J.J. Ballard's Blog

Currently, foreclosures account for about 30% of all home sales in the U.S. Many of these homes have been neglected and are in need of repair. These market conditions have made renovation loans a hot item.

Renovation loans are very attractive for a number of reasons. The Federal Housing Administration (FHA) 203K renovation loan provides the money to both purchase the home and finance the home’s renovation. The down payment required on a renovation loan can be as low as 3.5%. Renovation loans are also very convenient. With one loan, there’s only one application, one set of fees, one closing and one monthly payment. At closing, the repair money is put into a special account for disbursement as repairs are completed.

Prospect has seen a sharp rise in the demand for renovation loans. To better service these increasingly popular loans, Prospect has put an experienced Renovation Management Team in place; implemented training and certification programs for Loan Officers originating renovation loans; and developed a Fast Track Team to expedite the renovation loan process.

Consequently, Prospect has increased its renovation loan market share in the past couple of years by more than 80%. In fact, today Prospect is the second largest FHA 203K renovation lender in the nation.

Only a limited number of lenders offer 203K financing. With foreclosure sales running six times higher than normal — and many of these homes in need of repair — just knowing about renovation loans may make the vital difference to motivate your buyers to purchase.

from Prospect Mortgage Industry Insider

Reverse mortgages can help older peope in need of extra cash.  They allow homeowners ages 62 and older to access their home’s equity for any financial purpose.  If the owner remains in the home, the loan doesn’t have to be paid back (payback occurs when the home is sold).

The drawbacks?  Although the new federally backed Home Equity Conversion Mortgage SaverLoan is cheaper than older versions, (0.01% of a home’s value vs. 2%), borrowing limits are smaller and interest rates higher.  Add to that annual insurance costs of 1.25% of a home’s value.  “Throw in the loan-origination fee, appraisal and other upfront costs, and we’re potentially talking big bucks,” says Ray Brown, co-author of Mortgages for Dummies.  So consider:

Will you stay long?  The longer you stay in your home, the more you can spread out the expense. 

Does your home fit?  “A reverse mortgage enables some folks to remain in a house that’s highly unsuitable for them – too big, too many stairs, not energy efficient,” says Brown.  “Downsizing into a smaller home is one way to free up the equity in your big, old empty nest.”

Jeff Wuorio – from USA WEEKEND magazine

Will the rule that all mortgage servicers must designate one employee as a single point of contact for every borrower requesting a loan modification make the process easier for borrowers to navigate?”

The rule to which you refer was issued earlier this year by the Office of the Comptroller of the Currency (OCC). It was part of a package of enforcement actions taken against eight of the largest national bank mortgage servicers for unsafe and unsound practices related to mortgage servicing.

This particular action required the servicers to provide each applicant with the name of a single point of contact (SPOC) along with “one or more direct means of communication with the contact.” Shortly thereafter, Treasury announced that SPOC would be the rule for all servicers participating in the Making Home Affordable Program.

Since poor communication between servicers and borrowers has been a core problem bedeviling the mortgage modifications problem, the SPOC seems like a sensible idea. In fact, SPOC will not improve communication with borrowers.

Road sign image via Shutterstock.

“Will the rule that all mortgage servicers must designate one employee as a single point of contact for every borrower requesting a loan modification make the process easier for borrowers to navigate?”

The rule to which you refer was issued earlier this year by the Office of the Comptroller of the Currency (OCC). It was part of a package of enforcement actions taken against eight of the largest national bank mortgage servicers for unsafe and unsound practices related to mortgage servicing.

This particular action required the servicers to provide each applicant with the name of a single point of contact (SPOC) along with “one or more direct means of communication with the contact.” Shortly thereafter, Treasury announced that SPOC would be the rule for all servicers participating in the Making Home Affordable Program.

Since poor communication between servicers and borrowers has been a core problem bedeviling the mortgage modifications problem, the SPOC seems like a sensible idea. In fact, SPOC will not improve communication with borrowers.

