Should I Buy And Take Advantage Of The Great Values, Or Should I Rent?
Very often during a market that is in a state of flux, one sees that the rental market becomes more robust. Which leads one to consider one’s options and ask: Is it better to rent in this current market as opposed to buy?
One of the key elements driving many home owners is fear. Our market has been hit not only economical, but psychologically. It is impossible to ignore the after effects of our recent real estate collapse. Especially since our real estate market’s tremendous upheaval has left tens of thousands of families in foreclosure.
Many buyers are a bit gun shy about the prospects of buying. Add to that the fear of depreciating values, and then you have a scenario that reduces the amount of new buyers in a market.
However, there is an old saying concerning problems versus solutions: The world is full of people pointing out the problems, but there are very few people providing solutions!
In a recent CNBC report, it was pointed out the many buyers are holding off of buying because they are saving for a down payment. Though this may be true; it merely points out how many Realtors® and buyers aren’t utilizing the variety of down payment assistance programs.
In an era where our economy, our real estate industry, and all the peripheral businesses that depend on new buyers and home sales, it’s time to begin locating and implementing those mortgage professionals who have strong knowledge in and regularly finance buyers using down payment assistance programs. This maneuver would substantially reduce, if not eliminate, the idea that a buyer can’t purchase now because they don’t have enough for their down payment.
As for renting being a better option than owning, in recent article featuring the subject of Renting Vs. Buying in the First Time Home Buyers 411 site, it clearly displayed that it was considerably more cost effective to buy versus rent. The article took the average monthly rental amounts in the greater San Diego areas and compared that amount against the monthly mortgage payments in the Southwest Riverside County. For essentially the same amount that someone would spend for a 1 or 2 bedroom apartment, one could own a 3 bedroom home with a yard.
Finally, the market conditions with ultimately adjust. The fear of having one’s mortgage payment spiral out of control is easily solved with a fixed rate and fixed period loan. Therefore, today’s buyer won’t face the same perils that buyers faced during the housing boom that collapsed in late 2006, early 2007.
From the desk of Claudio Gormaz, First Time Home Buyer Specialist, with GEM Mortgage
Direct: 951.294.2274, Fax: 951.220.6707; claudioalexis@verizon.net
Foreclosures Are Like Ants! We Don’t Want Umm; We Squish Umm, But We Need Umm!
Question: How many people do you know that haven’t made a mortgage payment in the last several months, and they haven’t received a notice of foreclosure from their bank yet? If fact, in some cases, they haven’t received anything from their banks yet!
More and more, we are seeing families staying in their homes without any action on the part of the banks.
But what is that really doing to our communities? Based on a recent report by DQ News, in what is called the “golden triangle” (which makes up the better part of the Southwestern Section of the Inland Empire) there are more than twenty-five thousand homes that no mortgage payment was being made, on homes with mortgages, and there were no Notice of Default letters sent to the home owners.
But what does that really mean? When you consider that when these home owners stop making their mortgage payments, they also stop paying their property taxes. So consider these numbers: Many of the people who have stopped making their house payment bought in 2007 and before. Many of these same buyers bought their homes at a price point of roughly $400,000 – $650,000. If, based on a property tax rate of 1.5%, for a $400,000 purchase price, the annual property tax paid by the home owner is $6000. Now multiply those $6000 by the 25,000 homes. You will find that $150 million stop going into the local economy! This a huge number that just keep growing!
So again, what does the lack of mortgage payment really mean; to our neighborhoods; to our cities; to our counties? It is not too difficult to understand why cities like San Bernardino, Rialto, and Stockon must declare bankruptcy! Why are so many government services no longer available? Why are city worker’s weekly pay checks in jeopardy?
A positive aspect in all this is that, because of pride and ego, and the fact that no one wanting the neighbors to know that they are going through hard times, families are staying in those homes and taking care of them! They are keeping up their lawns. They are making sure stays nice. No weeds, no trash, etc. This is very good for neighbor appeal and property values!
