There’s a new sheriff in appraisal town and the name is HVCC.  Home Valuation Code of Conduct.

The HVCC,which was implemented May 1 by Fannie Mae and Freddie Mac, was meant to make appraisals less susceptible to undue influence by loan officers, real estate agents and others, and thus more accurate and reliable
Whether the HVCC will, on balance, be a benefit to homebuyers remains to be seen and so far has been a nightmare.

Ironically, the genesis of the code of conduct was not HUD or Fannie Mae and Freddie Mac, but New York State Attorney General Andrew Cuomo. Cuomo settled a lawsuit against the two mortgage giants for faulty appraisals with their agreement to adopt the code.

For one thing, it is making appraisals substantially more costly for consumers. In some cases $525 upfront instead of the $350 it used to cost. Appraisals are sometimes taking 30+ days to complete!! Previously we could turn an appraisal in few days when needed, definitely within a week.
The clear winners are appraisal management companies (AMCs), because they are the easiest way for lenders to comply with HVCC rules requiring separation between loan production workers and risk management.

The certain losers, are independent appraisers, who can no longer count on the patronage of satisfied local lenders. Most will be forced to dance to the tune of the AMCs or starve. And they are being asked to work for less, even as the AMCs are charging borrowers more!

The AMCs are charging more per appraisal and adding extra charges. Plus, appraisals previously could be paid at settlement; now they must be paid up front on a credit or debit card. And should you change lenders before closing, you may have to pay for a new appraisal at additional cost.

THANKFULLY, FHA has not adopted the HVCC, so it is not requiring lenders to use the AMCs. Nevertheless, many FHA lenders are using AMCs anyway and charging even more for the privilege than for Fannie and Freddie loans!

Undue influence can be just as easily exerted by the AMCs as by any other group. And there is no guarantee that the appraisers willing to work for the AMCs lower rates will be as knowledgeable or skilled in the local market. In fact, we used to be able to use LOCAL appraisers who know the market.. NOW, we end up having to use big national companies who order the appraisal.

It isn’t uncommon for them to have a Baltimore Appraiser appraise something down here in Montgomery County!!   What a joke. These UNlocal appraisers have come in literally 200,000 low… They don’t care. They aren’t held accountable to anyone, and they’ve already been paid upfront peanuts for doing their work. These INCORRECT values either affect the rate on a loan OR kill the loan completely. © 2007, Real Estate Information Services, Capitol Assets & Choice Finance®

It is shameful. 
HVCC/the new appraisal rules are bad for borrowers
Please share your thoughts

Wednesday, May 20th, 2009
Go directly to rate page for all posted FHA rates

FHA rates

Choice Finance® is committed to providing you the lowest rates and lowest costs.
We welcome you to verify:  Quicken Loans, Bank of America, Wells Fargo, SunTrust, ditech, Citimortgage, Navy Federal Credit Union

Wednesday, May 20th, 2009
Go directly to rate page for all posted rates

Lender  –  rate  –  points in $  –  fees –  apr
30 year conforming fixed

Choice Finance® is committed to providing you the lowest rates and lowest costs.
We welcome you to verify:  Quicken Loans, Bank of America, Wells Fargo, SunTrust, ditech, Citimortgage, Navy Federal Credit Union

 Well it’s been a few weeks since HVCC went into place. In order of importance to me would be any stories from affected homeowners, loan officers or appraisers who have complaints against the new system. It’s my humble opinion that this has been and will continue to be a complete disaster for the homeowner. We can get into why I think that later if anyone would like to know. Let’s hear what’s going on out there.

Thanks,

Brent Mendelson
Choice FInance
Senior Loan Officer
O-301-881-8900X123

brent@choicefinance.net

The Fed’s program to buy Fannie Mae and Freddie Mac securities has helped to push rates for 30-year fixed conventional mortgages down to below 5%, a reported 4.82% average in mid-April.  Due to the combination of low mortgage rates and the decline in home prices, America’s houses are at record levels of affordability.

