HVCC – Petition to Overturn Delivered to Cuomo Today

The HVCC should take another blow today as a petition to overturn it signed by more than 120,000 individuals will be delivered to Attorney General Cuomo’s office today.  We all know the problems this bill has caused, i would just like to list a couple that i am aware of:

1. Purchase contracts expiring because the HVCC conduit not forwarding appraisal orders timely enough
2. Clients having to pay for, four and in some cases five different appraisal invoices because they are not transferable
3. Big Banks charging $750 – $1,000 as an application fee to help cover the cost of the appraisal that used to cost $350 – $450
4. Closing Costs have increased by as much as 35%, due to multiple appraisals
5. Appraiser being underpaid for the same work or more

I hope that this law will be overturned.  If you have been affected by the HVCC sign any petition you can. 

 

The following is a great article for background as to why the HVCC came into existence.  Click the lick and read on.

http://www.appraisalpress.com/news/articles/hvcc_the_cure_is_worse_than_the_disease/

Understanding How a Short Sale May Affect Your Credit Score

Understanding How a Short Sale May Affect Your Credit Score

I receive calls weekly asking me what affect a short sale or foreclosure (or deed-in-lieu of foreclosure) will have on an individual’s credit. Unfortunately we hear such a variety of conflicting information; it’s hard to know who to believe or who is even handing out relevant advice.  What I will show you is the basics that the credit agencies have given out to date.

 

Short Sale Affect on FICO Scores

In the world of credit scoring, there are three major credit events that will severely impact your score, and they all carry an equal weight. They are listed as:

1. Serious delinquency
2. Derogatory public record
3. Collection filed

A homeowner in default (behind on payments) is technically in collection.

Facts about Short Sales and Credit Ratings

1. Credit preservation advantage for a short sale over foreclosure is limited if you have missed two mortgage payments in a row or more prior to the short sale finalizing.
2. The two largest mortgage investors, Fannie Mae and Freddie Mac — with few exceptions – will not lend again for four years (foreclosure) and two years (short sale).
3. Consumer’s credit score will take a hit until a consumer can re-establish good credit behaviors to supplant the foreclosure or short sale over a period of time.

The Rest of the Story…

The term Short Sale has become much more popular term this year due to the mortgage and credit meltdown. Short Sale is defined as selling your home for less than you owe the lien holder.  Many have questioned if this term Short Sale actually appears on a credit report, well it does not.  The most important concept to research and study is how the mortgage loan will be closed and reported in your credit history, before you agree to the terms your lender has to offer.

When you pay less than originally agreed on any loan or credit card, this will always impact your credit report negatively.  It is rare for a lender to report the mortgage as paid (or paid in full), and forgive the remaining amount owed on the loan. If that were to happen and assuming you had made all payments on time, your credit score would not be impacted.

Most often, however, a short sale is reported as settled (or settled for less), simply defined as you reaching an agreement to pay back only a portion of your outstanding balance.  The remainder is written off (or charged off) as a loss by your creditor.  Settled accounts much like charged off accounts, will be very negative, and even more so with a mortgage involved.

Previous to 2008, the remaining balance was considered as income for which you would owe taxes, and would report as a capital gain. Due to the number of mortgage crises this year, the IRS amended the tax code temporarily to waive this tax, and provide some comfort to those that are struggling.  As IRS codes will always be changing verify that is still true when filing your 2009 taxes.

When one decides to Short Sell it is usually to end the pain, the consequences in terms of negative impact on your credit if it was something you  could not control, learn from it and move on; take the time to start rebuilding your credit, which will be done through positive credit management. 

Buying a Home after a Short Sale

A foreclosure will remain on your credit report in the public records section for up to 10 years. You will notice that there is no question about a short sale.  If you have gone 120 days late on your mortgage, and your home was not foreclosed on, make sure you retain all the paper work.  As you try to take out a loan in the future you will need to provide proof that you sold the home rather than had it foreclosed on.  This is done via your closing statement or HUD-1.  The mortgage application under Section VIII currently asks the following questions:

1. Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years? (Y/N)
2. Have you directly or indirectly been obligated on any loan which resulted in foreclosure, transfer of title in lieu of foreclosure, or judgment? (Y/N)

Actually, the decision makers in the mortgage industry know that a short sale is no different than a foreclosure or deed-in-lieu.  In all cases, the debt was settled for less than was owed.

US Home Appreciation Rates

How fast do homes appreciate historically in the US?

