Wave of Short Sale Fraud Hits Mortgage Industry

By Jennifer Harmon
January 20, 2010

The rise in residential foreclosures around the country has led to a similar increase in short-sale fraud transactions that has particularly serious implications for mortgage lenders.

"What we're seeing are situations where individuals are unlawfully taking advantage of homeowners and their lenders by engaging in short-sale fraud. The most common scenario is where these individuals secure two appraisals on a property that is about to go into foreclosure, one lower and one higher," says Chris Thorsen, a partner and financial services industry litigator with Bradley Arant Boult Cummings LLP in Nashville, Tenn.

"They then use the lower appraisal to buy the property from the mortgage company holding the loan, and the higher appraisal to sell the property on to another buyer. They pocket the difference, which can be as much as several hundred thousand dollars, depending on the property," says Mr. Thorsen.

Mortgage lenders who have fallen victim to short-sale fraud face an expensive battle in court to recover funds Read the full article here

The Clock Is Ticking On The Home Buyer Tax Credit

The extension to the home buyer's tax credit expires April 30th 2010. The tax credit provides up to $8000 for first time home buyers and up to $6500 for mover up buyers (that meet the program criteria). You must have a binding contract in place before April 30th and it must close prior to July 1st 2010.

Aside from the obvious implications for buyers, this deadline is very important to anyone that is thinking about selling their home. Right now the pool of potential buyers is fairly large. That pool is likely to shrink after the tax credit expiration! Few buyers translates to even lower prices. It's all a supply and demand equation. So if you want to sell your home this year, NOW IS THE TIME! Get it on the market and priced aggressively to get it under contract before the expiration., or expect a lower return.

Who's More Qualified

Interesting........

Hitler On HVCC Requirements

DU REFI Plus

DU Refinance Plus Highlights

•All property types (including condos and co-ops) are eligible for refinancing under the DU Refinance Plus program.
•Primary residences and investment properties (1-4 units) are eligible for refinancing. Second homes are eligible for single-family homes only.
•DU Refinance Plus allows up to 105% LTV (certain restrictions apply).
•The minimum credit score of 580 is not required if the LTV is 80% or less.
•Under the DU Refinance Plus program, documentation may be limited to one current pay-stub (for salaried borrowers), a verbal verification of employment, and one year of federal income tax returns for commissioned or self-employed borrowers.
•In certain cases, new appraisal reports may not be required under the DU Refinance Plus program.

DU Refinance Plus Restrictions

•DU Refinance Plus will only allow limited cashout, that is, only 2% of the loan size or $2,000, whichever is less.
•No new subordinate financing will be allowed.
•Adjustable Rate Mortgages with fixed terms less than 5 years will not be allowed.
•Fannie Mae's My Community Mortgage program is not allowed.
•DU Refinance Plus does not allow balloon mortgages.
•Interest-only mortgages are not allowed under DU Refinance Plus.

DU Refinance Plus and Mortgage Insurance

DU Refinance Plus allows for some flexibility regarding Mortgage Insurance (MI) on loans that exceed 80% loan-to-value (LTV). The mortgage insurance benefits apply only to loans that are already guaranteed or owned by Fannie Mae. Since most housing markets have declined, the value of your home may be worth significantly less now than it was one or two years ago. Under the DU Refinance Plus program, an existing loan that has an LTV under 80% (with no current MI) can be refinanced into a new mortgage over 80% LTV and not require mortgage insurance. Additionally, when an existing loan has mortgage insurance coverage, the lender has the option of obtaining the same MI coverage already in effect, or obtaining the standard level of MI on the new refinanced mortgage.

Pay Option Arm Recasts: More Pain Coming

It may be tempting to think that the mortgage crisis is behind us. However, our analysis shows that there are still a substantial number of mortgages at risk of distress or foreclosure. One particularly troubling area concerns a type of product known as the payment-option adjustable-rate mortgage (option ARM).


These loans are about to make a splash in mortgage delinquency numbers. They were issued en masse during the peak housing bubble years, approximately 2005 through 2007, and many of them are due to recast in the next several years, resulting in higher—often significantly higher—payments for borrowers. Given the widely held belief that these loans were largely issued to borrowers wanting to buy more house than they could have otherwise afforded, the higher payments will be out of reach for many. Because of recent home price trends and the negative amortization characteristics of these loans, the familiar result will likely be an increase in delinquencies, distressed sales and foreclosures.
Read The Whole Story Here

A Real Estate Trifecta

The current real estate market is like hitting the trifecta at the track if you are in the market to purchase your first home.