The National Association of Realtors’ Housing Affordability Index stood at 173.5 in February and should climb to even greater heights in succeeding months. The index is at 100 when a family with the median income has exactly enough income to purchase a median priced home (assuming 20% down, with housing principal and interest at 25% of income). 

In addition to low rates, borrowers got a boost from the administration’s Making Home Affordable foreclosure prevention program, which will reach some who have been ineligible for a refinance under the old rules.  Fannie Mae’s Home Affordable Refinance and Freddie Mac’s Relief Refinance Mortgage provide refinance options for those current on their mortgage payments, but who, due to a decline in home prices or where mortgage insurance is not available, have been unable to refinance.  Thus they cannot take advantage of a lower payment or move to a mortgage with a stable fixed rate. The Fannie and Freddie programs will permit loan-to-value ratios of as high as 105%. The programs started functioning in April and will continue in operation until June 10, 2010.© 2009, Real Estate Information Services, Capitol Assets, & Choice Finance®

Josh Burley, Choice Finance®

Credit scores are arrived at by inputting information about your credit history and behavior into a mathematical model. Those based on the model developed by Fair Isaac and Company are called FICO scores and are used by most mortgage lenders. 

Lenders are looking for ways to weed out risky borrowers, so good credit scores are as vital to homebuyers as they have ever been.  Great mortgage rates are available, but they will only go to those with the very best credit scores.  Fair Isaac describes its FICO score as “an estimate of your credit risk based on a snapshot of your credit report at a particular point in time.”  FICO scores range from 300 to 850 (a high score is good). Scores above 720 to 740 typically qualify for the best rates. For every 20 points or so lower that your score is, you will be paying increasingly more discount points up front or higher interest rates.

We’re not totally sold on where Fair Isaac has set its score demarcations on the site, though. For instance the company has scores of 760 to 850 getting the best rates, which is on the high side. Still, it is a helpful guide.  Complicating matters this year, is that Fair Isaac has begun to roll out a new version of its scoring system, FICO 08.  The new system leaves the 300-850 score range intact, but has modified how those scores are arrived at, with new predictive variables and a greater number of risk profile groups.  There are three major credit reporting agencies, each of which maintains your credit history-Experian, Equifax, and TransUnion-and a separate credit score is generated based on the information at each one.

Because each credit agency may have slightly or even significantly different information, your score can vary from agency to agency.  Mortgage lenders generally request scores from all three agencies and look at the middle one.  According to Fair Isaac, your credit payment history is responsible for 35% of your FICO score; amounts you owe, 30%; length of your credit history, 15%; applications for new credit, 10%; and types of credit used, 10%.

Caution:  other web sites may offer you a free credit report or score, but it probably  is not a FICO score and may subject you to their advertising pitches.  If you get a free credit report from one of the agencies, they will be happy to sell you your score at the same time, but the Experian and Trans-Union scores will not be FICO scores and will have a different scoring range.  Here are some tips for boosting and maintaining your credit score, maintaining courtesy of Fair Isaac:  

Closing unused credit accounts won’t increase your score, in fact it may decrease it by having fewer open accounts. But don’t open new accounts just to increase your available credit; that could actually lower your score.  If you are starting to establish credit, don’t open a lot of accounts all at once.  Credit inquiries can lower your score.  However, FICO scores distinguish between searching for a single loan among several ders and applying for multiple credit lines.  Try to fit your comparison shopping within a two week period.  

Want more information? You can get booklets that provide an overview of credit scoring, including more factors that influence credit scores and tips on improving them at annualcreditreport.com.© 2009, Real Estate Information Services, Capitol Assets, & Choice Finance®

It wasn’t so long ago that we could write about how easy it was to get financing to purchase or refinance a home.  Lenders were simply looking to you for the “Holy Trinity” of income, credit and reserves/assets.  The good news is that Calculating income used to be so simple. If you were a salaried employee, you provided W-2s for the last two years as well as pay stubs for the last month.  The loan processor would either send out a VOE (a verification of employment) or make a phone call to the payroll department and your income was verified.  You then divided that annual income by 12 and you had your monthly income.  If you were self-employed, you provided two years of tax returns with schedules and a current year update.  The net income was averaged, divided by 12 and, voilá, you had your monthly income.  The loan officer might ask you to sign an IRS form 4506 tax return request, but then it went into your file to collect dust. 

