Southern California Mortgage Blog

Tax Credit for Home Buyers Extended & Expanded: Obama To Sign Soon

11-6-09 The President signed it into law today. I believe that it is good use of public funds because most new home owners spend several thousand dollars in their first year of home ownership.

11-5-09, I jumped the gun, but it did pass today and President Obama is expected to sign it into law as early as Friday, 11-6-09.  Yay!!!

11-2-2009, I regret to report that my source for this legislation was incorrect. I typically look for two sources, in this case one was verbal and the other a news blog. I apologize for my error. The bill is still under review and in negotiation.

US News & World Report reports that the Tax Credit for 1^st time home buyers has been extended and expanded! (Subject to President Obama’s signature)

 

First time home buyers will be eligible for the tax credit as long sign a purchase contract by April 30, 2010 and close on the property before June 30, 2010.

Prepare For 1st Time Homebuyer Tax Rebate and Your IRS Audit

If you bought a home this year using the 1st Time Home Buyer tax credit for $8,000, be advised that due to some very questionable claims made by others before you, you could be in for a tax audit.

I found this great article in my reading and thought that the subject bears repeating. The Wall Street Journal reports that there are over 100,000 cases that have been filed that are considered "suspect" by the IRS. We all know what happens to suspicious minds.

Castles of Southern California by Guest Blogger

The following post was contributed by Sarah Scrafford:

California is famed as much for its long coastline, beaches and sunshine as for its celebrity homes, some of which are similar to castles because of their size and/or opulence. Celebrities are big spenders, opting at times for style over substance and size over convenience. Even though these homes are not the primary residences of many of their owners, they’re still huge buildings set in palatial estates. Here’s a list of Southern California’s better known “castles” and the celebrities who own them:

·        Oprah Winfrey: Set on a sprawling area of 42 acres in Santa Barbara, the house itself spans 23,000 square feet and comprises six bedrooms, fourteen bathrooms and ten fireplaces. The surrounding area is landscaped to perfection with the crowning glory being the manmade lake and the rare fish its home to. Oprah prides herself on being the owner of the home that has the most amount of green space in Santa Barbara.

·        Michael Jackson: Neverland Valley Ranch in Santa Barbara County has been in the news more for all the wrong reasons than the right ones. The flailing fortunes of its owner Michael Jackson and the controversial pedophilia cases that centered around this 2800 acre estate have kept Neverland in the public eye.Jackson purchased this huge space and converted it into more of an amusement park than a home – with its zoo and theme park, the estate was aptly named Neverland after the place where children never grow up in the Peter Pan books. It’s closed down now, and the exotic animals that once attracted celebrity guests from far and wide have now been sold to zoos and private investors over the world to help fund the aging pop star’s extravagant habits.

·        Aaron Spelling: Larger than most luxury hotels, this home sits on 56,000 square feet of prime property in Los Angeles. Housing an unbelievable 123 rooms, one of which is a bowling alley, this building is now home to one person – Aaron’s widow Candy Spelling. The successful producer of television shows allegedly purchased Bing Crosby’s home and tore it down completely to build this monstrosity that looks more like Richie Rich’s home than something out of real life.

·        Will Smith: Having had to shell out more than $20 million and wait for longer than seven years to move into this house, Will and Jada Pinkett Smith and their children were forced to pack their bags and leave following a bushfire threat in 2005. Known as Calabasas Castle, this piece of property comes complete with a lake, a basketball court, a tennis court and a golf course.

·        George Lucas: Skywalker Ranch earned some sort of notoriety when the then president Ronald Reagan was denied permission to visit – that’s how much filmmaker and brain behind the Star Wars movies George Lucas values his privacy. Rumored to have cost up to $100 million, this 4700 acre estate is more of a retreat for Lucas rather than a primary home and comprises a barn for his menagerie of animals, vineyards, a fruit and vegetable garden, a manmade lake, an outdoor pool, a hilltop observatory, a theater that seats 300, multiple screening rooms, a fitness center with racquetball courts, and its own fire station. 

