mortgage


Remember back in 2005 when anyone with a pulse could get a home loan?  Well obviously, that didn’t work very well, but the qualification paranoia we see today may be equally destructive to the housing market.

I spoke with a client the other day who was grumbling about not being able to get a line of credit.  Mind you, this gentleman used to run a bank, owns 20 rental properties, his own home is valued at $1.5 million, and he owes less than $200,000 on all 21 properties combined.  And let’s add to that the $1 million plus cash in the bank.  He applied to an investment firm (which shall remain nameless) for a $200,000  line of credit in case he finds a great real estate investment opportunity.   After 3 months of supplying documentation several times over, (seems it kept getting lost), his application was denied because they couldn’t understand that he had moved a small amount of money out of an IRA for tax reasons!

So this is a man with exceptional assets, and he can’t get a loan…what about the rest of the population?  According to an article in SmartMoney it’s getting more and more difficult to qualify for a mortgage and even the smallest negative detail can either cost you an approval or thousands of dollars over the life of your loan.  A score of 720 is the ticket these days for a conventional loan with the best rates….that is up 40 points since the housing collapse.  Ed Mierzwinski of the U.S, Public Interest Research Group says that “Credit scores are a blunt tool being abused by creditors as if they were a sharp instrument.”

Ouch.  We feel the pain.  As a Realtor in this market with so many opportunities for buyers, it is extremely frustrating to see how difficult it is for home buyers to get a loan.  Granted, the credit requirements for an FHA loan aren’t quite as stringent, but the increased level of documentation is staggering.  A recent buyer of mine left me a message that was one long scream….she said she just had to vent after being asked by her FHA lender to supply a paper trail for the money her 90 year-old mother in Eastern Europe sent to her as a gift.  She sighed and said she was just waiting for the call requesting a blood sample.

So what can you do to improve your chances of getting a loan in this market?  

  • If you’re self-employed, plan ahead.  Banks will primarily look at your last two years tax returns, so your qualifying income is based on your tax returns.  Amounts on your returns should match financial statements and bank statements.
  • If you have any skeletons in the closet, deal with them before applying.  This might include things such as an unresolved judgment or child support payment issues.
  • Be prepared to explain ANY credit inquiries for the last two years.
  • Try to avoid any late payments for a full year prior to applying.
  • Maintain balances on revolving credit below 30% of your limit.
  • Don’t apply for new credit, and don’t close accounts.  Use zero balance credit cards now and then, but pay them off right away.
  • Don’t transfer money from retirement accounts.

And finally, stay calm and realize that over the next year as the number of people with less than perfect credit increases and the market continues to stabilize, it is expected that the banks will gradually release their stranglehold on qualification standards.  But be prepared, that call for the DNA test just might be next on the list.

For the first time in over 6 weeks interest rates for 15 and 30-year fixed mortgages rose…not much mind you, but they did increase.  15 year rates rose from an average of 3.62 to 3.74 percent, and the 30 year rate increased from an average of 4.21 to 4.34 percent.

According to the Mortgage Bankers Association we also saw a sharp drop in the number of applications submitted for the week ending October 15th, down by 10.5 percent from the previous week.  Refinance applications were down 11.2 percent and applications for home purchases were down 6.7 percent.

Now I’m no economics wiz, but even I can tell you that this is not good.  The MBA attributed the drop in applications to the slightly higher rates, but more importantly to public apprehension and confusion surrounding the mismanagement of foreclosure paper work by some banks and servicers.  So at a time when we have an increased number of foreclosures and short sales hitting the market, we have potential buyers of distressed properties pushing back, fearful that there could be issues in the transaction that would give them less than clear title.  And, oh yeah, let’s throw in a rate increase.

So once again, it appears that the banks are doing nothing to get us out of the mess they created….but of course, it’s not all bad for most of them.  Wells Fargo turned a profit of $3.35 billion for Q3, up from $3.24 billion a year ago.  I’m sure that warms the hearts of everyone who lost their home last quarter.

We all know the old adage, “If it sounds too good to be true, it probably is.”  Well, anyone facing foreclosure or considering a short sale should keep that in mind as there is a new breed of scam artist on the street.

Short sale scams are perpetrated at many different points in the process and can involve, knowingly or unknowingly, the homeowner, the real estate agent, the negotiator or other third party, and/or the buyer; basically anyone who is a party to the transaction. A few types of scams include fraudulent short-sale flips, negotiator scams, bogus short-sale packages, improper payments and upfront fees.

Let’s start with upfront fees, as that is the first scam that an underwater homeowner is likely to face.   To the person unable to pay their mortgage, possibly facing foreclosure, a fast solution is exactly what they are looking for.  The scammer often poses as a negotiator or real estate agent who guarantees a short sale approval in as little as two weeks.  To reinforce credibility of the claim, the scammer might say that they are related to someone on the inside, such as a bank vice president or negotiator…..some sort of relationship that gives them an insider’s advantage.  The scammer then asks for an upfront fee which could range from $1000 to $5000, and he/she might even ask for the required documentation such as pay stubs and bank statements.  At this point, the scammer has the money and proceeds to do little or nothing to work with the bank.  Two weeks later he tells the homeowner that he is sorry, but the bank will not approve the short sale.  The scam might vary, but the basic idea is that the scammer does nothing, and the home owner is not only out the money, but has lost precious time. 

Here are a few ways homeowners can protect themselves from upfront fee scams and make sure they are hiring someone who can help versus hurt their situation: 

  • Check the credentials of the individual or company that would provide the service.  If they are licensed, such as a real estate agent, check the status of their license with the department of real estate, www.dre.ca.gov
  • Ask for references, and follow through by carefully checking them.
  • Thoroughly read all documents before signing anything.  Make sure you understand everything and do not sign anything with spaces left blank, especially if told they are inconsequential.
  • Get as much information as possible and consult other professionals, family and friends before making a decision.
  • Refuse to pay any upfront fee or provide credit card information.

Check back and we’ll look as some additional red flags for short sale scams.

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