INCOME

Today, the process has a different reality.  For the salaried individual, the documentation remains the same, but the verification is a lot more stringent.  Though you are required to supply the same paperwork, your employment will be verified independently by not only the lender’s processor but also by the closing department.  Why? Lenders have found that it is too easy to create W-2s and paystubs on a computer, submit a friend’s phone number for income verification and create phantom income. It happens.

The new step is that lenders are now requiring a signed IRS form 4506 even for salaried employees.  What is a 4506?  It is a request for copies of your filed tax returns from the IRS. In the past they were placed in your file in case of a lender audit.  Now, they are run on EVERY loan application.  Not only is the lender looking for potential fraud but also for the too-common situation where the salaried individual has a side business that shows large paper losses that greatly reduces residual income.

CREDIT

We have written often about the importance of a good FICO score.  Today it is more important than ever.  To get the very best rates and terms, you will need a 740 credit score and a 20% downpayment.  To get a conventional, Fannie Mae or Freddie Mac loan without a 20% downpayment is impossible unless you have a minimum credit score of 720.  FHA allows for lower scores and lower downpayment of 3.5%.

Why? Because there isn’t a single mortgage insurance company that will insure that loan.  Even if the DU/LP (Fannie and Freddie’s computer approval programs) approve your loan, MI companies will not insure it.  In every case, even with excellent scores, you will have to write a letter explaining every late payment and every credit inquiry.  In their due diligence, underwriters want answers.  In the case of inquiries, especially current ones, the underwriter wants to be sure that you haven’t obligated yourself for new payments that haven’t appeared on the credit report.  Don’t buy that new car or furniture before you purchase your home.

With 20% down, there is flexibility as to credit scores for conventional programs, but the era of low credit scores for conventional programs is gone for now.  This is why FHA has become the new focus for purchasers and refinancers alike, since FHA guidelines are not credit score driven.  Though FHA does not have a minimum credit score, most lenders will not originate a loan without a minimum score of 620.  Choice Finance can manually underwrite anything lower down into the high 500’s if the file makes sense.

Downpayment/Reserves

Unless you are a veteran with full eligibility, there are very few 100% financing programs available.  Whether you are buying a home or you are refinancing, you will need funds and you will need to document the source of these funds.  Lenders will want to see a minimum of two months’ statements on all assets used for qualification and every page of each statement.  And they will want an explanation, with documentation, for every large deposit that appears.  Conventional loans will require a minimum of a 5% downpayment (high risk areas may require more) while FHA requires a minimum 3.5% investment.  In addition, you will need extra funds for closing costs and prepaids.  Beyond that, you will have to show reserves.

In the past, conventional programs required two months’ reserves, but many lenders now prefer to see six months.  Retirement plans, 401ks or IRAs can be used to satisfy that requirement.  However, you will only get credit for a maximum of 75% of the portfolio’s value.  And when you are refinancing and not taking any cash out, conventional lenders will want to see two months of reserves even if you left 20% equity in the home.

Again, the government insured FHA/VA programs offer the best hope since their guidelines do not require reserves. © 2009, Real Estate Information Services, Capitol Assets, & Choice Finance®

Most important, the temporary mortgage maximums for conforming and FHA that loans andFHA that were in place for 2008 have now been extended through 2009. 

Because these limits are region specific and loan program fees and requirements are still in flux, you should ask your Choice Finance loan officer for the limits that apply in your area and for any updated information on these programs.

Conforming loans: 

Conforming jumbo loans are available with loan-to-value ratios of up to 90% for purchases.  They are available as 15-, 20-, 30- and 40-year fixed-rate amortizing conforming mortgages, 30-year fixed rate mortgages with 10-year interest-only periods, fully amortizing 5/1 ARMs and 5/1 ARMs with 10-year interest-only periods.  However, not every lender offers all of these and prices can differ significantly among lenders.