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For example, informing a borrower that “Henceforth, Jane Doe is your contact person and her email address is jdoe@lenderZ.com” won’t actually help the borrower unless Jane has quick access to the most current information about the status of the application, which today is very unlikely.

The crux of the communication problem is not the lack of an SPOC — it is inadequate systems for capturing in one place all the information needed to resolve an application for a modification, and for making it available to all the persons involved.

If the servicer has an easily accessible system that shows what has been done, what remains to be done, and what additional information is required from the borrower, any customer service representative can provide the same information to the borrower.

In such case, the requirement that each borrower can communicate only with an SPOC can only reduce efficiency. The SPOC may be busy when the client calls, or having lunch, or perhaps on vacation, while other SPOCs are idle.

If the system isn’t adequate, on the other hand, an SPOC is not going to be able to answer the borrower’s questions without making the rounds of those who have been working on that borrower’s case, which will take time while other calls stack up. The SPOC cannot remedy system deficiencies.

The best system is an Internet-based portal available to borrowers as well as authorized employees of the servicer. The portal is the SPOC in the sense that borrowers can access it at any time to see the exact status of their application.

But it is also a multiple point of contact in the sense that borrowers can communicate with any of the employees involved in their case by sending and receiving messages through the portal.

Two portals now exist, one from Default Mitigation Management (DMM), a private firm that recently opened its portal to borrowers. The second is the Hope LoanPort, which is a nonprofit associated with Hope Now, the nonprofit consortium of servicers, loan counseling agencies and others.

The Hope LoanPort is more widely used by servicers than DMM, but it is not open to borrowers. I have no financial interest in either.

The DMM portal works in the following way: The borrower opens an account with DMM, selects the servicer from a list on the portal, and receives the complete set of documents required by that servicer. The borrower fills out the documents and sends them to the portal, which delivers the files to the servicer.

The borrower receives a dated acknowledgment of submission through the portal. If the servicer finds a deficiency in or omission from the submission, a message to that effect is sent back to the borrower through the portal. Corrections by the borrower are returned through the portal.

At any time, the borrower can access the portal for an update on what has been completed and what remains to be done. The servicer employees working a particular file are assigned to the borrower on the portal. This means that a borrower who has a question or issue is automatically directed to the employee involved in her issue.

All such communications are time-stamped and remain in the portal as a transparent record of borrower/servicer exchanges. As an important side benefit, the portal provides all the means for establishing the accountability of servicers for results.

The government’s decision to require a human SPOC rather than a systems SPOC is difficult to understand. A systems SPOC would solve both the communications problem and the accountability problem. The human SPOC is costing an enormous amount to provide little more than PR window-dressing for regulators.

By Jack Guttentag, Monday, December 5, 2011.

Inman News™

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

Q: We just got multiple offers on my “vacation” house listed as a short sale. And so far, we have begged and borrowed to keep our mortgage current so our credit scores will be less bruised. But now that our house is in contract, do I continue to pay the mortgage? Our debt exceeds our income due to job and benefit loss.

Here’s my bigger concern: Since we are current, I don’t want the bank to reject the offers just because we have been current, although our financial papers will prove that our debt exceeds our income. –Cindy

A: There are a number of schools of thought and approaches to deciding whether to continue making your mortgage payments while you’re selling your home on a short sale, and your ultimate decision will require you to weigh a number of factors and see where your personal calculus of your own values and interests comes out:

Legal: Legally speaking, you have an obligation to pay your mortgage and property taxes as long as you own your home. While you might very well make the decision not to for a number of reasons (see below), it’s important to keep the legal contract you made to pay especially your mortgage in mind, as some lenders make efforts to reserve the right to come after you later for the deficiency (i.e., the difference between the sale price of your home and your mortgage balance). For this reason, it’s not a bad idea to have a local real estate attorney involved in your short-sale transaction, to help you negotiate a complete release of liability for the mortgage.

