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Category Archive: ‘Mortgage News’

120% Mortgages

In the last downturn, there were a surprising amount of people who were underwater but hung on – and today with record-high prices, they are glad they did.  We learned that whether you had equity or not, the chance of default was influenced by other factors.  If that’s the case, lenders might as well finance the whole enchilada, and price in the same or similar percentage of defaults as last time.

http://www.housingwire.com/articles/39288-burkeyloan-to-offer-120-ltv-mortgage-that-also-pays-student-loans

BurkeyLoan launched its BurkeyLoan Mortgage division Tuesday which included its 120% loan-to-value mortgage product that funds both a home purchase and the borrower’s student loans.

BurkeyLoan, a portfolio mortgage lender, will issue, hold and service BurkeyLoan mortgages. The company’s 120% LTV product will allow Millennials to pay off or reduce their student loan debt in order to buy a home.

“After considerable research, review and analysis, we needed to build an access to capital product for the millennial generation,” BurkeyLoan Chairman and CEO John Burkey said. “Many millennials feel they are on a financial treadmill, making every effort to pay off student loans and save for a home while interest rates and home prices escalate.”

“Our mortgage product offers features and benefits that support the needs of the millennial generation,” Burkey said. “The company will utilize sound conservative underwriting that incorporates borrower credit, character, skin-in-the-game and risk mitigation.”

The program is available to community, regional and other banks as well as credit unions that broker residential mortgages.

But BurkeyLoan isn’t the first company to reach out to first time homebuyers struggling with student loans. Back in November, SoFi and the government-sponsored enterprise Fannie Mae announced a new loan option allowing homeowners to refinance their mortgage at a lower rate and pay down the balance of an existing student loan.

The average student graduates with just over $30,000 in student loan debt, according to the Institute for College Access and Success. The median home price increased to $228,900 in January, according to the National Association of Realtors. The new LTV 120% program may enable homebuyers to pay off the average student loan amount, while offering a change to invest in their housing.

Posted by on Feb 23, 2017 in Ideas/Solutions, Jim's Take on the Market, Mortgage News | 0 comments

Wire Fraud by Hackers

It happened to us – hackers got into somebody’s account.

They posed as the escrow officer and tried to divert my buyers’ down payment to the wrong bank account.  Their timing was impeccable too.

Six days before closing, an email was sent to the buyers that looked like a normal email from the escrow officer:

Good morning (buyers’ names),

We are getting close to closing. It is important that we get the Cash to Close to avoid delays in closing.

Please tell me when you would wire the Cash to Close.

Regards, (escrow officer’s name)

The buyer asked for the amount and for wire instructions by email – and the hacker responded three times by email and even sounded like the escrow officer.  This was the tip-off though:

Please find attached the wiring instructions. It is an account of one of our subsidiary company as our main account is currently undergoing compliance audit. As such, any funds entering the account would be held for review which would grossly affect the scheduled closing date.  The total closing cost is X.

The hacker asked for an amount that was within $2,000 of being accurate, and if the buyers had been in a big hurry, they might have just sent it.

Thankfully, Mr. Buyer called the escrow officer direct to verify. The escrow officer was stunned – she hadn’t sent any emails to the buyers that day!

Because no crime was actually committed, the escrow, title, and mortgage companies just shrugged it off.  We won’t ever know who the hackers were, or how they got in, but to call it unsettling is an under-statement.

From my buyer:

We felt very unnerved yet relieved. I couldn’t sleep that night, knowing how close we came to losing a substantial amount of money, by nearly anyone’s standards. I personally felt helpless, because I’m not sure what I could have done to recognize this fraud. We consider ourselves pretty plugged in and so we didn’t think twice about getting a wire request from escrow.

The bottom line is, escrow and bank request a lot of items and need responses ASAP so that escrow proceeds to a timely close. Therefore buyers are, in many cases, reading highly technical documents ‘on the fly’, often from smart phone screens. In my case, this meant that I was usually just skimming documents and electronically signing without really studying the material.

The escrow company did say in their instructions that buyers should call before wiring any funds. I didn’t notice this until after the attempted theft of our money. In the future, I would like to see escrow go back to speaking with buyers more often, instead of just emailing documents for signature. It sets a more personal tone and makes buyers more comfortable in picking up the phone to talk to the escrow agent with questions, rather than always relying on electronic communication.

Some escrow companies are now encrypting their wire instructions, but they are missing the point.  The hackers are way ahead of us!  All they need is a copy of the purchase contract (which agents, buyers, sellers, escrow and lenders email around unsecured), and the hackers can figure out the rest.

They just pose as the escrow officer a day early, and ask the buyers to wire the down payment and closing costs to them!

Posted by on Feb 23, 2017 in Fraud, Jim's Take on the Market, Mortgage News, Scams | 6 comments

Futuristic Mortgages are Here

The Gaylord-Hansen Team of Caliber Home Loans had a seminar yesterday to discuss the details of their mortgage of the future – and they have it now!