This morning, TBWS produced a wonder piece concerning our market, delinquencies and foreclosures.
In the end, though awfully painful, foreclosures serve a much needed service! The process allows banks to move the former owners out and re-sell the property. At which point, property taxes will begin to to paid again and the local economy and city appearance begins to pick up!
Foreclosures are kind of like ants, nobody wants them in our homes, but the service they provide is monumental! They move out what isn’t being used, they break it down, and it get recycled back into the environment.
“Naughty Doggy” – Insurance Companies Prohibited Dog List
The entire dog biting topic always has people taking sides on either side of an argument. However, dog bites accounted for more than one-third of homeowner’s insurance liability claims paid in 2011, costing nearly $479 million in the U.S., according to the Insurance Information Institute (I.I.I).
Why is that important to you? Now that you are buying your new home, if you are like so many families, national insurance statistic show that you already have a dog or will probably bring one into your new home. If you are financing that purchase, the lender requires that you have home owner’s insurance; as such, your insurance premiums will be directly affected by the type of dog that you own! 
In a recent USA Today article written by Tom Belz, it was pointed out that property casualty insurers pay out far more in claims for property damage to homes. But when it comes to liability, the cost of dog bite claims has risen 48 percent since 2003, even though the number of dog bites has remained roughly flat (according to III).
- State Farm, the largest writer of homeowners insurance in the U.S., paid more than $109 million on nearly 3,800 dog bite claims in 2011. In Oregon, the insurance company paid $937,493 on 62 claims in 2011. Oregon ranked 27th in amount of money paid out and had 21st in the nation for the number of dog bite claims.
The I.I.I’s analysis of homeowner’s insurance data found that the average cost of dog bite claims in the U.S. was $29,396 in 2011, up 53.4 percent from $19,162 in 2004. Medical costs and the sizes of settlements, judgments and jury awards given to plaintiffs have all outpaced inflation, the organization said.
According to Bob Skow, CEO of the I.I.I, kids are most often the bite victims! Skow said people should own dogs appropriate for where they live and train them properly, and parents should teach children how to avoid provoking dogs.
- There are 78.2 million dogs in the United States, according to the American Pet Products Association, one dog for every four people. “Statistically, the numbers have gone up at the same time that we’ve become more of an urban society,” Skow said.
Laws in 18 states, including Oregon, let dog owners off on liability for the dog’s first bite, but in others, including Iowa, an owner is liable for all damages caused by his dog, unless the person injured was committing a crime or trespassing, or unless the dog had rabies and the owner didn’t know it.
“Most insurance policies are going to put in their underwriting provisions that they’re not going to cover vicious dogs,” said Tom Alger, Iowa Insurance Division spokesman.
Further, according to local insurance broker, Amie Fernandez with Alternative Insurance Services, most insurance companies will not insure certain known aggressive breeds of dogs. No carrier will insure you for animal liability if your dog has a bite history.
Some companies will automatically cover animal liability or it can be added by endorsement, but not if you have one of the following breeds:
|
BREED |
BREED |
|
|
Akita |
Giant Schnauzer |
|
|
American Staffordshire Terrier |
Husky |
|
|
Bullmastiff |
Pit Pull |
|
|
Chow |
Presa Canario |
|
|
Dalmatian |
Saint Bernard |
|
|
Doberman Pinscher |
Wolf Hybrid |
|
|
Eskimo Spitz |
* Any Mixed Breed Including |
|
|
German Shepard |
One of The Above Breeds |
|
Some companies now offer the option to exclude animal liability coverage and still offer you property insurance. Still, there are companies that will out right deny clients any coverage if they own one of the above breeds.
Some companies will also not accept over a certain number of dogs in the household.
Per Ms. Fernandez, she urges every client to disclose any information regarding any pets immediately to their agent. Failure to do so can be construed as misrepresentation and result in a company denying a claim.