FHA loans: 

A non-factor in the housing market a few years back, the snoozing FHA has now awakened and is the Sleeping Beauty of the mortgage market.  FHA has gone from about 3% of the market a few years ago to over 30% today.  The newly expanded involvement of the FHA has been a key in helping to stabilize the housing market in recent months.

The attractions of FHA are its low downpayment demands (as little as 3.5%) and more flexible qualification requirements.  For those who are somewhat credit challenged, FHA is an attractive choice, since credit scores are not required, though, in practice, individual lenders may look at them.  Another reason for the FHA’s new attractiveness is the increased lending limits.

The overall limit for all areas of the country is $271,050, but in high-cost areas, the maximum goes up to as high as $729,750.  FHA’s brand of jumbo loans (above $271,050, $362,790 in high-cost areas) come at a price. Borrowers must pay discount points of around 1 1/4 points, or between three-eighths and one-half percent added to the interest rate. The spread has decreased in recent months.

A veteran with full eligibility can purchase a home costing up to the conforming limit ($417,000) anywhere in the U.S without a downpayment. The VA program does this by guaranteeing 25% of the amount of the loan.  VA loans repeatedly had been overlooked for limit increases in recent years. However, the former handmaiden is now a princess! VA loans in 2009 are available without a downpayment for loan amounts up to 125% of the median price for a single-family residence in a county.  This now means no-downpayment loan maximums of up to $1,094,625 in the very highest cost areas of the U.S.

Check with your Choice Finance VA loan officer for the maximum in your area.  The VA program comes with substantial upfront (“funding”) fees for those making no downpayment, but motivated sellers can often be persuaded to pick up the tab.  The fees are lowest for those using the VA program for the first time and are waived entirely for veterans with a service-connected disability.

Borrowers who are purchasing a home costing more than the Fannie Mae/Freddie Mac jumbo conforming loan ceiling will find a fragmented market, with each lender’s offering having its own rules and regulations, like so many sovereign grand duchies.  Individual lenders are starting to come back into the jumbo market, and we are starting to see more attractive rates and terms being offered, though they are still significantly above conforming loan rates. The best way to approach a jumbo loan is to complete a loan application and let us price it out accordingly.  In most cases, you will have to put at least 20% down and have high credit scores. 

 

David Wexler, Choice Finance Corporation

 

What are my jumbo loan options?
Maryland – D.C. – Virginia – Delaware

Mortgage rates in March remained close to the record lows established in January.  At just under 5% for 30-year fixed-rate conventional mortgage, they are a powerful attraction as the spring home selling season gets underway. 

While rates for conforming mortgages have been excellent for some months now, rates for jumbo mortgages have been another issue. They have remained at extremely high relative levels since the mortgage market meltdown in 2007.  That is because, without the benefit of a guarantee from Fannie Mae or Freddie Mac, they have been difficult or impossible to sell to third party investors.  As a consequence, the lender who originates the loan generally has to keep it for their own portfolio, which is less profitable than selling them to get cash for new lending.  That has kept rate spreads over conforming loans, those up to $417,000 (temporarily as much as $729,750 in certain high cost areas) at 1 1/2% and up, depending on the lender and how much money they had for the program.

Rates would go up when money available became short. And, the programs’ availability was often spotty.  Now, some lenders are starting to get more aggressive in that part of the market.  Downpayments of 20-25% will be required, but the rate markup is being substantially reduced, to less than a percentage point.  And, as with most loans these days, substantial reserves (an amount equal to six months of principal, interest and taxes seems to be the gold standard) will be required, along with excellent credit and verifiable income.  Still, greater availability of jumbo loans will be great news for those buying (and selling!) in the higher tiers of the market.

Spring homebuyers should be aware of the overstressed condition of many lender/investors.  The high volume of refinances has been choking the mortgage pipeline and is not likely to ease soon with the introduction of Fannie Mae and Freddie Mac’s new refi programs. 