1. The real estate prices are at epic lows.

2. Interest rates are under 5% for a 30 year loan.

3. There is a $8000 tax credit in place.

Off Topic Health Care Rant

Just got a little health insurance shock to start my year off. Currently covered by my former employer's COBRA plan until I qualify for coverage here. WOW, is all I got to say. The new plan has a $2,500.oo per person $7,500.00 per family deductible and then only pays 70%, and then only 70% of what they think it should cost. Then you start looking at the employee share of the premium and you're out some serious money before you ever see a penny from the insurance company. It 's sure a far cry from when I started in the mortgage business 14 years ago. My employer paid 100% of the premium and we had a $10 copay on EVERYTHING. Well off to look at my checkbook to see if I can afford to get sick or not. The only upside is that my new employer has better coverage.

FHA Is Relaxing Flip Purchase Guidelines

FHA has finally figured out that the guidelines requiring a homeowner to be in title to a property at least 90 days before reselling is not practical. After all, how long does a typical renovation take these days (with all of the contractors scrambling for work).

Check out the full press release from HUD

Full HUD Press Release

Interesting Bit On Short Sale Shenanigans

Here is a tasty little tit bit from CNBC Click Here For The Full Story

Mortgage Interest Rates

I spent about an hour last night on the phone with a client talking about various options he has for refinancing his home. He of course asked everyone's favorite questions; "so what are rates going to do?" I hear this question all of the time, and not just from consumers, but also from industry professionals. My reply, "well they are either going to go up, down, or stay the same; I guarantee it!" The truth of the matter is that all anyone can give is an educated guess. Look with extreme suspicion on any lender that tells you he knows what the market is going to do! After all, if he truly had "the" answer, he would managing a bond fund on Wall Street for a seven figure income, not working loans for a bank or mortgage company.

The follow up question is always the same from clients: "should I float the rate or lock it in?" My advice is always the same. It depends on how much risk you are willing to expose yourself too. Floating in essence is a gamble. I asked this client, if rates went up .875% tomorrow would the loan save you any money? No? Then you should maybe consider locking. I am a believer in worst case scenarios. I think that's because after 14 years, I have too many of them. I tend to take a more conservative approach and try to always minimize my exposure to risk. Why not take the $382.00 a month savings NOW? Are you willing to risk $382.oo per month savings in hopes of getting $397.00? Some people are good with that, but I personally am not.

Reasons To Buy In Today's Market

I was having coffee yesterday morning and ended up chatting with a fellow next to me about the real estate and mortgage markets after he found out that I was a mortgage broker. The gist of the conversation was that his wife wanted to purchase a new home (4 bedroom because the kids are getting older and don't like sharing). He was telling me all of the reasons he has for not wanting to make a purchase.

His biggest objection was that he hated losing money on the sale of his current home. He figures he is going to take a hit of about 10% to his sales price if the current market trends hold true. It was odd that his biggest object to purchasing a larger home was actually the reason he should be buying "up". As I have explained before, the math supports it.

I asked him what what his home was worth before the market corrected. He said 2 years ago it was purchased for about $265,000. Now he figures at sale he is looking at around $240,000. So he is looking at a "loss" of about $25,000. He just hates the thought of "losing" that money. So i asked him about the homes his wife had been looking at. I just gave him the simple round number math. Look if you are taking a 10% hit on your house at $250,000 you're on paper down $25,000. Now your looking at homes that would have sold for at least $400,000. So on paper that owner is looking at a loss of $40,000. $40,000 minus $25,ooo equals $ a net gain of $15,000 for him.

So moving up in a down market has it's benefits. The biggest one being keeping his wife happy! I also let him know that he might qualify for the $6,000 tax credit for move up buyers. You couple the money on the table to a 30 year interest rate under 5% and all of the sudden it looks like moving up is the smart play.

The Government's New Good Faith Estimate and Your Sanity

Just ran through yet another class on HUD's new Good Faith Estimate. Talk about putting the client in a hard spot. The powers that be in Washington seem to think that the fees being collected on a mortgage transaction are the most important thing. Unfortunately for the client, the government does not think that showing how much you actually need to "close" the loan or are getting back on a refinance is all that important of all. They also don't think a client wants to see the payment.