By-line:

This article is contributed by Sarah Scrafford, who regularly writes on the topic of luxury homes. She invites your questions, comments and freelancing job inquiries at her email address: sarah.scrafford25@gmail.com

History and the "Mortgage Crisis"

Wow! What a week, this past one, the third week of September 2008!

So much has gone on, and frankly, it is very difficult for me to understand a lot of it.

One article that I have read used the phrase, “the credit market has seized up and has made it impossible for anyone to get mortgage loans, etc. (sic).” That pretty much summed it up for me and my business.

Any time that I have a problem getting a loan for a man with 817 middle credit score and 45% down, on the purchase of a single family home in San Diego means that things have gone beyond “hinky”.

With each loan application I take, I summarize with this apology: “I’m sorry. Though I have asked you for everything that my experience tells me we will need, the times are challenging. It is very possible that things that have never had to have been documented before will be asked for before we finish. I believe that we will present a very good loan package. We can get this done if we work together. Please don’t take any additional requests personally. It is simply the need for the underwriter to cover all the bases because he or she fears their own job loss.”

I was very saddened, and then relieved, that the Treasury Dept. had taken over Fannie and Freddie because I believe that those two businesses will become much more predictable as to the standards that must be met for a “good loan”. FHA loans have always made it easier for 1^st time homebuyers to invest in the American Dream and I believe the new standards that will be set for FNMA and Freddie will do the same for all loan programs.

So many people have asked me, “How did all of this happen in the mortgage industry?” I am not qualified to answer that on anything more than my experience in real estate for 26 years and good business sense, but here is my answer:

During the boom there were many nights when I worked very late at the office to keep my loan pipeline on track. I remember thinking many times that “how will these credit scores hold up if a borrower with a 680 credit score buys a home with no money down and loses his job?” If you can’t make the payments, you can’t make the payments regardless of your credit scores.

I also knew that any market that white-hot was going to cool. Sadly, I also knew that many loan officers and real estate agents only look at the “deal” and not how the transaction will play out in their client’s lives.

Then, there is the issue of so many negative amortization loans that were funded where even the loan officer didn’t understand them well enough to explain them to their borrower. I am a proponent of neg-am loans; they definitely have their place. Many, many homeowners, me included, have been able to buy homes and keep them because of this type of loan. As long as the borrower has owned property before and understands how the loan will work, they are good loans.

The final big reason that I could see was that all of the different types of loans that were introduced went far beyond common sense. In terms of the loan programs and the underwriting and approval of those loans, many of this was simply bad business and without common sense. I am and have always been very proud to work with General Mortgage in San Diego. Their level of professionalism has always been superior.

Human nature and/or capitalism will exploit every avenue until it proves harmful and then regulation will bring it back into balance.

In the coming years, I believe that the standard of education for the client and the loan officer and real estate agent will improve. It has to! The price is too high to fail and I am not just talking about money. Our clients trust us with their financial lives which directly affects their quality of life.

The need to prepare the clients’ credit report, carefully consider the loan program being offered, and understand the entire process and teach that will be the professional’s duty to obtain the best results for the client.

I challenge anyone, still in the business, to bring the level of their education up on an ongoing basis. I promise, it will be expected.

Mary Supinger

Copyright 2008 All rights reserved

Fannie Mae & Freddie Mac Taken Over By the Feds

The Federal Government took over control of FNMA and Freddie Mac this morning.(09/07/2008) As I was reading about it last night and again this afternoon, my thoughts go to how this will affect home buyers and sellers, as well as the economy in general.

The bad news is that it will have a huge and prolonged effect. Credit will become even tighter and qualifying for any type of loan will become more difficult.