The reality is that most people love their dogs, and are highly responsible; however, you need to consider these facts when the time comes to buy your home and your home owner’s policy!
From the desk of Claudio Gormaz, First Time Home Buyer Specialist, with Golden Empire Mortgage
Direct: 951.294.2274; Fax: 951.220.6707; claudioalexis@verizon.net
Five Time Test Strategies For Success In Buying HUD REOs.
Baron Rothschild who said: “The time to buy is when there’s blood in the streets.”
Our faltering economy has hit a lot of families very hard! Many have nearly completely depleted their savings and retirement funds. In order to build back their portfolios, scores of people are attempting to capitalize on the purchase of foreclosure and short-sale markets!
At the same time, countless potential investors and homeowners are frustrated with the long waiting periods for hearing back on their offers from banks when buying short-sale properties. Depending on the mortgage needed for the purchase, many of the lending guidelines require that minimum health and safety standards be met before a foreclosed home transactions can close and transfer title.
In fact, many home buyers simply give up on the buying process because of the protracted waiting periods; that in some cases can take up to six months before they receive a response from the seller.
This is precisely why many future buyers are turning to HUD (Housing and Urban Development) homes. While there is a lot involved in the purchase and financing of a home, buying a HUD Home is different — for both buyers and real estate agents.
A house becomes a HUD home when the previous owner had an FHA insured loan and the home was either foreclosed upon, or it was given back to HUD (through a deed-in-lieu prior to a foreclosure proceeding).
Even though HUD has title on the property, they hire management companies to maintain the home, market the property, accept bids from registered real estate agents and manage the closing.
STEP ONE – The process works like this:
- New properties are advertised every Friday.
- If you plan to live in the home, you must occupy it for a least one year and may not purchase another HUD foreclosure for another two years.
- Real estate investors may bid on a property.
– If an investor wishes to bid on a house, they cannot place a bid
until the 10-day owner occupied bidding period has expired.
- If your bid has been accepted, your real estate agent has only 48 hours to submit your paperwork or your bid will be automatically cancelled.
- Your Earnest Money check, made payable to HUD, is only refunded if you are denied for a mortgage loan. Normally, a check for $500 is given for earnest money for sales prices of $50,000 or less. A check of a $1000 for sales prices over $50,000.
- If the buyer is paying cash, the buyer must provide proof that that they are able to pay cash.
STEP TWO – Don’t miss the key codes!:
When you buy a HUD home, HUD issues codes with each listing. These codes will become important if you need to finance your purchase. The codes are as follows:
- “IN”: Insurable with an FHA 203(b) Mortgage Loan. The property usually meets Minimum Property Standards with minimal repairs.
- “IE”: Insurable with Escrow. This means that the property is eligible for an FHA 203(b) loan but needs repairs. Since no work can be done to the home prior to closing, HUD may offer up to $5000 to assist with the “problems” with the home. Very important distinction: HUD doesn’t pay for the repairs and the dollar amount is added to the buyer’s loan, if they are financing the purchase. The lender may hold the money in an “escrow account” until the work is done and a physical inspection of repairs must be done before the money is released.
- “UI”: Uninsurable: These properties are generally in need of repairs in excess of $5000 and “may” qualify for an FHA loan that features a repair component called a 203(k) rehabilitation loan. It is important to note that this type of loan is only available if the buyer plans to live in the home.
STEP THREE – THIS NEXT POINT IS EXTREMELY IMPORTANT!!!!!
Bright side: You meet some interesting people with colorful backgrounds.
Mortgage fraud, which includes occupancy fraud (for example, stating that one will live in the house as an owner occupant, but in reality plans to purchase the property as an investment), is crime and is investigated by the FBI. Further, the crime is punishable by up to 30 years in federal prison or $1,000,000 fine, or both.
Investors must either provide their own conventional loan financing, or pay for the property in cash.
If your closing is delayed for whatever reason, and you will not be able to meet to agreed upon closing date, you will have options.