The moral/ethical perspective: Morally and ethically, some homeowners view themselves as having an obligation in line with their legal commitment to pay all these items. Others look at the various factors beyond their control that have forced them to short-sale their home, like the decline in property values and the weak employment market, and have made a decision that their personal moral imperative weighs in favor of protecting their family finances and children’s education funds. In that vein, some make the conscious decision to stop paying once they’re in a short-sale situation or on a clear path to foreclosure.

Financial/business: Once you know 100 percent that you’ll be divesting of your home in some way, shape or form, continued investments in the property can seem to easily fall into the “throwing good money after bad” bucket, looking at the situation from a strictly business and financial perspective. There is also a strong sentiment among many real estate professionals that if you keep your mortgage current, while applying for a short sale or loan modification of any sort, you decrease the chances that your lender will approve of the sale.

The theory goes that if you are current on your payments, you can’t possibly have the level of hardship you must claim (and the lender must believe you have) for them to agree to waive the deficiency amount and release you from the mortgage.

I’ve seen very mixed feelings on this in the real estate industry; on this point specifically, you should definitely talk with your listing agent and your local attorney, and take their advice into account — they might have worked with this bank in the past and be able to shed light on how staying current or falling behind may affect the success prospects of your short sale application.

Credit/ability to buy again: Right now, you are probably fixated on getting out from under this onerous debt, as virtually every homeowner in your situation is as a matter of course. But I’ve worked with a number of folks through this entire experience of going upside down, losing a home through a foreclosure or short sale and financial recovery, and I know that before too terribly long, you could very well be looking to buy a home again. Just be aware that most lenders will impose a two- to three-year waiting period after you have a short sale, if you were in default on your mortgage at the time the short sale closed (sometimes the waiting period is as long as seven years, depending on what type of loan you’re trying to use to buy your new home).

However, if you do not default on your loan and are able to get your lender to green-light your short sale, you can qualify for an FHA mortgage immediately. I don’t know your personal situation, and it’s been my experience that the majority of homeowners who have a financial hardship severe enough to even attempt a short sale need a couple of years to get back on their feet, but if you think you’ll want to buy another home anytime sooner than two years from now, you’ll need to stay current on this mortgage.

Just as there are many factors your bank will weigh in determining whether to allow your short sale to close, and on what terms, you have a lot of considerations to weigh in deciding whether to continue making your mortgage payments while you await their decision. I can’t urge you strongly enough to include your real estate agent and an attorney in your decision-making process.

By Tara-Nicholle Nelson, Monday, November 28, 2011.

Inman News™

Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com

Homeowners facing foreclosure seem to be desperate to buy again.

Frequently, I receive letters from someone who hasn’t yet lost their home to foreclosure but anticipates they soon will, and wants to be able to get back into the market, quick-like.

Many claim their haste is because they don’t want to miss out on today’s bargain housing prices or interest rates. Yet neither seems poised to rise significantly any time soon.

In the same breath, many of these folks say they’re ready to pay top dollar for their next home, and pay an additional premium if they are forced to rely on lease-to-own, seller financing, or a hard-money mortgage.

Others claim they don’t want to miss out on the opportunity to build equity in a home instead of paying rent, or cite the tax advantages of homeownership as the piece they particularly want to retain.

My advice is almost always this: Slow down! Most legitimate loan programs now impose a three-year-plus waiting period after a borrower loses a home to foreclosure, even if they would otherwise qualify for a mortgage based on their credit score, income and assets.

Here are my four suggestions for how you can wisely use that waiting period to recover from a foreclosure — these steps also do double duty in terms of setting you up for success and sustainability the next time you buy a home.

1. Feel the pain.

Many folks who write to me are still in the early stages of grief at the loss of their home: anger and denial. They are angry at the bank, and in denial about the loss of their home and its advantages, from status to tax write-offs.