As I  take a perfect borrowers' credit report these days, I tell them upfront that I will be apologizing to them until the loan is closed. I will be apologizing because even though I have asked them for everything but the proverbial kitchen sink, the loan process will still be met with things not ever asked for before.

Prior to using credit scoring for loan approvals, we had to document and re-document the source of a home buyer's funds, income, job security, bank records, and every other aspect of getting a loan approval. My experience with that enabled me to ask the borrower for all the needed information up-front. Asking for this information up-front is much less stressful for the home buyer and agents, and of course, me.

In the past year, we have entered a completely different mood in the mortgage business. The news today will make the mood even more serious.

I tell all of my loan clients that it comes down to this: the person who is going to sign off on your loan approval wants to cover every possible thing because they don't want to lose their job.

This is the temper and mood of the mortgage industry in a nutshell.

The good news about the take-over is that more people who are having trouble will get help sooner. There will be more consistency in how mortgages that aren't working are modified so that people can keep their homes. This will keep values up and keeping values up is good for every single American.

I will write more in the coming days. I am very good at helping people improve their credit scores so that the cost of credit can be greatly improved.

Please check me out at http://www.creditfitness.net/calc.html

Buying Foreclosure and REO Properties

Everyone hears about the problems in real estate; that there are many homes on the market and many more being lost to foreclosure every day.

In California, this is much more prevalent than in other parts of the country. California has a higher rate of foreclosure than average and values have declined in many neighborhoods. According to Realty Trac, a California based company that tracks the Nation’s real estate transactions, one in every 171 households in the California were either in foreclosure, received a Notice of Default, or had been warned of pending action. This is a 121% increase in foreclosure activity over the same period in July of 2007.

Fortunately, there is always an upside to any downside. The upside to this problem is that home values have worked their way down to becoming more affordable to more buyers.

In the years between 2002 and 2005, we experienced a hot seller’s market. This began to cool in 2006 and to become a buyer’s market. 2007 and 2008 have brought a record number of foreclosures in California. The reasons for this are many, but it is mostly agreed that lenders were using some loan programs that made it too easy for people to buy real estate.

The market has now corrected itself and buying real estate has gone back to the buyer needing more down payment and proof of income.

Because the values have dropped and there are more foreclosure properties available, many first time home buyers are seeking out these types of properties. In addition, 150,000 to 180,000 homes have been sold to Canadians flocking here to take advantage of our buyers’ market.

There is a lot of inventory on the market and the majority of it is either pre-foreclosure, auction sales, or REO properties. In the mix are also homeowner’s who are not distressed, but need to make a move for one reason or another.

There are three types of distressed sale properties:

Short Sale: This property will have a seller who is likely still living in the property but is having trouble making their payments. The value of the property has declined to the point that the property is up-side down. The seller owes more than the property is worth and will need to negotiate with the current lender to take a loss on the property in order for the new buyer to close the escrow.

The advantage of a short sale property is that the seller will provide you with disclosure reports regarding the condition of the property. The new buyer can ask for repairs to be made to the property.

The disadvantage of a short sale is that they take a very long time to close. As a loan officer, my clients have to wait as long as five months for the lender to agree to terms the buyer is requesting. During that time, the property may have lost thousands of dollars in value. Buyers notice this and will tend to make offers on more than one property.

Auction Sale: Many of us have seen commercials and even, infomercials regarding buying properties at auctions.

While it is possible to get some bargains, I don’t recommend it for anyone who is inexperienced at this. You will need to have all cash, payable within four days of the auction closing.

Usually, you will not be able to even see inside the property. You purchase the property as-is. There is no warranty or statement from the seller as to the condition of the property.

This is a huge drawback because many times there are significant problems that will need to be corrected. Your bargain could become a huge expense if all of the rooms have been stripped and you find that you need to add a new kitchen and bathrooms.

The most experienced, buyers are usually attracted to these properties because they are able to handle a heavy duty fixer. Repairing walls, plumbing, electrical, and other heavy duty work isn’t uncommon for them and a buyer like this can make a lot of profit on an auction home.