Your options will include requesting a 15-day extension to your closing date. This will cost the buyer a $10 per day (per diem). $150 must be paid to HUD, in the form of a certified check or money order, and if the closing occurs before the 15-days expire, credit will be given back on the closing statement of the purchase.
Note, the buyer will not be required to pay for the extension to the closing date if HUD or the management company delays the closing.
STEP FOUR (IF NEEDED) – Refund Policy:
HUDs Refund Policy states that a buyer can cancel their bid prior to being accepted and their earnest money will be refunded to them. Sometimes, a buyer can’t control the cancellation timeline. In those cases, a cancellation after a bid is accepted is treated in these possible manners:
- If HUD is unable to close the sale, the entire deposit will be refunded but not reimbursement for other expenses.
- If a sale of an Uninsured property is made to an investor, the entire deposit will be forfeited to HUD.
- If the buyer is being the property as an owner occupant, and they are unable to get financing because the mortgage underwriter denies the loan, loses their job prior to closing, suffers a serious illness, death, or the buyer’s financial circumstances change to the point that it affects the ability to close the purchase transaction, HUD will give a full refund of the deposit.
STEP FIVE – Let’s Get Started!
At this point, the buyer’s only concern should be to begin the process of getting their purchase funds in order. So, if the buyer needs to finance the buy, they must now be “Approved” for financing (which means that they must provide their lender a full set of financial documents, pay stubs, and all necessary items for the lender to make a credible lending decision).
The buyer must also select a real estate professional that is registered with HUD’s local management company in order to place a bid. All paperwork must be submitted within 48 hours after the buyer’s bid has been accepted, or the offer will be automatically cancelled.
The buyer must use a HUD registered broker to submit bids, use HUD purchase agreement forms, and an approval letter must accompany their bid. Further, all buyers must provide their social security numbers and full names and addresses when submitting their bids. The names listed on the purchase agreement MUST be the same individuals who sign the closing documents.
This article is intended to take some of the frustration out of the HUD buying process. For more information regarding this and other buying and financing options, we invite you to visit First Time Home Buyer 411.
Happy home hunting!
From the desk of Claudio Gormaz, First Time Home Buyer Specialist, with Golden Empire Mortgage.
Direct: 951.294.2274, Fax: 951.220.6707, claudio_gormaz@firsttimehomebuyer411.com
Be Careful; You May Be Playing With Fire!
Riddle: When is a great loan and purchase option not so great; in fact, potentially dangerous?
That’s the million dollar question when it comes to the HomePath mortgage loan. For those that don’t know, the HomePath loan allows a buyer to purchase a foreclosed house, owned by Fannie Mae, from a specific list of available properties.
The loan allows for low down payment, no mortgage insurance, expanded seller contributions, and more. In most cases, a HomePath property is available for move-in ready properties for just about every buyer, like: owner occupants, investors, or families buying a second home. The availability of providing financing to investors with a low down payment amount is huge!
In fact, buyers have a wide variety of home buying options, for example: 1-4 unit properties, condos and PUDs (limited to Fannie Mae warrantable projects), Modular housing, and Leasehold estates.
So far everything seems excellent and exciting — provided that your buyer knows what they are buying and have experience fixing potential defects concerning the home.
As of late, Fannie Mae has done a fantastic job fixing up their properties, but what about those houses that haven’t been fixed? You know, the ones that your first time home buyer is salivating over because they believe that they are getting an incredible deal!
Since there are no property inspection or appraisal requirements on HomePath homes, it doesn’t take much imagination to figure that a buyer can claim, as they sit in front an unscrupulous attorney, that their real estate agent didn’t inform that their house was defective in any way. Moreover, because there was an appraisal, they may have also paid a lot more for their house than the going rate for a similar home in the neighborhood.
Selling a HomePath home to clients buying their first home brings certain responsibilities on the part of the real estate 
professional! Think about it, would you give your sixteen year old, who just learned how to drive, a race car as their first car? Most would agree that it is not unreasonable to presume that that car will end up wrapped around a pole sometime in the near future!