I had only found census data back to 1954 and some limited data for previous decades. I used some historical data that can be found to calculate annual home appreciation at 4.51% from 1960-2009 and dating back to the 1920’s homes have historically appreciated around 4.12% annually.

That data seems to point to appreciation between 1890 to 1930 period being really low which makes the overall averages less.

The data shows home appreciation for specific historical periods as follows :

1890 to 2009	2.96%
1900 to 2009	3.74%
1920 to 2009	3.53%
1948 to 2009	4.08%

If we divide the data to before WWII and after:

1890 to 1939	0.74%
1940 to 2009	4.61%

Or the past 100 years, 1909 to 2009: 3.43%

If you break the information down into decade chunks we will be able to see a few interesting points:

1890’s	0.53%
1900’s	1.40%
1910’s	3.30%
1920’s	-0.70%
1930’s	-0.45% Limited data available before this time period
1940’s	8.16%     The first full decade after the depression
1950’s	2.67%
1960’s	2.57%     50 year time frame 4.51%  1960 – 2009
1970’s	8.12%     Beginning of ramped inflation
1980’s	5.86%     30 year time frame 3.94%  1980 – 2009
1990’s	2.84%
2000+	3.14%

Note that these numbers are all calculated using simple math and do not account for any inflationary adjustment.

So what does all this new data tell me? First it seems the long term historical home price appreciation is 3-4% range rather than 5%. The data from the range of 1890 to 1920 is much less relevant in today’s market. During that time period we were still transitioning in the world and it was a much different place. I think the past 30 years is much more realistic of history if we’re going to use it as a platform to try to predict what may happen in the future.

Consider Adjustable Rate Mortgages as an Option

With rates as low as they are, why would I ever consider taking an adjustable rate mortgage?

This is a question I am asked almost daily, in the next couple minutes as you read this I wish to help you understand why adjustable rates are valid options for many Americans.  We have to first provide some structure and some historical background for context to this discussion.  The average loan right now last less than 4.5 years and we are living in our homes less than 7 years.  Yet we hold this fear that we have allowed the media to continue to spread that if we do anything other than a fixed rate mortgage we will lose our home.  I am suggesting for some there may be a better way, if we will slow down and think for ourselves we will be make educated decisions, rather than guess.

In every country besides the United States of America adjustable rate mortgage is the norm.  We are the only country that has a system (Fannie Mae / Freddie Mac) that allows for a fixed rate mortgage.

That being said lets walk through with what is an Adjustable Rate Mortgage (ARM).  ARMs as defined by multiple sources are mortgage loans where the interest rate on the note is periodically adjusted based on a variety of elements.  The interest rate, and your payments, is periodically adjusted up or down as the index changes do to the economy or other outside influences.  Those elements are the index it is based off of, the margin the banks charges and the interest rate caps associated with each loan.

ARM Indexes

While you can’t dictate which index a lender uses, you can choose a loan and lender based on the index that will apply to the loan. Ask the lender how each index used has performed in the past. Your goal is to find an ARM that is linked to an index that has remained fairly stable over many years.

Among the most common indices are the rates on 1-year constant-maturity Treasury (CMT) securities, the Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR).   When you are comparing lenders, consider both the index and the margin being offered.

It is easy to track the historical average of any index you are being quoted, don’t just take the word of the loan officer.  Go to google.com, type in history average for xyz index and you will get all kinds of information.

Margin

Think of the margin as the lender’s markup. It is an interest rate that represents the lender’s cost of doing business plus the profit they will make on the loan. The margin is added to the index rate to determine your total interest rate. The margin stays the same during the life of your home loan.

Interest Rate Caps

Rate caps limit how much interest you can be charged. There are two types of interest rate caps associated with ARMs.  Periodic caps limit the amount your interest rate can increase from one adjustment period to the next.  Overall caps limit how much the interest rate can increase over the life of the loan. Overall caps have been required by law since 1987.

Okay now we have some context for what is an ARM and how they move, lets me answer the question we started with, “If my payments can go up, why should I take out an ARM?”

The initial interest rate for an ARM is lower than that of a fixed rate mortgage, where the interest rate remains the same during the life of the loan. A lower rate means lower payments, which your payment will be cheaper for the same amount financed; providing you with additional financial stability.

Let me asked a question that most of us do not slow down enough to think about, how long do you plan to own this house? Rate increases in the future whatever the possibility are not as much of a factor if you plan to sell the home within in the next few years.

Are there other lift changing events that may happen in the next few years? Do you expect your income to increase? If so, the extra funds might cover the higher payments that result from rate increases or you may decide to buy a different home.  As well there are additional questions you need to ask yourself and ask your lender to decide if it is a valid option for you or not.