What I know is that getting through this grief is an essential first step to truly moving forward. Inherent in grief is an acknowledgement that something is dead and over. The acceptance of that finality is what allows you to move forward and learn the lessons that such experiences can teach.

As long as you’re stuck in the emotional protestations of how unfair it was that you lost your home, or spinning in a place of outrage about the Wall Street bailouts, you’re probably not making emotional progress to the point where you can begin to learn from your experience.

2. Metabolize the loss.

Henry Cloud, bestselling author of “Necessary Endings: The Employees, Businesses, and Relationships That All of Us Have to Give Up in Order to Move Forward” (Harper Business, 2011), recommends that we treat our painful past experiences as our bodies do food, metabolizing them by taking away the lessons we can distill from them that will fuel our future decisions, and leaving behind the pain and other toxic wastes from the experience.

Individuals and couples should take time out to acknowledge what has happened, and distill and discuss mistakes that were made and insights you’ve gained so that you can avoid repeating them in the future. It’s a meaningful method for progressing past grief and repositioning yourself to make smarter decisions about your money and your mortgage for the rest of your life.

3. Avoid rebound home purchases.

There’s a whole lot of what I call tuition — the price we pay to learn life lessons — involved in the loss a home to foreclosure. If rush in too quickly to the next home purchase, chances are good we’ll miss the lesson and get nothing for the tuition. This is evident in the gymnastics many foreclosed homeowners are considering going through in order to buy a home at all costs. These may mirror their willingness a few years ago to take on an unsustainable mortgage, which is what got some portion of them into foreclosure in the first place.

Trying to replace our losses on the rebound, be it after a breakup or after a foreclosure, is how people end up repeating their mistakes. Making new, unsustainable mortgage commitments and chronically overspending or over borrowing is no different from your friend who keeps repeating the same old dysfunctional relationship patterns, year after year.

4. Heal your finances.

My advice to foreclosed homeowners is to devote some real time to working on their finances, without worrying about buying another home. Get your debt paid down or off. Change your spending habits and your overall relationship with money. Get your taxes current and paid. Save some money. Create the habit of paying every bill on time every time. Eliminate unnecessary monthly expenses. Work the programs in “365 Days to Organized Finances or Financial Recovery,” or some similar book, or both. Focus for awhile on your career development.

By Tara-Nicholle Nelson, Tuesday, November 29, 2011.

Inman News™

Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com

Half of refinance applications are abandoned or rejected, as are 30 percent of purchase mortgage applications, according to the Mortgage Bankers Association. All told, the Federal Financial Institutions Examination Council (FFIEC) says that well over 2 million mortgage applications were rejected last year.

Want to avoid falling into that number? It’s tough — especially in light of the fact that mortgage lenders have become increasingly restrictive in terms of their lending guidelines since the housing market crash.

Here, as a cautionary tale and primer on what to expect, are the top six reasons mortgage lenders reject applications.

1. Income issues. Most failed applications falling into this category have income too low for the mortgage amount they are seeking; often, a spouse’s credit issues can create this problem, too, as the income the spouse plans to actually chip in toward the mortgage cannot be considered by a lender.

But increasingly, the recent vagaries of the job market are also causing this issue, as people who have changed their line of work or have changed from salaried employee to freelancer over the last couple of years can also have their home loan applications rejected based on income.

2. Muddled money matters. If the mortgage for which you’re applying plus your monthly payments on credit card, car and student loan debts will comprise more than 45 percent of your total income, you could have problems qualifying for a home loan. You might also run into problems if you rely too heavily on bonuses, overtime, cash wages or rental income — all of these can be difficult or impossible to get a mortgage bank to consider, and if they do, they might not take all of it into account.

3. Credit issues. Today, the mortgage-qualifying FICO score cutoff falls somewhere between 620 and 660, depending on which lender and which loan type you seek. More than one-third of Americans, by some numbers, have credit scores too low to qualify for a home loan. Even if your credit score is high enough to qualify, if you have any late mortgage payments, a short sale, a foreclosure or a bankruptcy in the last two years, loan qualifying could be difficult to impossible.

