Danny Salas

Archive for the 'Loan Qualification' Category

Chico, CA Interest Rates Market Report – Economic Influences – August 28, 2009

The Fed’s Favorite Gauge on Inflation

The Personal Consumption Expenditure Index (PCE) came out today.  It’s the Federal Reserve’s closets monitor regarding where inflation lurks.  The Index chilled at 0.1% growth.  That’s pretty measly, and it’s the slowest inflation readings since 2003.  Inflation is interest rates’ worst enemy, so this information should help keep rates low for a little while.

“Cash for Clunkers”

Spending’s up a bit.  Helped by the now complete government program to give cash incentives to help buyers get into new cars.  Heard something pretty interesting about their website.  I guess that the Patriot Act Enabled the government to get into anyone’s computer and check out everything they were up to.  Cash for Clunkers website, is an invitation, once you’re on the site, for the government to take a nice peak at what you’ve been doing lately.  Nice, huh?

Consumer Confidence Up?

According to the private Reuters / University of Michigan Survey consumer confidence was down.  However, forcasting into six months from now, the consumer feels confidently that we’re on the right track.  Even though these same people are in the worst financial situation since the survey began in 1946. 

Stocks Up Eight (8) Days

Stocks have increased over the last eight days for the first time since April of 2007.  I think they’re due for a reversal.  Bonds, and therefore, Interest Rates, should benefit. 

Next Week

Payroll Figures will be the most important information coming out next week.  Have an excellent weekend, and my recommendation is to float into next week, with (again), an itchy finger on the lock button. 

Home Loan Documentation Since The Mortgage Credit Crisis

Stated Income…What’s That?

The days of Stated Income (where you state your income on an application and do not provide any tax returns, paystubs, etc.) are gone.  This article will give insight as to what lending insitutions expect and need, as documentation, in order to be able to sell the loan in the secondary market (GSE’s like Fannie Mae and Freddie Mac).

The (Not So) Good ‘Ole Days

Since the early 1990’s, lending institutions felt as though they could sell real estate loans, in the secondary market, as long as values continued to climb, and there was a world-wide appetite for these loans.   Why should clients have to provide more and more documentation?  It’s fair to say that it eventually got so bad that the least documentation in the file, the easier is was to package the loan and still “sell” it, for a profit.

Then…The Well Went Dry

After the meltdown of the lending industry, it became apparent that documenting everything was going to take precedence.  Here is the outcome:

Think in “Two’s”

Two Paystubs – Lenders want to document a full month’s income.  Generally, employees are paid either every other week, or twice a month.  Therefore, if you’re paid weekly, the bank will want to see four paystubs.  Bare in mind that if you have a long escrow period, you will have to continue to update these paystubs, throughout the escrow time period.

Two Bank Statements - Lenders will want to be certain that the funds being used in the transaction, are actually, the borrowers’ funds.  So, funds just can’t show up, at the last minute, or even show a significant deposit into a borrower’s account without tracing exactly where the funds came from.  Therefore, it will be required that a borrower provide two monthly bank statements showing no significant deposits (that cannot be documented).  This satisfies the lenders’ desire to “season” the funds.  401(k)’s generally come out in quarterly statements.  Therefore the most recent quarterly statement would be acceptable.  Same as investment accounts, or any stock portfolios…they generally have quarterly statements, however, if they do not, than two months would be required.  Make certain that if your statements indicated, “Page 5 of 5,” that you provide all five pages.  Even if page five is your reconcilliation page, banks will want all five pages.

Two W-2’s & Two 1040’s - The lender will want to document two solid years of employment, in the same line of work.  There are exceptions to this rule, for example if one was in college, or schooling, and can document training for the desired field.  However, for the most part, two years’ W-2’s will show the pay structure and history of the borrower.  Some lenders may indicate that 1040 Federal Tax Returns are not required.  Be weary of these lenders, as almost ALL lenders are currently processing a form called a 4506-T form.  It enables the lender to verify that the income information that was provided to the lender IS IN FACT WHAT WAS FILED WITH THE IRS.  So, make sure you’re not suprised, at the close of your escrow, when the borrower cannot fund their loan because they filed 2106 expenses on their 1040 tax returns, thereby, lowering their taxable income (what can be used for qualifying to purchase a home).

Two Years’ Residence History – this is self explanatory

Other Items of Importance (on a case by case basis)

Self Employed Borrowers

SE Borrowers may have to submit K-1’s.  Corporate tax returns will be required for any borrower whose corporation is owned 25% or more, by that borrower.

