As a company, we find a variety of causes to get behind and help, from Habitat for Humanity to Spare Key. This year we made an extra push to collect some holiday gifts for those who don’t have the means on their own. Each of our offices piled up things for kids, dads, moms and families to help make their home just a little bit happier over the holidays!
The FHA Back to Work program allows home buyers to obtain financing if they had a bankruptcy, foreclosure or short sale at least 12 months ago. This timeline is shorter than the standard FHA guidelines of 24 months with extenuating circumstances or 36 months otherwise. The primary requirements for the FHA Back to Work program are that a 20% decrease in income led to the “economic event”, or bankrupcy, foreclosure or short sale. A divorce situation where the household income decreased as a result does not count. The other requirement is to have completed the Back to Work counseling at least 30 days prior to entering into a purchase agreement or submitting a formal loan application.
“As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income were unable to make their monthly mortgage payments and ultimately were forced to give up their home. Some borrowers were left with no choice but to file for bankruptcy or short sale their home due to the inability to afford the mortgage payment. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has also been negatively affected. FHA recognizes the hardships faced by these borrowers and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”
We can work with you to determine your ability to be approved and guide you to the counselors to become eligible for the program.
Do You Qualify?
FHA will consider you for eligibility if you had a financial hardship in the past but can now document the following circumstances about yourself:
- You can document the mortgage or credit problems resulted from a financial hardship
- You have re-established a responsible credit history
- You have completed HUD-approved housing counseling
- You meet FHA loan requirements
Fannie Mae/Freddie Mac requirements regarding past foreclosure
A seven-year waiting period is required, and is measured from the completion date of the foreclosure action as reported on the credit report or other foreclosure documents provided by the borrower.
Exceptions for Extenuating Circumstances:
A three-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the completion date of the foreclosure action. Additional requirements apply between three and seven years, which include:
- Maximum LTV, CLTV, or HCLTV ratios of the lesser of 90% or the maximum LTV, CLTV, or HCLTV ratios for the transaction per the Eligibility Matrix.
- The purchase of a principal residence is permitted.
Extenuating circumstances do not include divorce, only death or what I call “dismemberment” where extended hospitalization or serious medical issue arises.
Fannie/Freddie requirements regarding past deed-in-lieu transfers
These transaction types are completed as alternatives to foreclosure. A deed-in-lieu of foreclosure is a transaction in which the deed to the real property is transferred back to the servicer. A pre-foreclosure sale or short sale is the sale of a property in lieu of a foreclosure resulting in a payoff of less than the total amount owed, which was pre-approved by the servicer.
The following waiting period requirements apply:
- Two years, 20% down required.
- Four years, 10% down required.
- Seven years LTV ratios per the Eligibility Matrix
FHA requirements regarding past foreclosure:
- 3 years, except under extenuating circumstances. See above.
- 12 months is possible under the FHA “Back to work” program which is only applicable if the borrowers’ income decreased by 20% leading up to the foreclosure.
FHA requirements regarding past deed-in-lieu transfers:
Same as past foreclosure
The only other option to finance a new home with a foreclosure or deed-in-lieu sooner than these timelines is with private financing/contract for deed, which generally require a 20% or greater down payment and unfavorable terms.
The latest hurdle in getting mortgage approval is to have all disputes on credit removed. Since a tradeline (account) dispute removes that account history from the credit scoring models, the investors have become wise to inaccurate credit scores due to disputes. Often times when a dispute is removed a credit score will go down (especially if the tradeline has a negative history, excessive balance or is recently opened). You will want to have all the disputes on your credit report removed prior to submitting a mortgage application. First, review your credit information by visiting www.annualcreditreport.com and retrieving your free reports (note – it will not give you scores for free and you can only access the information once per year, so make it count!).
Through annualcreditreport.com you can remove disputes, or you can also call the bureaus direct here:
It has a machine greeting buy just stay on the line and you are transferred to a live person, tell them you need to speak with someone in the Special Handling Department.