The Bottom Line

Do not be afraid to explore all of your options, do not use an ARM to buy more house than you can afford.  That is exactly the wrong reason to take out this type of loan. This is what led to some of the financial troubles our country has been involved in.  Some Lenders and Realtors will give you that idea; it makes them more money the more you borrow.  Take the monthly payment savings and invest it or apply it as additional principal payments.  Use these programs to financially benefit yourself and your family.

Mortgage Bonds – Changing Interest Rates

The Federal Reserve recently said that it plans to continue purchasing large quantities of Mortgage Backed Securities to provide support to the mortgage and housing markets, and “it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant”.

The concern as always is that the media will spin these comments – telling consumers their own version of reality – something along the lines of this: “Good news, the Fed’s words on continuing their purchasing program mean that rates will continue to drop lower, and remain low into the Fall”…thereby creating another round of folks hitting the “snooze bar” on moving forward with a refinance or purchase, which looks to be a very costly strategy potentially for borrowers.

Let’s unpack two major reasons why…

First, many are waiting for 4.5%…but here’s a reason we shouldn’t look to the Fed to help make that happen with their purchasing program. Yes, the Fed has been buying Mortgage Bonds. But, those Fed purchases, are a lot of FNMA 30-yr, 5.5% and 5.0% coupons, which will not have much of a positive effect on present rates.  Only about 15% of the current purchases are in coupons at 4.5%.  What is currently impacting current rates is the movements in the stock market.  If the stock market is up rates will get worse and vice versa.

Note – there is a difference between the “coupon rate” and the interest you actually pays. When we are talking coupon rate, this is the rate that the end investor purchasing these Bonds receives. For example, a net 5.50% to the investor – or their coupon rate – has to start off as a significantly higher rate to the borrower. Why? Because the originating firm, the wholesaler, the agencies like Fannie or Freddie, and the securitizing firm on Wall Street all take a little piece. A mortgage rate of 6.125% to the borrower nets down to around a 5.50% coupon.

So with rates at present levels, many of the mortgages in these FNMA 5.5% pools being bought up by the Fed will be refinanced and paid, thus giving the Fed a quick recoup on some of their investment. This is likely a big reason why the Fed said they could continue this purchasing program beyond the current deadline if necessary. Bottom line, the Fed’s buying higher rate coupons will not necessarily get rates to 4.5%, but it should put a ceiling on how high rates can go during the near term.

Second, let’s address plain old fashioned greed.  Even though it may make sense for you to refinance right now, and save $250 per month for example, the greed factor kicks in as you fall in love with the dream of a 4.5% handle on your refinance rate…so you wait, and risk the savings of $250 per month in the hopes of gaining another $30 of savings per month.

Clearly, rates could turn higher, and this window of opportunity could pass you by entirely. But here’s the most important part: even if you are correct and are able to eventually grab that lower rate and save another $30 per month – think of what they have lost by waiting. While they delayed, you lost the savings you could have gained by taking action sooner – or in the example used, $250 – for every single month they waited. So even if they get the rate they are looking for, it could take years to make up what they lost by waiting.

Don’t be among the snoozing fools…take action right now.

Financial Tips for Couples

Financial Tips for Couples Who Need to Talk

 Tough economic times can cause a major strain on your marriage. And while we all know that communication is often the key to overcoming this challenge, discussing finances with a spouse can be extremely difficult for many people. With this in mind, here are some tips to at least get the conversation started.

 Get Out of the House – One of the worst times to discuss finances with your significant other is just after you’ve paid the bills. Let’s face it, there’s something about writing all of those checks that suddenly makes the reality of your monthly finances sink in. So, instead of approaching your spouse with statements in hand, try waiting a few hours. Think about what you want to say and how you want to say it. Then invite your partner for a walk or a cup of coffee at a local coffee house. The key here is a change of environment, a relaxed, neutral place where your partner won’t feel like he or she is being attacked.

 Give Your Partner Some Credit – If starting the conversation is hard for you, try opening with a story about your parents’ attitude and behavior towards money. This will provide an opportunity for your partner to do the same, opening the door for the discussion. Experts suggest starting off with an example of your own shortcomings and how you hope to change it. Also, offering a compliment of what he or she has been doing right is a great way to break the ice.