Occasionally, a signed  Year-to-Date Profit & Loss might be requested from an underwriter, or a copy of two years of a business license (to document two years in the same line of work).

Twelve months’ cancelled checks (front & back) for any liability that a business pays, as opposed to the borrower’s own, personal checking account, can be used to offset any payment obligations that could effect that borrower qualifying for their loan.  If the business pays an auto payment, and it’s supported by cancelled checks, than the company is already writing off that payment and therefore, the borrower should not have to be hit with that monthly payment, also, to qualify.

Be prepared to write letters of explanation.  In a world where underwriters are being deligient to protect their positions and lending institutions, everyone needs to be prepared to dot their “i’s” and cross their “t’s.”

Retirees

Award Letters or 1099’s from the outfit paying the compensation detail how much income is paid out and sometimes for what period of time the borrower may be receiving the income.  Again, 1040 Federal Tax Returns are another source for taxable retired income.

A perfect example is Social Security Compensation.  Each year Social Security provides an award letter to every recipient of those funds.

Investors

1040 Tax Returns will have your Schedule E.  This is the area whereby your “net” income or loss is determined for each real property that you own.  Since the Mortgage Credit Crises, if you do not have two years of schedule E income, than rental income cannot be used to qualify you for your next real estate purchase.  Even if you’re renting your existing primary residence…unless…you can determine 20 to 30% equity in your current residence (by appraisal by an approved appraiser to that particular lender), documentation of the signed rental or lease agreement, and a copy of the deposit check and deposit of the security deposit from the renter who will be renting your home, once you purchase your new home.

HUD-1 on any properties purchased or sold within the last year or so (if a property was on your schedule E for 2008, yet you sold it in December of 2008, you would need a HUD-1 to document the “Net” income or loss … loss.

FANNIE MAE Allows for up to 10 financed 1-4 unit properties to be owned.

FREDDIE MAC Allows for up to 4 financed 1-4 unit properties to be owned.

Divorcees

In the case of a divorce, we would need to document either contractual liabilities or any alimony or child support received by either party.  A full, complete copy of the final FILED and STAMPED decree would be required to determine any other the above concerns.

Generally three months’ bank statements, as opposed to two months, would be requested from a lender.  Documenting the deposit of the said alimony payments or child support payments for proof of receival.  Sometimes, an underwriting for a lender may request 12 months cancelled checks (front & back) to verify payments are being received.

Gift Funds

Gift funds are very important.  As mentioned above, sourcing, or seasoning your down payment and closing cost funds are imperative.  Generally, a good lender will provide you with detailed instructions, as to how to document a gift and transfer the funds properly.

Military Personel

DD-214, or discharge papers, will be required.  Leaving & Earnings Statement for retirees that earn their retirement income from the military.  and off-base housing letters for those still enrolled in military services to our country.

Everyone

…will need to provide proper copies of identity.  Drivers’ Linceses, I.D.’s, Passports, Social Security Cards, are some examples of acceptable forms of I.D.’s.

HVCC – What’s It All About?

Due to the Mortgage Credit Crisis

…there have been many changes regarding Real Estate Finance, however, the Home Valuation Code Of Conduct (HVCC) will be one of the most important changes that will have a direct effect on the consumer.

While in theory, it’s a wonderful concept;  unfortunately, in reality, it’s another red-tapped blunder that could damage the housing market, even further. 

Changes as of May 2009

HVCC requires lenders to order an appraisal through an Appraisal Management Company (AMC) when using conventional financing (FHA financing has no HVCC appraisal changes).   So, imagine the AMC.  Let’s assume a home buyer wants to buy a nice $300,000 home, here in Chico.  Let’s also assume that the client is putting 20% down, and has high credit risk scores with great income, so they’re a solid buyer.  In the past, you might receive an appraisal waiver, or a drive-by appraisal.  Now, you MUST order a full Uniform Residential Appraisal Report (URAR).  Not only that, however, in the past, an appraiser would only need three sales to help with the value of your home.  Now they need six comps containing at least two currently listed properties. 

Twice The Work…1/2 The Pay

So, with the other listings, and extra forms that the appraiser must provide for each appraisal, they are completing twice the work, however, receiving half of the fee that they used to.  So…what happens to the quality of the appraisals?  Unfortunately, the best appraisers, in the nation, have refused to join AMC’s.  So, that quality has deminished. 