The goal is to make the obtaining of a mortgage completely digital, and gather the documentation needed to fund a loan without the borrower having to cough up loads of paperwork.

Here is how they’ve improved the requirements of getting a mortgage:

  1.  Income from your tax returns has been verified with the IRS for years.   But now Caliber not only pulls your income from the IRS, but they also conduct an automated cash flow analysis.  If the computer says the borrower qualifies, no other underwriting is needed.  Yes, we have had DU for years (designated underwriting), where the computer give the preliminary approval.  But those are based on income that was inputted by the lender.  With the new system, once the borrower has authorized the process, it goes untouched by human hands, making it fraud proof – a big plus!
  2.   The borrower’s credit history is pulled from the three bureaus, and the credit behavior gets analyzed automatically.  If the computer signs off, that’s it – no other human touch needed.
  3.  Equifax and other companies do the employment verifications, where they contact your employer directly to verify that you still work there.  Lenders usually handle those themselves, but much better to have a third-party be responsible.
  4.  Your down payment/cash-to-close is verified automatically by Yodlee.  The borrower is emailed a verification form that authorizes Yodlee to check the balances of your designated accounts automatically.
  5.  If the automated appraisal system scores the house at 2.5 or under on a scale of 1-5, then no formal appraisal is required in person.  The house may get looked at by satellite or drone to prove it’s still there.
  6.  Everything from start to closing is signed electronically, and stamped by a virtual notary who pops up on your screen.  They are using thumbprint verifications too, and anticipate going to retina scans.
  7.  The funding of your loan can happen in eight days!

The mortgage underwriting process has always been the one-size-fits-all package, which wasn’t really fair to the best qualifiers.  Now those borrowers with sterling histories won’t be dragged through the same rigors  – instead, you are rewarded with speed and simplicity!

Posted by on Jan 27, 2017 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 1 comment

Fast Money

We’ve touched on the new disrupter OpenDoor, which is currently operating in Phoenix and Dallas (places where home values might be easier to determine):

https://www.opendoor.com/homepage

They are willing to pay cash for your house and close in three days, which sounds enticing for those sellers looking for instant cash.  But they offer to buy your home at a below-market price based on algorithms, and fees range from 6% to 12%.  They are glorified flippers.

The length of time it takes to close escrow should have improved by now.  It still takes 30-45 days to process a sale, which might be advantageous for sellers who occupy the home – they usually need time to pack it up.

But for those sellers of vacant homes, or those who want to use their proceeds to purchase another home, a quick escrow might be preferred.

Thankfully, there are new alternatives.

Quicken is offering the Rocket Mortgage, and yesterday Caliber Home Loans rolled out their new product that can close a regular sale in 10 days or less:

http://www.housingwire.com/articles/38710-first-look-caliber-home-loans-new-fully-digital-mortgage-will-close-in-10-days-or-less

These options should stop sellers from getting their head tore off just because they want a fast closing. These mortgage products could also really help the move-up market by alleviating the struggle of making offers contingent upon the sale of your current residence.

The regional VP of Caliber told me that their process is very innovative.  They do not require the buyer to bring in the usual documents.  Instead, they are getting them directly from the institutions themselves, which will help ensure accuracy.  The IRS will furnish Caliber with income documentation, and the funds for closing will be verified directly with the banks themselves.  The appraisals will be computer-generated in areas where you have easier valuations, like in Carmel Valley and Carlsbad where there are newer tract houses that are very similar.

We are close to being able to get a mortgage with the swipe of your ID card!  It could invigorate the move-up market in 2017 – and Trump will get the credit!

Posted by on Dec 9, 2016 in Flips, Jim's Take on the Market, Mortgage News, Thinking of Selling?, Why You Should List With Jim | 12 comments

Teacher Loan

teachers

Changes this month by the California Housing Finance Authority will help more K-12 public school employees land their first home.

The Extra Credit Teacher Home Purchase Program — once restricted to teachers — is now available to all administrators and support staff such as aides, bus drivers and custodians in public schools, charter schools and district offices.

Education professionals can now receive down-payment assistance of up to $15,000 in “high-cost” counties such as Riverside and San Bernardino. The loan, at 2.5 percent interest, does not require payments until the home is sold, refinanced or the principal loan has been paid, explained finance authority spokesman Eric Johnson.

“People always think government programs are for low income people, but we’re really for low and moderate income residents,” Johnson said. “It’s the missing middle – people with good jobs who have sometimes been priced out of the housing market.”

Applicants must have a minimum credit score of 640. Those making more than $91,000 per year are excluded from the program. The home sales price cannot exceed $400,000.