4. Property didn’t appraise. Since the whole industry had its hand (among other things) smacked for allowing home values to skyrocket in a very short time, appraisal guidelines have tightened up — some would say, even more than overall mortgage guidelines. So, it is increasingly common to have the property appraise for a price lower than the sale price negotiated between the buyer and seller.

This is especially common in the refinance realm, as well over a quarter of U.S. homes are now upside-down, meaning the mortgage balance owed is greater than the value of the home. (If you’re trying to refinance an upside-down mortgage, consider the FHA Short Refi program — contact your lender or get referrals to any mortgage broker who makes FHA details to apply.)

5. Condition problems. With all the distressed properties on the market, and with most nondistressed sellers barely breaking even, more home-sale transactions than ever are falling apart due to condition problems with the property. Many lenders will not extend financing on homes where the appraiser points out problems like cracked or broken windows, missing kitchen appliances, electrical problems, or wood rot.

And in the world of condos and other units that belong to a homeowners association, if more than 25 percent of units are rented (rather than owner-occupied) or more than 15 percent are delinquent on their HOA dues, new applications for refinance or purchase mortgages on units in the development are likely to be rejected.

6. Technical difficulties with application. The days when lenders just took your word for it are long, long gone. Applications with incomplete or unverifiable information are doomed.

If any of these mortgage loan application glitches arise in your homebuying or refinancing process, it’s critical that you connect with your mortgage professional, be it your banker or mortgage broker, to determine what course of action to take.

In some cases, it might be as simple as buying a stove you find at Craigslist and installing it before escrow closes; but with income issues your mortgage pro will need to help you determine whether it makes sense to pay some bills down, get a co-signer, or even wait six months so your income documentation will qualify.

By Tara-Nicholle Nelson, Monday, October 10, 2011.

Inman News™

Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

Finding the best mortgage can be complicated, but it doesn’t have to be. Avoid these top 10 mortgage mistakes and you’ll be well on your way to home sweet home.

1. Don’t start looking for homes before you are pre-approved. When you find a property you’d like to make an offer on, you’ll have a much better chance of having your offer accepted if you’re pre-approved and prepared with a letter from your lender.
2. Avoid verbal agreements and ask for everything in writing. Even if you verbally come to an agreement with the buyer or seller, always make sure the agreement is part of your contract or in some form of writing. Be sure that both parties have signed the written agreement.
3. Don’t just look for the lowest rate. You’ll want to consider the APR, origination fees and discount points from all potential lenders. Not all fees are broken out or outright disclosed – don’t hesitate to ask for a full breakdown of the numbers. Do your research by asking friends and family for recommendations, look for customer reviews online and meet with a few different lenders before you make your choice.
4. Good Faith Estimate. Shortly after submitting your loan application, you should receive a written statement of the estimated fees associated with the transaction (called a Good Faith Estimate). This statement is a close estimate of loan costs and fees for closing. The law requires that your lender provide you with your GFE within three days of application acceptance.
5. When you lock in at the rate you agreed upon, get it in writing. Obtain a written document detailing your interest rate, the length of your rate lock and any details like discount points, etc. Make sure you and your lender have seen and signed this document.
6. Know what you REALLY afford. You know what you can and can’t afford on a monthly basis. Setting a price limit and calculated budget help you determine exactly where your money goes, how you can cut costs and what you can truly afford to pay for a home. It’s not just a mortgage payment, you’ll want to include property taxes, insurance, potential homeowners dues and utilities. Don’t go borrowing what a lender is willing to lend you – stick a healthy, affordable price.
7. Always insist on professional inspections. Even if you’re buying a new home with a warranty, it’s still a good idea to have a 3rd party inspect your home. An independent inspector can help put together a report that may help you with negotiating. You’ll certainly know more about what you’re purchasing and getting yourself into before signing on the dotted line.
8. Shop around for homeowners insurance. You could save a few hundred dollars when you shop around for homeowners insurance. If you haven’t already, you can combine policies and often receive discounts for multiple policies.
9. Read all of your documents before you sign. There are times when you’ll receive closing paperwork in advance. If you have time, it’s in your best interest to read ahead before closing day. Most closing appointments don’t allow enough time to read every page of every document, so try to read ahead. Don’t be afraid to speak up if you have a question about any paperwork you’re signing (that’s what they’re there for).
10. Be prepared for delays. With so many people and so much paperwork involved with closing on a home, the chances of having a delay are relatively high. Be prepared by giving yourself an additional week on your current lease and utilities or be sure to have other arrangements should your closing day fall through or get delayed. You’ll be less stressed and pushed for time in the long run.