In conclusion, HomePath homes are priced very well to sell! The HomePath loan provides great financing for a specific market! They increase the number of homes sold in a neighborhood, which means additional property taxes, more revenue for the local economy, etc.
However, we can’t lose sight of the intended audience and market the product accordingly. For if we try to cram all comers into a HomePath home, because “they’re easy sales and everyone wants one,”we will breathe new life into old nemesis, aka: the “Payment Option Home Loan Products” (just in a different form). For those who don’t recall recent mortgage history, these types of loan allowed clients to choose, every month, which payment option they wanted to make, for example: a fixed 30 year loan payment, a fixed 15 year loan payment, an Interest Only payment, or a Minimum mortgage payment (most hovered around 1%). Essentially, the loans were designed for investors, in a surging market, who planned to sell the home in a short period of time, so in order to maximize their profit margins; they would be able to make a 1% payment to the mortgage.
Unfortunately, many, many untrained and unethical mortgage people took their unsuspecting clients, many of whom were on fixed incomes, or retired, and who had no intentions of “flipping” and selling their homes; and put them into a loan that provided a 1% payment option. The problem was that these un-savvy home owners had no idea that the loan would eventually re-adjust, then their mortgage payments would double, triple, or even quadruple. The result was devastating, foreclosures soared, scores of families lost their homes, and we are all living through the outcome of this massive real estate stumble!
The economic decline is much more complicated and has many more elements than the introduction and implementation of one mortgage loan product (no matter how much damage that product created), but we can’t repeat the sins of the past! The HomePath product is very good! Again, the loans for these homes are extremely attractive! You just need to make sure that you line up the right home with the right buyer — and work with someone that writes these types on home loans on a regular basis!
From the desk of: Claudio Gormaz, First Time Home Buyer Specialist,
with GEM Mortgage
Direct: 951.294.2274; Fax: 951.220.6707; claudioalexis@verizon.net
Why Do My Deals Keep Blowing Up? 3 Steps To Transaction Success!
In the last few years, maintaining the lifestyle that we attained just a few years prior has become extremely difficult!
Many people in the real estate industry have taken substantial hits to their income. So it is that much more important to make sure that if you get a client’s offer accepted that the transaction will close.
However, before we begin thinking about depositing our commission checks, we have to know what we have to do to make sure that our transactions close successfully! In short, it breaks down to basic science; if you know how something works, you can easily track and predict success. However, if don’t know what it takes to make the wheels go round, you are literally playing with fire with every transaction! You cannot expect success, if your entire business model is built on a crap-shoot.
REALITY: We have all read that the mortgage lending guidelines have tightened up regarding buyer qualification. However, it is those very changes that will absolutely affect your future income!
The mortgage industry has suffered for the last several years in the form of record setting quantities of foreclosures and short sales. These hits, according to http://ml-implode.com, have caused 388 mortgage companies and banks to go out of business since 2006. Therefore, lenders and government agencies such as FHA and VA have made adjustments to minimum borrower standards in order to reduce mortgage delinquencies. Gone are the days when a borrower merely needed to be able to fog a mirror and they would receive $500,000!
1) Depending on the client base you work with, each client type will have specific issues that need to be in place if you expect success with the sales transaction. For example, whether you work with investors or first time buyers, you must make sure that they have to funds to close the deal (whatever form that takes, you must know that success can and will take place before you enter into that relationship)!
2) Assuming all lenders are alike; each replaceable at any time based on interest rates and costs for performing the service they provide, is huge mistake; one that will cost you a lot of money!
In order to keep money circulating, mortgage lenders sell the loans they write to Wall Street in the form of mortgage back securities (MBS). Investors buy those MBS and may impose additional restrictions to the posted guidelines, referred to as “overlays.” It is those over-lays that ultimately determine the type of loans that a lender can provide to a client. So, it is crazy to assume that simply because one lender can or can’t do a particular type of loan, all lenders will have the same lending guidelines!