REO Sale: Properties that the lender has had to purchase back because no one bid on them at auction are called REO properties. REO stands for real estate owned.

An REO property can be found on the MLS and most real estate agents can show you these properties. You will be able to look at the property and see the floor plan and other features the property has to offer. There is no disclosure from the seller as to the condition, but you would be allowed to have your own inspector look at the property when you have made an offer.

Many of these properties are in great condition. There are a great variety of homes available. The bargain in this property is that anyone can buy their next home and know what they are getting when they buy the property. You will usually pay less than what a seller-occupied, non distressed property would cost. This makes REO listings a great idea to look into, if the properties come up in your price range and needs list.

Those who are investing in real estate or are looking for their next homes will benefit from looking at REO and foreclosure properties.

In all cases, the seller is very motivated to sell. A buyer can get very attractive terms when they negotiate well. I recommend to my clients that they ask the seller to pay some or all of their closing costs. I work with the agent to present this to the seller in a way where we get to the bottom line benefit to the seller.

Once everyone wins, then the purchase is truly a great value.

For more information contact the author, Mary Supinger, at 619.701.4321

copyright August 2008 ALL RIGHTS RESERVED

Short Sale vs. Foreclosure: The True Impact On Credit

I have gotten the impression from the many real estate agents are unaware that the effect of a Short Sale on their clients credit report isn't as bad as Foreclosure or Deed In Lieu of Foreclosure.

I have actually seen a lot to the contrary in advertising. It scares me because I see a lot of lawsuits in the future regarding this.

Short Sales, Deed in Lieu of Foreclosure, or full blown Foreclosure are all weighted the same in determining credit score computations. This information comes directly from MyFICO.com.

Earlier this year, FNMA announced that a record of foreclosure on a credit report will require that 3 years must pass prior to placing a borrower into a FNMA insured loan. At the beginning of June, that time frame was extended to five years. That is five years from the sale date. Remember, that the home owner does have redemption periods after default and because of this, the sale date is the actual date of the foreclosure.  An owner wouldn't necessarily know this without researching the actual date.

The Mortgage Bankers Association announced that one in every 200 homes with mortgages is facing foreclosure.  That is a lot of bad news to many families.

A year ago I correctly predicted that short-refis would exist. They do now.....it is called Loan Modification and I can help you with that.

Finding out that my agent said a short sale wouldn't hurt me as badly would have me gunning for someone to pay. I would rather it wouldn't be you. Thanks for reading.

Tougher Standards for Fannie Mae Home Loans

Today was the first day’s use of the new software for underwriting Fannie Mae loans. Version 7 of the Desktop Underwriting® software was upgraded with lenders over the past weekend.

This new version of the underwriting process will take a much longer and more conservative look at borrowers. By longer, I mean that additional documentation will be required in order to get an approval. Fewer approvals will be given as well.

The bar has been raised as to what makes for an approvable loan.

The entire underwriting process for mortgage loans has snapped back into the days prior to any credit scores being used. In those days, a human being reviewed the loan application for the lender. At times, even two humans beings did the underwriting; once for the lender and again for the mortgage insurance company. Those were the days when, as a loan officer, you hoped your underwriter was having a “good” day and wouldn’t hit you with a page long list of conditions for a full loan approval.

This new version of the software is crankier than previous versions. It demands more proof of what is stated in the actual loan application. The loan officer will need to be more careful that information is entered correctly onto the application. This software won’t allow the loan officer to change the information repeatedly based on what one thinks the lender wants to hear. This will prevent a lot of the fraud that has caused some of the problems we are living with today.

This newer, more conservative software will look at the borrower's with a much more critical eye. More will have to be proven. Risks in the file will have to be balanced with additional compensating factors.  As an example, fewer years in a line of work could be balanced with having substantial savings or reserves.

This new software will mean there will be fewer loan approvals.