Because many mortgage lenders had pared down staff when business fell, so some are now overwhelmed, delaying the progress of mortgage paperwork.  As a consequence, make sure you have a sufficiently long rate lock period in place to be certain your loan has time to get approval.  The usual 30 days may not be enough. © 2009, Real Estate Information Services, Capitol Assets, & Choice Finance® (more…)

Fair Isaac Corporation is finally rolling out the latest remake of its FICO credit score, which is the scoring standard for mortgage lenders.  Yes, it has taken until 2009 to get FICO ‘08 launched, and even now many consumers, potential homeborrowers in particular, may not be affected by it for some time.

For one thing, the three major credit reporting agencies are not all simultaneously jumping into the FICO ‘08 waters.  TransUnion will be first to adopt the new scoring regime. Equifax is expected to follow later this year.  Experian, the last of the big three bureaus, is a whole different kettle of cod. More on that later.  Another thing is that, even though a reporting agency may be offering the new score profile, a lender can ask for a score based on the original FICO methodology and many will do just that.

A lender who has been happy with the results from using the old FICO or who have not fully tested the new version will likely stick with the original for some period of time.  Fair Isaac claims that this latest tweak of its FICO scoring model will bring a big improvement in the power to predict creditworthiness.  It does this by adding new predictive variables and by dicing consumers into a greater number of risk profile groups.

The new generation of FICO should better address consumers who have “thin” credit histories (few credit accounts) and those with young files (few years of credit history), says Fair Isaac.  The new FICO score retains the same 300-850 scoring range, score reason codes, minimum scoring criteria, and treats creditor inquiries as in previous versions.

When first announced, FICO ‘08 was committed to ending a practice that enabled individuals added as authorized users of a credit card to get the benefits of the good credit history of the card holder, a practice called “piggybacking.”  Now, Fair Isaac says that, rather than ending the practice outright, it will help lenders protect against authorized-user account piggybacking by incorporating new technology that it says will materially reduce the potential score impact associated with the abuse of authorized user accounts.

Will the new scoring approach be better or worse for consumers? Both.  As they get shuffled into new risk profiles, some will surely see higher scores, while others will see lower ones.  Okay, so what is happening with Experian and your FICO score?  Right now, Fair Isaac and Experian are in a spitting match (technically, antitrust lawsuit) and Experian’s latest move has been to deny Fair Isaac the ability to sell Experian-based FICO scores at myFICO.com.  That has been the only place you could buy an Experian FICO score.  Oh, you can buy a credit score at Experian.com, but don’t be fooled; it won’t be a FICO score, so it won’t tell you what you need to know if you are in the market for a mortgage. 

Since, at present, you can’t buy an Experian-fueled FICO score on your own anywhere, the best alternative is to ask your Loan Officer to run it for you.  Doing this will also allow you to find out whether improving your score will save you money or help you qualify for better mortgage programs.  It also may get a tip or two about ways to improve your score if you need to.

Alex Echeandia of Choice Finance^®

D.C. area mortgage companies be careful…  Steve Jones called our office to directly solicit our employees.  He has been asked in the past to stop, and he has not.  It has come to the point of harassment.  I guess desperate times call for desperate measures (for some).

Steven Jones targets DC metro area mortgage companies.  He will call and leave a message with your LO’s like “hey Jim, Chris Miller referred you to me, please give me a call…“.  Sounds like potential business.   He will go through your entire website for loan officer names and he will call them all.

If you’re a mortgage company local to the metro dc area, let your phone receptionist be well aware of an enemy who is trying to take your employees. 

Today Steve claimed to be working for Access National Mortgage, www.accessnational.com.  I’m sure she works for any Employer willing to pay him to find employees.  I wonder if Access National would approve of Steve’s tactics if they knew what he is doing. 

Anyone in the business  long enough understands slimy cut throats exist… and as long as there is good money to be made in real estate and it’s financing, there will be the cream of the crap selling the other side’s greener grass.

Access National is out of Virginia, 1800 Robert Fulton Drive.  703-871-1300 or 800-931-0370, info@accessnational.com.  There’s no reason Steven Jones can’t be like the ethical Staffing companies out there who get their clients through referrals or advertising or networking, the same way every other business man and woman has to do it.  

Stop the circus from pitching their tent in your own back yard and let’s keep salesmen who spend their days providing no real value to society, exposed.  Spread the word and help protect yourself and others.