3) Develop strong and respectful relationships with your loan officers. A classic mistake made in a transaction is driven by the “need/demand” to get an immediate answer on a client’s pre-qualification.
If your loan officer hasn’t established a proper working relationship with you as their “business partner,” and said loan officer feels pressured to produce a fast turn-around on that pre-qualification letter. That loan officer will attempt to gather as many pre-qualification documents as possible. But rather than inform their “business partner” that they [the loan officer] are having difficulty gathering vital documents from the client, they [the loan officer] may feel compelled to enter information into the automated underwriting system based on approximated data. In other words, they’re guessing in order to get an automated underwriting approval for the real estate agent!
You can imagine what may come next:
The loan officer sent you a “pre-approval” letter for your client (that may or may not be worth the paper it’s written on). Your offer gets accepted, approved, the close of escrow date is set in place and now that file gets submitted to underwriting. At this stage, given these conditions, you are about to enter into an extremely stressful period of your life! In the words of Betty Davis: “Buckle up, this is going to be a bumpy ride.”
The strength of your deal is based on “fudged” information. All because that loan officer couldn’t get the needed information from the client in order to provide the real estate agent a “true” approval letter. According to multiple escrow data, it is estimated that approximately 41-62% of all transactions received on a monthly basis will never close. Allowing for the fact that some deals die because of things that are beyond anyone’s control, there are a substantial number of loans that should never have been initiated!
Again, the transaction (and the available commissions) is in peril because vital client data was not secured before the loan was submitted to underwriting, and a lack of communication between loan officer and real estate agent only exacerbates the situation!
Therefore, if you want to get back to earning what you used to earn, you need to make sure that every transaction that is accepted will close! However, your deals won’t close if you don’t know what is needed to make a transaction successful — which, incidentally, doesn’t mean that now you must do your lender’s job as well; but as a “professional”, you must have some idea of how things work!
You must understand, on some level, the basic guidelines that your lender’s company is using to make their lending decisions. This provides a great opportunity to have a cup of coffee with your lender so they can provide you some “inside information” or perhaps a “cheat sheet.”
The only way to achieve a successful working relationship is that you must respect the professionalism of the mortgage lender you are working with! You can’t impose on them the impossible task of changing your flat tire while you’re still driving at 60 mph! If you want you want every transaction to fund and close, you must truly be partners!
Finally, you must take responsibility for your clients. You must be an advocate for your client! If your client needs down payment assistance, you must make sure that the offer you submit covers their needs. If your client is an investor, and they want to flip a house they purchased, you must make sure that you know your lender’s guideline ratios for required timelines before the house can be re-sold and/or profit amounts. If your clients require FHA or VA financing, the success of your transaction depends on your knowledge of “health and safety” regulations imposed by each agency for the financing of the purchase, etc.
Good luck in your future business!
From the desk of: Claudio Gormaz, First Time Home Buyer Specialist, with GEM Mortgage.
Direct: 294.2274; Fax: 220.6707; claudioalexis@verizon.net
Are All Your Client’s Built the Same? It Would Depend on Who You’re Working With!
During the course of the average real estate professionals’ lives, the tendency seems to be to approach prospective 
clients the same way, every time! For that matter, the same approach is also often used when working with mortgage lending institutions!
Traditionally, a client shows up at our office wishing to buy a house. Most real estate agents will inquire if they [the prospects] have been pre-qualified, and depending on the answer, we throw the client(s) in our cars and begin driving down the road to show them houses in their price range.
If all is well, the process begins and ends successfully. The pre-approval letter the clients present will eventually lead to a full blown loan approval and the loan in time will fund and the transaction will end very well!!!!
However, what happens when a loan falls apart during the transaction?
PICTURE IT: The offer has been accepted, the client begins moving forward with their mortgage loan processing, the 
title and escrow companies are in the midst of getting everything in line for the lender’s underwriting review process, a close of escrow date has been set, the appraisal is ordered and comes in at value, but when it arrives at underwriting it is discovered that now the loan is not do-able!!!!! Yikes!!!!