Read full article here:

http://www.pe.com/articles/home-817823-riverside-teachers.html

CalHFA has several assistance programs:

http://www.calhfa.ca.gov/homebuyer/programs/

Posted by on Nov 8, 2016 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 2 comments

Condo Owner-Occ Ratio Lowered

condo

Dropping the required owner-occupied ratio from 50% to 35% should open up more opportunities for condo buyers and sellers, but yes, the mortgage guidelines are getting easier and easier.

Owner occupied units are defined as principal residences, secondary residences, or units that have been sold to purchasers who intend to occupy them as a primary or secondary residence. A principal residence refers to a dwelling where the owner maintains or will maintain their permanent place of abode, and which the owner typically occupies or will occupy for the majority of the calendar year. A secondary residence refers to a dwelling that an owner occupies in addition to their principal residence, but less than a majority of the calendar year. A secondary residence does not include a vacation home.

Conditions to Lower Owner Occupancy Percentage to as low as 35 percent

Existing projects (greater than 12 months old) with an owner occupancy percentage of at least 35 percent and less than 50 percent are eligible for approval under the following circumstances and subject to the following conditions:

  1. Applications must be submitted for processing and review under the HUD Review and Approval Process (HRAP) option.
  2. Financial documents (see Section 2.1.6) must provide for funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 20 percent of the budget; and
  3. No more than 10 percent of the total units can be in arrears (more than 60 days past due) on their condominium association fee payments (as defined in Section 2.1.5 of the Guide; and
  4. Three years of acceptable financial documents (see Section 2.1.6) must be provided.

http://portal.hud.gov/hudportal/documents/huddoc?id=16-15ml.pdf

Posted by on Nov 3, 2016 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 2 comments

Fannie to Pay Off Student Loans

pig

What could go wrong?

http://www.housingwire.com/articles/38430-sofi-and-fannie-mae-announce-cash-out-refinance-student-loan-offering

Capitalizing off of its start as a student lender, SoFi and government-sponsored enterprise Fannie Mae announced a new loan option on Wednesday that allows homeowners to refinance their mortgage at a lower rate and pay down the balance of an existing student loan.

Under the new loan option, which is titled the Student Loan Payoff ReFi, SoFi stated that it will pay down the student loan by disbursing payment directly to the servicer of the student debt.

“People can pay off student loan debt and are left with one loan at the low rates that mortgage borrowers are enjoying in today’s market,” said Michael Tannenbaum, senior vice president of mortgage at SoFi.

Tannenbaum explained in an interview with HousingWire that there’s a big opportunity for borrowers to take out additional mortgage debt on their home thanks to the current low interest rate environment.

Typically, he said, student loans have a much higher rate than mortgages, making it better for borrowers to have more mortgage debt and pay off their student loans.

Posted by on Nov 2, 2016 in Jim's Take on the Market, Mortgage News | 7 comments

$880,000,000 in Slush Funds

doj

We’ve seen how bankers have been able to finagle fines instead of jail time for the harm done during the mortgage crisis.  Where did that money go?

Thanks to Art for sending:

https://judiciary.house.gov/press-release/majority-leader-announces-vote-goodlatte-bill-stop-obamas-settlement-slush-funds/

Washington, D.C. — House Majority Leader Kevin McCarthy (R-Calif.) announced that House Judiciary Committee Chairman Bob Goodlatte’s (R-Va.) bipartisan “Stop Settlement Slush Funds Act of 2016” (H.R. 5063) will receive a vote by the full House of Representatives next week.

Introduced by Chairman Goodlatte, this bill bars the Department of Justice (DOJ), and all other government agencies, from requiring defendants to donate money to outside groups as part of their settlement agreements with the federal government.

Need for this legislation arose after a 20-month House Judiciary Committee investigation found that DOJ had engaged in a “pattern or practice” of systematically subverting Congress’s Spending Power by using settlements from financial institutions to funnel money to left-wing activist groups. This bill would end this practice and restore accountability to the appropriations process.

Read the full story here:

https://judiciary.house.gov/press-release/majority-leader-announces-vote-goodlatte-bill-stop-obamas-settlement-slush-funds/

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Posted by on Sep 27, 2016 in Jim's Take on the Market, Mortgage News | 3 comments

Selling Equity

selleq

What could go wrong? From realtor.com:

A Silicon Valley startup is hoping that homeowners seeking fast cash will forgo begging for loans from banks (and dear old Mom and Dad), skip refinancing their abodes, avoid traditional home equity loans and credit loans—and sell off some of the equity in their residences instead.

Point, the Palo Alto–based company, has a simple but novel proposition: Homeowners can sell small fractions of their equity to investors for a lump sum, with no interest rates or monthly payments.

This gives folks who can’t afford the monthly bills on a second mortgage, home equity loan, or credit line the chance to get cash on their residences while providing wealthy individuals, companies, and hedge funds (accredited investors only) something new to sink their money into.