from AHS “Inside and Out”

Retail sales fell 1% for the week ending August 20, according to the ICSC-Goldman Sachs index. On a year-over-year basis, retailers saw sales increase 3%.

New home sales fell 0.7% in July to a seasonally adjusted annual rate of 298,000 units from a downwardly revised rate of 300,000 units in June.

The Mortgage Bankers Association said its seasonally adjusted composite index of mortgage applications for the week ending August 19 fell 2.4%. Refinancing applications decreased 1.7%. Purchase volume fell 5.7%.

Initial claims for unemployment benefits rose by 5,000 to 417,000 for the week ending August 20. Continuing claims for the week ending August 13 fell by 80,000 to 3.64 million, the lowest level since September 2008.

From Prospect Mortgage

In spite of the gyrations of the housing market in recent years, an overwhelming number of Americans still view owning a home as a key to their happiness and security.

According to a 2011 poll of likely voters, commissioned by the National Association of Realtors, 75% of respondents said they believed owning a home is worth the risk of potential market fluctuations.  Of those respondents who already owned a home, an even higher number, 95%, stated they were happy with their decision to purchase their home.

The good feelings towards home-ownership extend to potential buyers as well.  73% of those who do not currently own a home view the purchase of a home as a goal for the future.  Most respondents also agree that their home is their best  investment, adding that they would advise a friend or family memeber to buy a home.  One of the reasons cited for the lack of first-time buyers entering  the housing market:  difficult saving up for a down payment and closing.  Combined, these costs are seen as the biggest barrier to home ownership today.

A 2008 book by authors Gary Smith, Pomona’s Fletcher Jones Professor of Economics, and wife Paula, a business economist from Harvard, reflects similiar sentiments.  According to their research, as reported in “Homeconomics:  Why Owning a Home Is Still a Great Investment,” buying a home offers as many benefits today as it always has.  These benefits include providing shelter and a place to live, as well as providing the “fun” and enjoyment of home ownership.  The economists are quick to note the financial benefits as well, labeling them as the home dividend.  The dividend is described by the authors in the following manner.

A “home dividend” is the owners’ rent savings for a comparable house in the same neighborhood, plus mortgage interest and property tax deductions, minus the mortgage payment, property tax and attendant insurance and maintenance costs.

Rents are often higher than mortgage payments, since rents increase over time, while mortgages with fixed rates stay flat.  When  the  two amounts are subtracted, the difference between them is the amount of the monthly dividend.  This extra money can be  saved an invested in the stock market, bonds,  business opportunities or educational opportunities for family members.  If the dividend earns even a modest rate of return, it can generate an additional source of wealth for the homeowner.

This inherent dividend explains why the average homeowner has a net worth of $200,000, while the average renters worth is closer to $5,000, according to the two economists. 

In addition to the financial benefits of homeownership, however, people also report a strong emotional connection to their home.  It is viewed as a place for rest, relaxation and enjoying the company of family and friends.  Seen from this perspective, owning a home is reported as an important core value for many families.

Far from giving up on the American Dream, many people still embrace it,  and view the purchase of a home as a way to save for retirement, as well as a place to hang their hat well into the future.

from Teck Inspections August 2011 newsletter