An ice cold chill runs down the spine, panic ensues, fingers begin to point, but what could have caused this to happen?
The answer is often very simple and painful at the same time!
- The assumption that all lenders are alike; each replaceable at any time based on interest rates and costs for performing the service they provide, is mistake of monumental proportion! As mortgage lenders go, what they can or can’t do is based on the investors that buy the loans that they [the mortgage lender] produce on Wall Street in the forms of mortgage back securities. Any restrictions to the posted guidelines are referred to as “overlays.” It is those over-lays that ultimately determine the type of loans that a lender can provide. So, as an example, just because a Bank of America can’t do something, doesn’t mean that Wells Fargo can’t either. Or if Wells Fargo couldn’t do a particular loan, that doesn’t mean that Chase would have the same issue, and so on!
- The second reason is driven by the “need” to get an immediate answer on a client’s pre-qualification. Too often, a loan officer who does not establish a proper working relationship with their real estate “business partner” feels pressured to produce a fast turn-around on that pre-qualification letter. Therefore, said loan officer gathers “as much information as they can” and they begin entering that information into the automated underwriting system. There are two key problems with this scenario:
- ONE: In many companies, the loan officer has access to and is fully responsible for inputting client information, in order to receive a positive “desktop” underwriting decision from their automatic underwriting system. However, if the loan officer didn’t gather all the necessary items to provide an accurate decision, then they [the loan office] may have to fudge on the amount of a client’s reserves, income, hours per week worked, etc.
- TWO: Many loan officers aren’t properly trained in the skill of reading and interpreting tax returns; unfortunately, just as many sales managers and branch managers aren’t either. Therefore, if the client has 2106 un-reimbursed business expenses or provides corporate tax returns, the client’s debt-to-income ratio isn’t properly calculated.
Therefore, since the loan officer is inputting the information may or may not be accurate, that loan officer will receive a “false” positive; and, an offer is submitted on a house and a sales price that should never have been submitted. Unfortunately, unless the circumstances change, and the loan officer is able to gather everything they need, and they can go back and fix that file, you probably will not find out that the loan approval is flawed until it gets to the underwriter and blows up!
As our industry moves forward, it is more important than ever to make sure that real estate professional set their business structure up to have a contingency plan. In other words, you may have a great relationship with a primary mortgage lender, but always develop a secondary relationship with a lender whose guidelines are different enough to cover you in the event that your primary lender’s “over-lays” preclude the potential success of your transaction.
Finally, it’s better to receive your approval letter only after it has been fully and properly reviewed (which, depending on the speed with which a client provides your mortgage lender the needed information, may take a couple of days to provide a genuine decision), than to have the transaction blow up because your loan officer felt pushed to provide a quick lending assessment!
From the desk of: Claudio Gormaz, First Time Home Buyer Specialist, with Guild Mortgage.
Direct: 951.294.2274; claudioalexis@verizon.net
California’s Homeowners Bill of Rights Protects Injured Borrowers!
Good news for all homeowners going through mortgage modification.
Last week the California’s state legislature voted to pass the Homeowner Bill of Rights. The legislation introduced by Attorney General Kamala D. Harris after much contact with homeowner groups and consumer advocates.
The law institutes sensible reforms for a Banks’ foreclosure practices and create a fairer foreclosure process for California’s homeowners. According to a DeadlineNews.com report, Governor Jerry Brown’s signature is virtually assured for the success of this law.
The legislation extends the impact of the settlement so that all homeowners in California, regardless of which bank services of their loan, have the same protections and rights. This legislation should serve as a national model for other states looking to enforce the settlement and protect their homeowners.
Most importantly, the law would end the “dual track” process which many banks were employing. Essentially, as banks began the modification process, another division of the same bank would commence with the foreclosure proceedings. In many cases, banks were foreclosing on homeowners while they were in the midst of negotiating a mortgage loan modification.