“It’s a really good option for homeowners who are looking for alternatives,” says Point co-founder and Chief Business Officer Eoin Matthews. “The homeowner gets to tap into their home equity, and they don’t have a monthly payment. There’s no interest rates associated with the product.”

But new investments are inherently risky as they have no track record. And folks could be losing money over the long run by signing away much of their future home appreciation.

So should homeowners sign up?

Here’s how it works: The homeowner applies online for a pre-approval. If all goes well, an appraiser comes to assess the property. If it’s approved, official documents detailing the partial ownership arrangement are signed and filed in the homeowner’s county recorder’s office. Once everything is finalized, a check is deposited into the homeowner’s bank account.

Typically, the maximum amount an owner can receive from Point for any one property is the lesser of:

a) $100,000

b) 15% of the property’s value

c) 30% of the equity

Homeowners’ remaining equity can’t dip below 20%.

The deals are typically good for about 10 years, with the expectation that Point will turn a profit when the property is sold. Alternatively, homeowners can buy back their equity at any time during the term.

If the home value increases, everyone wins. Point gets back what it invested, plus a percentage of the appreciation—12.5% to 45%, depending on the investment. If the home value falls, Point also loses money, getting back only the value of its fraction of equity.

Homeowners are responsible for maintaining their properties, keeping insurance, and staying current on all property taxes. But they can make whatever changes, renovations, or modifications they’d like to their residences without any interference from Point or its investors.

Most folks use the money to pay off credit card debt and other loans, make home renovations, and invest in their small businesses, Matthews says.

“There are lots of homeowners in the U.S. right now who are not able to access the equity in their home,” Matthews says. “There’s a whole segment of homeowners who don’t want to take on significant debt … or don’t qualify.”

(Point, which formally launched last year, announced this month that it had raised $15.4 million in funding.)

Currently, the service is available only in California and Washington. The company plans to expand into Massachusetts, Virginia, and Oregon by the end of the year, and its founders hope to eventually go nationwide.

And although homeowners do not have monthly payments, there are still fees involved. Applicants are charged for the appraiser’s visit, which Point estimates is usually about $400 to $800. That’s on top of a 3% processing fee on the investment amount and the escrow costs, typically an additional $450.

Most folks won’t make it that far. Only 1% of the roughly 4,000 to 5,000 applications the company has received has been approved, resulting in only about 60 investments so far. But Matthews was quick to point out that many of those homeowners choose to opt out of the process.

“For some homeowners, this might be more expensive than debt,” Matthews says.

It’s also not for everyone, says certified financial planner Jenna Rogers of Mission Wealth in Santa Barbara, CA.

“It could end up being a lot more expensive than you think,” she says, particularly for those in very pricey areas like San Francisco, “where real estate appreciates very quickly.”

She recommends those considering selling their home equity use a calculator and run the numbers first. With interest rates low, it may make more financial sense for folks to secure a home equity loan or line of credit instead—instead of forking over a percentage of the hoped-for future appreciation of their abodes.

But it could be a lifesaver for some, particularly those trying to pay off high-interest credit cards.

“It sort of is a last-resort option when all your money is tied up in your home and you can’t afford a monthly payment on a second mortgage or a home equity line,” Rogers says. “It could make sense for someone who needs the cash and will use the money in a smart way.”

http://www.realtor.com/news/trends/sell-shares-home-equity/

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Posted by on Sep 22, 2016 in Jim's Take on the Market, Mortgage News | 5 comments

PACE and FHA

hero

We covered the PACE financing of energy-efficient upgrades – LINK HERE.

It makes sense the buyers should assume the cost of the benefits – they are the ones who will enjoy the lower costs.  But it depends on the purchase price – if you are paying a premium for those energy-efficient upgrades, it makes sense that the sellers should pay off the lien, which HERO will do.

From the people in the video, Renovate America:

FHA announced new guidance on PACE endorsing it, recognizing it as a tax assessment and its senior lien status to a mortgage.  It is a major development in the market and an indicator of trends around energy efficiency programs and incentives.

They will now purchase mortgages with PACE liens which means any remaining balance will easily transfer to a new owner without the owner having to get approved.  Solar leases transfer only after the buyer qualifies.

This accounts for about 25% of the mortgage market.  Pressure is now on the FHFA who oversee Freddie and Fannie to follow suit.  Obviously, this is a big issue with the Mortgage Banker’s Association and CAR among other industry groups who have been pushing the other way.

So, PACE financing is alive and well – and we may see some considerable market expansion from this announcement.  There are other regulatory hurdles but this shift is a big one for an emerging industry and new financial asset class.

The HUD press release:

http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2016/HUDNo_16-110

The HERO program is PACE financing provided by Renovate America, a private company.

Posted by on Aug 4, 2016 in Jim's Take on the Market, Mortgage News | 0 comments