to fix what he sees as an industrywide problem by sticking to his own projections on the costs of the loan. “If I’m wrong on my good faith estimate, then I pay you. We should all have something binding upfront so people can shop.”

Second, ask if they’ll sign a piece of paper agreeing to work solely in your best interest. The legal word for this is “fiduciary, and Senator Charles E. Schumer has been trying to force this standard upon mortgage brokers for a couple of years. Representative Miller agreed that this would be ideal but that it was probably not politically realistic.

Bottom line, get the best deal you can wherever you can. I think that’s where people erred…they thought Mr. Broker was looking at like every lender and then you chose the best deal. Not true.

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