Funny thing, what are the first questions my clients over the past decade ask? What do I have to bring to the closing or am getting back at closing? What will the payment be? What's my rate? Rate is the only real answer you going to find on the new estimate.

Additionally, the government, in its effort to making lending more transparent and "shop-able" has actually made it less transparent and the estimates less accurate (loan officers will be padding the gfes to the ultimate worse case scenario not the typical one. We have a lot of clients that come in before they start looking for a home. They want to know what the fees, down payment, and payment are going to look like. Legally I can't give them an estimate unless they have a specific property! No kidding! Worse yet, it is now almost impossible to obtain a pre-approval (and do mean approval not pre-qualification). In the past if you had a client that was on the edge (a marginal deal), you would collect all of his information, pull a credit report, run whatever automated underwriting software you had, and then send the file for credit only approval (loan approval with no property determined). Lenders are now in a position that they cannot accept a credit only file for review. End result, the client has to hope that the pre-qualification is on the mark, or put his earnest, money, appraisal money, and inspection money on the line!

Also, as a loan officer I would generate GFEs for Realtors, prospective buyers, to give them a ball park on costs, fees, and payments. No MORE! Now I have to have a complete application and a property before I can do a GFE. I think it puts consumers in a bad spot. I am looking into ways to get a worksheet of some sort into the hands of the people that need them.

HUD despite the amount of time spent creating these new guidelines failed to see the negative impact on the borrower.

Back Door Bailout For Fannie Mae and Freddie Mac

get the full story here

NSP Loans and You

As a part of the government's overall effort to mitigate the housing crisis, they have rolled out the Neighborhood Stabilization Program. The program provides up to $50,000 in funding to assist with down payment, closing costs, prepaid items, as well as repairs. The loan is a no interest, no payment loan (silent second). The loan only comes into play in the event that you sell or refinance the property. There are some restrictions to this program. Firstly, the homes have to fall into certain geographical areas (Eugene: census tracks 2501, 2600, 2700, 4200, and 4300). The home also must be either a Fannie Mae foreclosure, Freddie Mac foreclosure, a bank owned foreclosure. Short sales are not eligible. There are also some restrictions on income. For further infgormation you can email me at Chris@omtmortgage.com.

New RESPA Rules Take Effect January 1 2010

Just a quick note to everyone that long awaited RESPA reforms are set to take effect on January first 2010. Interestingly there appears to be no clear guidance from the government on how these "reforms" are going to take effect. So what does this mean to the average consumer? In the short term expect confusion. For those of you that have completed mortgage transaction in the past, it's going to be quite a shock to the system when you sit down with an originator, be it a broker or a banker.

The first thing that is going to be troubling to most people is the appearance of the "new" Good Faith Estimate. In the past the Good Faith Estimate broke down every fee associated with completing your transaction. The new Good Faith Estimate on the other hand DOES not. Interestingly the purpose of the reforms was to make the fees MORE transparent. The new form also does not show a client what the total monthly payment will be, only what the principle and interest portion will be. Also I find it strange that nowhere on the new form does it show what the total funds required to close will be, or on a refinance transaction how the net return to the borrower will be. Not that transparent in my humble opinion.

The form seems to place most of its emphasis on what the fees will be. Not only on what the fees charged by the lender or originator are, but what the third party fees will be (appraisal, pest inspections, title insurance, escrow fees). As an originator I am now being put in the position of guaranteeing the third party fees involved in transaction as well as my own. While the theory behind this seems to be that in the end, it will be better for the borrower. I some how doubt it. I for one can say that I would be reticent at best to "sharpen my pencil" and tighten up fees on my estimate. Instead, having spoke with many other loan officers, I think padding the GFE will become more common. Treat every transaction like the world is coming to an end. So in essence, what the client is shopping is a WORST CASE SCENARIO in the extreme, rather than a typical scenario.

I also found it very interesting that many of the rulke changes are geared at focusing attention on COST rather than benefit. Especially when you look at how brokered loans are treated differently than banked loans. Brokered loans are required to disclose the profit margin (yield Spread Premium). Not wanting to stop there, brokers will now be chraging thier clients additional origination fees, and then showing a credit from the wholesale lender to offset those costs. A loan originated at a retail bank or with a mortgage bank, they are not required to disclose their yield on the loan nor play the charge and credit game that the brokers are. This seems to have been put in place to make the broker's loan appear less competetive than the loan offered from the bank, by focusing attention to the "profit" earned by a broker instead of a straight side by side comparison of INTEREST RATE and CLOSING COSTS! It looks like the money spent by the banking industry is starting pay off. It seems distracting the consumer is better than educating them.