 Never Assume – Your goal here is to establish a common ground, to create and quantify a plan of action that will benefit you both, even a small goal that you both can work toward as a team. Because of this, you really can’t assume that your values and beliefs are absolutely correct and flawless. Be respectful and humble and listen to what your partner has to say. Most importantly, don’t blame.

 Bring in an Expert – Take the conversation to the next level. Once you’ve established a general plan, talking to a financial planner together can serve not only to ease the tension, but to solidify your common goals. Either way, keep talking, keep trying, and avoid bickering. Remember, no argument has ever decreased anyone’s monthly bills and keeping quiet has never increased anyone’s savings

Credit Score and Your Mortgage

Everyone knows that your credit score is important, but how much can it really effect your mortgage rate?  Of course it does. Not only does it impact your rate, but it also will affect the type of loan that you can get.

Right now, it only makes sense for most borrowers to go with a conventional loan when they are over 720 for their FICO score. You take quite a few hits on the rate you can get if you fall below 720. 740 or higher is even better and 760 or higher is better still.

If you fall below the 720 range, ask about an FHA loan. You can get by with much less equity, but you will have mortgage insurance premium upfront and monthly.

Medical Collections and Credit Score

Between uninsured Americans and the bureaucratic red tape of large healthcare companies and insurance providers, medical collections are becoming increasingly common in consumer credit reports. The problem is that a lot of consumers don’t pay them because they either don’t have the money or because they expect their employer or insurer to take care of the problem. Many people also believe that medical collections are overlooked or excluded from their credit and credit scores.

Unfortunately, medical collections are no different than other types of collections and can wreak havoc on your credit scores just as easily. The most frustrating thing with medical collections is that in most cases the consumer isn’t the cause, yet they end up paying the price.

One reason for the large misconception about medical collections is due to how some industries view them. While medical collections hurt credit scores just as badly as other collections, most industries don’t view medical collections as negatively as other collections. The mortgage industry in particular, frowns on unpaid collections but tends to overlook or turn a blind eye on unpaid medical collections. Even FHA guidelines aren’t overly concerned with medical collections when determining a consumer’s eligibility for a mortgage loan.

This begs the question, “Why do credit scoring models view medical collections the same way they view non-medical collections?” There are a couple of reasons:

• As long as the companies that build the credit scoring models continue to treat medical collections as normal collections, they’ll continue to hurt your scores. Unfortunately, the blame doesn’t lie solely on the credit scoring models — the credit reporting agencies are also part of the problem.
• Credit reporting agencies are just as guilty for the way medical collections are handled because they allow collection agencies to report the medical collections. If they are reported in your credit report, the credit scoring models will see these accounts and they will continue to damage your scores. The credit bureaus could implement a policy that would NOT allow medical collections to be reported if the collections were caused by insurance claim errors. But this would require the doctor’s office and the collector to prove that the collection was valid before it could be reported, which is exactly what the Fair Credit Reporting Act was intended to do. Sadly, this will never happen.
• If the credit scoring companies and the credit bureaus ever did change the negative impact of medical collections on credit scores, the collection agencies would hit the roof. Think about it, if medical collections didn’t hurt your score, what motivation would people have to pay them? The problem is that collection agencies represent a hefty client base for the bureaus and generate a pretty large revenue stream. If the credit bureaus ever decided to change how medical collections are reported or treated, you can bet that the collection agencies would throw their proverbial weight around.

So what does this mean to you and how can you keep this from happening?

This is a tough one because there’s really no easy answer. The best option would be to avoid medical collections if at all possible. This may mean paying for medical debts until your insurance company processes the claim and pays the bill. The problem with this solution is that not everyone has the funds to do so. Another option might be charging the services to a credit card but this too can cause problems because higher utilization on your credit cards can cause your credit scores to fall.

In this case there’s just not a simple solution. Until the credit industry makes changes to flaws in the system, consumers with medical collections caused by the incompetence of healthcare providers and insurance companies will continue to suffer from lower credit scores.

Mortgage Interest Rates 8-27-09

Mortgage Interest Rates 8-11-09

Todays mortgage interest rates without buydown points are as follows:

30 year fixed rate – Conventional: 5.25 – 5.375%

15 year fixed rate – Conventional: 4.625-4.75%

30 year FHA: 5.25-5.375%

15 year FHA: 4.625-4.75%

Click here to apply for a mortgage loan, and see what you qualify for.

Where Do Mortgage Rates Come From?

Most people think that the US government is in direct control of the mortgage interest rates. The fact of the matter is that the rates are still mostly based on the notion of competition, stock market activity, inflation, and more.

08.15.2009 6:37p
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