It also means that the bar for loan officers has also been raised. The average loan officer has less than five years of experience. Many of the “newbies” have left the profession.  I recommend that you “prequalify” your loan officer at the time he or she prequalifies you. Ask how long they have been in business and ask if they are aware of the new underwriting standards.

Doing this will make for an easier loan process during some challenging times.

PMI Tax Deduction Extended Through 2010

On 12/14/2006, I posted an article on Mary Supinger's Credit & Mortgage Blog at RealBlogging.com Tax Deductible PMI:

On 3/20/2007, I updated that article to read that the 2007 deduction for private mortgage insurance had not yet been extended.

I am happy to report that legislation has been passed that will extend the tax deduction for private mortgage insurance through 2010.

The tax deduction is available to a personal residence and a non-rental second home.

The homeowner’s loan that include the PMI must have originated after January 1^st of 2007. It can be for a purchase or refinance, but the loan amount may not exceed the acquisition loan amounts.

In other words, if you bought a house for $100,000 and had a 1^st mortgage for $80,000 and a 2^nd mortgage for $10,000, you could refinance into a new loan with PMI for $90,000. If, you could somehow get a loan for $95,000, you would be able to deduct the PMI for the loan amount up to $90,000 only.

The legislation also carries with it the caveat that your family may earn no more than $100,000 per year or the mortgage insurance will not be 100% tax deductible.  For each $1,000 of annual household income earned in a year, the deduction is reduced by 10%. Once a family’s income is over $109,000, the PMI deduction will not apply.

The household income is determined by the adjusted gross income prior to any itemized deductions. This legislation is aimed at helping first time homebuyers with the purchase of a new home.

Timing Is Everything

Any American male can tell you that, in romance, timing is everything!

Flowers delivered two days after her birthday will not be given the same response as on the day of her birthday. There could be hell to pay unless a really good excuse is offered.

When you do something is critically important to your credit scores.

Much of the time, in my business as a mortgage loan officer, I see clients coming in and want to improve their credit scores in one week. Unless a person has a lot of credit debt and money to pay it off right away, this is usually not possible.

Credit scores take a while to show off the grooming you have done, or not done, to them.

Giving yourself a full six months to get ready for your “close-up” will pay off big when you plan to borrow money to buy a car or a house. You may need even more time if you are looking to add over 60 points to your scores.

Many of the “rules” that are taught about credit are written so that you will avoid problems on your way to buying a house or a car. It is said, “Don’t pay off collections”, “avoid inquiries”, and “no closing of accounts”.

A few inquiries for home mortgages will not hurt you because the most modern scoring model expects you to shop for a mortgage. The time frame for this happening on a home loan is 45 days. Be aware that if you submit a loan scenario to Lending Tree you could get as many as 300 inquires of your credit by all the lenders who will make you an offer on your loan. Even 40 inquiries will completely tank your scores

This is also true for auto loans. That time frame for this is 14 days. If you like to test drive cars and they pull your credit once a month for 6 months, you could be doing yourself damage.

Collections can be paid off and the item completely deleted from your report if you negotiate successfully for that prior to making payment. I advise that you avoid paying off any collection without negotiating for a complete deletion.

If they absolutely will not delete, you can pay them off safely after your escrow closes. Most loan underwriters will allow this to happen at the closing of the transaction for real estate.

If you aren’t planning to borrow for a car or a mortgage for the next six months to two years, then do the things that will protect your credit in the future. Close accounts that you must close to protect yourself, pay off collections, open new accounts, and charge your credit cards up past 30% of their limits.

Your credit score is only a number. It’s an important number when you want to borrow money; just don’t lie awake at night worrying about it after the escrow has closed. It’s okay for it to go down at certain times in order to protect or improve your long term credit profile. My book, Credit Repair & Credit Scores: Step-By-Step Guide For Dramatic Improvement contains many recommendations for getting the best results in your credit profile.