My advice to people in the short term is to make sure that they allow extra time in the process of the loan. I have recomended to the Realtors that I work with that they allow 45 days instead of the more cusomary 30 day closing. I am sure that things will shake out and become more efficient over time, but for now I see nightmares at every turn.

Short Sale and Foreclosure Effects on Credit

Sellers may wonder whether doing a short sale would affect their credit less than completing a foreclosure, and whether there are other advantages between the two. While in foreclosure, and depending on state laws, a seller could possibly stay in the property, essentially rent free, for four months to a year before being forced to vacate. But that fact alone does not mean a foreclosure is better.
Whereas a short sale involves offering the home for sale, generally listed through MLS. Potential home buyers will make appointments to view the home, some will make lowball offers, agents might hold open houses and, in general, a seller's life will be disrupted, all in the hopes that a buyer will buy the home.


Basics of a Short Sale

Short sales happen when a lender agrees to accept less than the amount owed against the home because there is not enough equity to sell and pay all costs of sale. Not all lenders will negotiate a short sale, and that is why a real estate agent or a lawyer can be a tremendous help by contacting the lender's loss mitigation department to find out.

Read the whole article here

How Mortgage Management Affects Credit Scores

Your credit score, a numerical rendition of your creditworthiness - or lack thereof - should be at 760 or above if you want the best interest rate, according to FICO, the leading credit scoring system provider.

Mortgage lenders as well as other creditors take a hard look at your credit score when you want to borrow against your home, refinance or buy anew.

If you are struggling financially as a homeowners you may be considering some of the new ways to make your mortgage more affordable, but beware.

Look beyond the savings you can net on a mortgage modification, workout or short sale and carefully consider how those savings could affect your credit score.

According to FICO, if you:
Click here to read the full article

Pre-Approval

There are many steps that are required when purchasing a new home. The most important step is to be pre-approved for a home loan prior to looking for a house.

Now, keep in mind that a pre-approval is very different than a pre-qualification. A pre-qualification is given when the lender talks with you (usually over the telephone) and takes the information that you tell them and qualifies you off of your word without collecting any documentation from you.

The pre-approval process is a little more complete. In this process, the lender will ask you to complete a loan application and return it to them with all the documentation needed to submit to the lender for an approval. These items would include tax returns or W-2’s, paystubs, bank statements, etc. Once the lender received this information, they would run a credit report and submit the loan for approval. When the lender receives the approval, they will write you a pre-approval letter stating the purchase price and interest rate that you qualify for on a new home loan. This letter is then given to the seller at the time an offer is presented to show them that you have your financing in place.

Here are the top 7 reasons why you should get pre-approved for a home loan:

1. A pre-approval will tell you how much you qualify for on a new home loan. This helps you and your realtor to look for a property that is not above the amount that you can afford.

2. A pre-approval gives you the chance to go over the different loan programs available to you with your lender. You will also be able to see what the monthly payment will be on each program.

3. In today’s market it takes time to get a loan approved. Getting a pre-approval puts you ahead of the game by sending all of your paperwork in before you get into escrow. By having a pre-approval, you may be able to shorten the escrow period needed to close a loan. This can make a big difference to a seller that is looking to close as soon as possible.

4. Some real estate agents will not start the process of searching for homes until you have a pre-approval.

5. If by chance you do not qualify for a home loan at the time of the pre-approval, your lender can guide you in the right direction to prepare you to purchase in the near future. Sometimes there are items on the credit report that can be paid off or disputed to help you to qualify. Without sitting down with a lender, you would not have known about these issues until you are in escrow, which would either delay the close of escrow or cause the property to fall out of escrow.

6. You will learn about the lenders guidelines on locking in an interest rate. When can you lock your loan and for how long.

7. You will be able to relax and know that you have your financing in place when you find the right home for you.

The pre-approval process may sound like you are putting the cart before the horse, but in reality it is ensuring that you are buying within your means and gives you the opportunity to understand the different loan options available to you.

Quoting Patricia Barmatz