Danny Salas

Archive for October 7th, 2009

Time is Money…Now More Than Ever

HVCC-AMC's, TILA changes via MDIA, All Due To HERA!

Do NOT Read This If You Have Heart Complications

If you don’t understand the particulars of the HVCC laws and their use of AMC’s, MDIA changes to TILA, or how HERA effects when you get paid; you’re in trouble.

A Nightmare On Elm Street

Let’s say you have a client living on Elm Street and they just cannot afford to stay in their home.  You know buyers that are looking for just the right home, to retire in, and this meets their criteria.  Problem is, they’re retiring in about six months, so you have to use their income in San Francisco, to qualify.

The Perfect Set-Up

So, your expert loan officer structures a second home purchase with twenty percent down.  The purchase price is $450,000, so, cash to close, with closing costs and an impound account will be approximately $100,000.  Perfect!

First Sign Of Trouble

Remember; this is a short sale.  So, the bank is ready to foreclose in 45 days.  So, you must make certain that your escrow is ready to close prior to this sale date.  So, you disclose to the client all of their truth-in-lending forms and Good Faith Estimates via e-mail.  This will enable you to order the appraisal in 24 hours.  You get on-line with the Appraisal Management Company (AMC), and order the appraisal.  You specify that you truly desire a local appraiser that knows this community well.  It’s important because this is a unique property, due to its location and value.  The appraisal is ordered.

First Sign Of Bigger Troubles

The appraiser if from out of town.  But they have filed with the AMC that they appraise and know our town.  The appraisal comes in at $415,000!  Oh no!  You scramble and get information to the appraiser to support a higher value.  You even find out that just five months earlier, the same appraiser appraised the property for $525,000 for the selling bank!  That’s right…the same appraiser appraised the property for the bank, so that the bank knew what to accept for a short sale offer.  You don’t have to read this three times.  You read it correctly.  But the appraiser does not budge.

Options?

-  The buyer can come in with the shortage with cash, but they just don’t have the additional $35,000.

-  You can’t go FHA because this is a second home, not owner occupied…yet.

-  Your loan officer can move the file to another lender, AND re-order the appraisal to get higher value, but you’re running out of time.

-  You can change the file to a 10% down loan.  That way you’re financing 90% of $415,000, or only coming up with $41,500 down.  The payment’s higher, you’ll have mortgage insurance, and the buyer will have to come up with the $35,000 difference, however, you already know the borrower has $100,000.

Next Problem

There is only one Mortgage Insurance (M.I.) company left in the United States that will finance 90% financing on a second home.  And it’s NOT with the lender that you originally ordered the HVCC compliant AMC appraisal through.  So, here’s how you save the day.

How We Saved The Day

First, you must get a decline letter from the existing lender.  The only way that you can transfer an appraisal from one bank to another, is with a decline letter from the original lender.  The new lender MUST be approved with the same  AMC.  So, we had to find a lender that used the one M.I. company that allowed 90% financing on a second home, AND used the same AMC.  We found it!  You’ll need a letter from the original lender that the appraisal was orderred in an HVCC compliant manner.

Now, You MUST Re-Disclosue

Due to Home Economic Recovery Act changes, that went into effect on July 30, 2009, you must re-disclose any changes in Annual Percentage Rate, to the borrower, that effect the APR by .125%.  So, obviously, with 10% down, as opposed to 20% down, and now having M.I., your APR will change.  How you disclose is critical.  And, since we couldn’t fund the loan through Access’ Warehouse Line (my bank), I had to broker the loan.  So, we immediately had to upload the file to the new lender and have the lender e-mail disclosures to the buyer.  The buyer had to confirm that they received the e-mail’d disclosures, so that delivery was documented.

We met all deadlines and funded the loan prior to the short selling banks’ foreclosure date.   The buyer is preparing to retire, sell their $750,000 home in the Bay, Pay off the 90% loan with M.I. in about a year.  And everyone’s happy.

Why The Buyer Would Pay More Than Value

Everyone felt as though the value of the property was, in fact, $450,000.  The problem was the AMC’s appraiser not adjusting for views, location, and other desirable factors.  The buyer’s because aware that this particular appraiser appraised the property for $75,000 more, just six months prior to his second appraisal, and the buyer was planning on paying off the loan, within a year, anyway.  So, this totally made since to our buyer.

I tell this story becuase of the time-line in which we had to disclose, order appraisal, re-evaluate, decline at my bank, broker the loan to another bank, re-disclose, transfer AMC appraisal, re-underwrite the file with another bank, and close all in a specific time period.  It wasn’t easy, but we got it done.

Related Must Reads

HVCC Laws regarding AMC’s, MDIA Changes to TILA
Understanding FHA

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Chico, CA Interest Rates Market Report – Economic Influences – October 7, 2009

More Volatility Expected

Mortgage-Backed Securities (MBS) bounced right off of their highs, from yesterday, as investors cashed in on the poor 3-Year Treasury Auction results.  So, as values topped, yields were, again, quite low this morning.  However, started heading in negative territory.  So, by the time interest rates rolled out on the west coast, they were about the same as yesterday’s.  Expect more volatility, as the market tries to prepare for a global economic recovery, the end of the Government Sponsored Purchasing Program, 3rd Quarter Earnings Reports, and today’s 10-Year Treasury Auction.

Treasury Auction Bids…Not So Well

If we take a clue from yesterday’s 3-Year T-Bill Auction, than be prepared for an ugly day today.  The 10-Year T-Bill has, obviously, a longer investment time period, so it’s harder to obtain your return on that investment without gauging for inflation.  We know inflation is around the corner, but how much?  That’s what investors will be wondering today, and therefore, will desire a higher yield on their investment.  Therefore, higher interest rates.

Another NEW Purchase Plan In The Makes

Here’s something of interest!  Fannie Mae and Freddie Mac announced a new plan to make small credit lines available to Mortgage Banks.  This commitment to purchase certain loans that meet certain criteria, is designed to relieve some of the risk involved with these loans.  Not much is known about these particulars, but stay tuned as more information is released. 

Locking Advice

It doesn’t get much better than this.  Without a surprise fabulous 10-Year Treasury Auction, and without 3rd Quarter Earnings from Corporations showing horrible statistics, if you’re not locking now, you’d better have an itchy finger on that lock button! 

Related Must Reads

How Interest Rates Are Priced
Why Be Leery of Yesterday’s Auction
October 7, 2008 Article about Term Auction Facilities

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