With the Homeowner Bill of Rights, banks will be required to give homeowners a written “yes” or “no” decision on their modification application before continuing on to the foreclosure process.
A Bit More Prospect if You Please:
On its surface, the law seems to answer the need perfectly for protecting consumers from the monolith which is the bank; and it should! However, the real answer is much more involved than that!
Banks agreed to modify mortgage loans because of their involvement and participation in receiving TARP Funds from the Government in order to stay solvent and in business. As a reminder for those who don’t remember:
- The Troubled Asset Recovery Program (TARP) was created in October 2008 as part of the $700 billion Bank Bailout bill. TARP originally gave banks the right to submit a bid price to sell their toxic mortgage-backed securities to the Treasury Dept. as part of a reverse auction. Banks would offer to sell each mortgage back security (MBS) package, and TARP administrators would select the lowest price offered.
Therefore, if a bank wanted to receive bailout funds, they needed to modify the floundering mortgages they had on their books. It wasn’t something banks did naturally. Traditionally, banks operated from the standpoint of: you owe us X amount, at an interest rate of X amount; pay us what you owe or be foreclosed upon — it’s their [the bank’s] natural inclination!
We needn’t be surprised! After all, we easily accept the fact that alligators and sharks bite; why can’t we accept the fact that banks lend money and if someone doesn’t pay, they foreclos
e?
Truth be told, from the Bank’s prospective, the “dual track” is very efficient; if the loan modification doesn’t work, then they are ready to move forward to remove a borrower from the property quickly. This reduces the chance that said borrower will damage/destroy the property, and the bank can sell the house to an investor for maximum profit! The real problems came when the bank’s foreclosure arrived at the finish line as the borrowers were successful settling on a loan modification. This can be easily solved by letting the right-hand know what left-hand is doing!
Moreover, purely from an economic position, the process of foreclosuring then selling that same house to a new buyer model works wonders for the economy. It rejuvenates neighborhoods with new homeowners, it improves local businesses, more new cars are sold, increases construction, restaurant business improves, etc.
However, when you put a face on a foreclosure, suddenly things get complicated. Banks need to remember that from the public prospective, when banks begin engaging in “not-so-good-faith” negotiations with borrowers, it leaves a very bad taste in everyone’s mouths! You see, the bank is not just dealing with a “borrower” who didn’t make their mortgage payment, they are working with our aunt Tilly, or our brother, or our former babysitter, etc.
The great part of the law is that if the Bank accepts the loan modification, the bank will rescind the notice of default or sale, allowing homeowners to pay their loans without any looming threat. If the modification is denied, the banks are required to send a letter to the borrower describing the reason for the denial and provide information about the appeal process.
The Bill of Rights provides four key and important components:
- The end of the “dual track” process.
- A specific “yes” or “no” on a borrower’s loan modification.
- The end of “robosigning.”
- Single point of contact for borrowers. Homeowners will no longer have to speak to different people at the bank, and resubmit the same paper again and again to new person, at the same bank, for the same thing they had agreed to send to the previous person.
In conclusion, the Homeowner’s Bill of Rights is a great step to protect the consumer! However, it is vitally important for banks to take a long at their long-term images. The stench of a perceived “unfair” negotiation leaves the public most distrustful. And that’s only important if you believe that at some point in the future, the inventory of homes that banks are holding that were previously foreclosed upon, may need new buyers to buy them. As professionals work in and depending on this industry, we wouldn’t want to add skeptical buyers to the growing list of challenges that we face each day!
This is a very well written article and absolutely worth a read! To read the entire piece, simply click on this address: http://www.deadlinenews.com/2012/07/03/californians-get-homeowner-bill-of-rights/.
From the desk of Claudio Gormaz, First Time Home Buyer Specialist, with Guild Mortgage.
Direct: 951.294.2274; cgormaz@guildmortgage.net
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