The Lottery

Here’s what happens when you order a convention loan appraisal.  AMC’s will not order the appraisal until they have been paid.  So, now, a credit card, or a credit card/debit card is used to order it.  Once the fee clears, the AMC will call an appraiser on their list.  Their list of appraisers that appraise Butte County may consist of an appraiser in Gridley.  But do you think he knows values in Magalia?  Mortgage professionals are not allowed to contact the appraiser, directly, at all.  So, all correspondence must go through the AMC.  Once the appraisal is completed, the AMC e-mail’s the borrower, the mortgage professional, and the lender.  If the value is too low, than you may file a complaint with the AMC, however, the AMC must let the appraiser know that you disagree with value.  Getting an appraiser to admit that they are wrong, or may have made a mistake on value, is more difficult than it has ever been.  Particularly once they’ve been paid.  You think they get paid for correcting mistakes? 

Quick Answer

The best answer is FHA Financing.  I can still order the appraisal from my favorite appraiser, Barbara Robinson with Valley Oak Appraisals.  I have been in this industry since 1988, and she is the best appraiser in the business.  So, FHA is king!  3.5% down and other flexible guidelines makes this loan the most popular loan since the Mortgage Credit Crisis. 

 

 

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Chico, CA Interest Rates Market Report – Economic Influences – January 20th, 2009

No Closing Cost Loans A Thing Of The Past

This week, I will discuss the market, but I also want to delve into why we’re not seeing the “no closing cost” loans of the past refinance booms of 1993, 1998, and 2002-2003.

Retail Sales Are UGLY!

First, Retail Sales figures totally sucked!  They plummeted by 2.7 percent, and when you take out auto sales figures, they were even worse.  So, adjusting the previous two months’ figures, we’ve seen six months of decline.  This is the longest decline on record.  Another concern was Deutsche Bank warned of another $6.3 Billion loss.  Citigroup announced an $8.29 Billion loss, and Bank of America announced their first loss in seventeen years.

Lowest Inflation Readings Since 1954

Now, the Initial Jobless Claims rose 54,000 last week to 524,000.  The four-week average of new claims actually lowered a bit to 518,500.  Remember when we were concerned with 362,500 claims?  And that with those numbers we might be in a recession!  Inflation is basically gone, as the Producer Price Index dropped by 1.9%, and with energy costs spiraling downward, you’d think interest rates would just be rejoicing.  But, I remind you that we’re in unprecedented and historical times.  Things aren’t working normally, markets aren’t reacting normally, and there’s just nothing normal about where interest rates will go speculating on where economic reports are measured.  Also, the Consumer Price Index showed its slowest pace of annual inflation since 1954.  Virtually NO inflation on the horizon would generally mean virtually the lowest interest rates we’ve ever seen, however, rates remained unchanged.

Fed Buying Bonds…Effect Is Unknown

Of interest this past week, the ECB cut its overnight rate to 2.0%.  This is a record low that should have lowered our interest rates, as the value of the dollar becomes stronger with each lowering of the Euro.  However, this isn’t a normal market…so, we did not see a significant lowering of our long term rates.  The Fed has purchased $33 Billion, so far, from their promise to purchase $500 Billion of Mortgage-Backed Securities.  The more the Fed Buys, the lower interest rates should move, however, there’s nothing normal about the Fed Buying Bonds, so we aren’t sure how interest rates and the markets will continue to react.

Longer Turn Times

Another word to the wise:  If you’re considering refinancing, there are a few things to take into consideration.  There is about 1/3 of the work capacity that banks have had in recent years.  So, when rates drop below 5.0%, they’re getting inundated with volume.  Therefore, since there are fewer banks with fewer people, they cannot handle this influx of loans.  So, they are artificially increasing their interest rates to stop the flood and make these loans manageable.  So be aware that refinances could take longer than a thirty day turn time.  Be prepared for two months, and if it closes sooner than that, you’re lucky.

Oh Yeah, No Closing Cost Loans

On the note regarding the “no closing costs” loans.  Let’s put it simply.  In the refi-booms of ‘93, ‘98, and ‘02-’03 banks learned that by refinancing at no cost, when they get paid off six months later because rates have dropped again, they didn’t have a chance to make any money on that loan.  So, as our ex-president once said, “fool me once…shame on,…fool me twice…um….”  Basically, our banks learned their lesson and they can ill-afford to make those mistakes again.  It’s an Amazing time to buy…I hope you’re considering it…as rates and values are at the lowest we’ve seen in decades!  Until next week…