Tell the representative “I need to dispute the compliance condition remarks code of “AID” (Account In Dispute) because I am no longer disputing the account”. The representative was able to take care of this over the phone and will issue a email conformation within 72 hours.
Alternatve Transunion: 800-916-8800
Answered by a representative, tell them you need to speak with someone in the Executive Customer Service department. Tell them the same phrase above. I received email conformation within 24 hours that it was removed.
Alternate Equifax: 800-203-7843
You need to access your credit report from annualcreditreport.com first. You will need to 10 digit number on top of your credit report. Speak with someone in the National Customer Service Center. Tell them you want the dispute removed. They will issue a email response within 48 hours
Alternate Experian: 714-830-7000 press “3” and ask for customer service
Don’t make any selections from the automated system and just hold for a representative. Ask for “consumer affairs” and explain they you have a loan pending and you need all disputes removed. Once they indicate they will remove the disputes, ask when it will be updated for your lender to request a new report.
Additional resources if any of the above do not yield results:
- Call 714-830-7000
- Press 0 to talk to a representative.
- They will require the last 4 digits of your social security number and other identifying information.
- You will also need a 10 digit Experian report number. Advanced Credit Solutions
- Clients can contact us for this number. Other clients can get this number from a free Experian credit report from www.annualcreditreport.com
- Call 800-916-8800
- Press 3 to talk to a representative.
- They will require the last 4 digits of your social security number and other identifying information.
- Call 800-846-5279
- This number is a direct line to a live operator
- They will require the last 4 digits of your social security number and other identifying information.
Remember when we could close loans without a paystub, bank statement or even a completed appraisal report? Mortgage companies were filled with twenty-something go-getters, resembling something off the stock exchange floor; anyone that could dial a phone could be hired to originate loans. Thankfully, those days came to a blissful end years ago. It seems that the after effects of the damage done by that period are slowly dissolving into history and what has emerged is a different looking industry.
Consider all the changes that have affected our industry during the past five years. Dodd-Frank, the CFPB, ATR, QM, NMLS licensing, and compensation requirements are just the beginning. We could spend hours discussing all of the challenges during this period, but why dwell on the past? Where would we be if not for the burst of the bubble? Right back where we were six years ago, continuing down a path of an inevitable, even greater, self-destruction. Mom always said “everything happens for a reason.”
The mortgage headlines this last summer were of huge layoffs and multi-million dollar lawsuits from Uncle Sam: retribution for wrongdoing the country. Tens of thousands of mortgage industry participants no longer had a place in our business, the mortgage shop down the street either closed its doors, or was issued a cease and desist, and the decade-long refi boom abruptly dissipated. We were routed, a thorough “cleaning out” if you will, shaved down to the bones, and leveled to a pile of rubble. The machine was degreased, point made.
So, where does that leave us?
With a great opportunity – to rebuild, retool, and regroup, but to do it the right way by learning from our past transgressions. It’s a chance for us to look out at the horizon and see a sense of pride in our industry. It’s a chance to go back to our roots and consider the role we as Mortgage Professionals play in growing our society.
We hold an amazing responsibility in each of our communities providing what is now a growing central role in helping people achieve the dream of homeownership. We can all feel the effects of the changes above in regards to how our marketplace looks to us for assistance. Gone are the days of the professional Mortgage Loan Officer being a commodity. We are now specialists, experts in our field, and becoming increasingly relied upon by the real estate industry, home buyers and the general public to provide expertise. Let us not leave this opportunity by the wayside as we forge ahead, but remember our core responsibility as key holders of the American Dream.
The future of our industry is dependent upon the people that lead it and those who govern it, both from within and externally. Our industry’s horizon will be shaped by our perseverance and desire to build something that others can admire and respect. With a little luck it might become one of interest to highly competent newcomers that will continue to shape our industry. Our ability to attract and retain high quality, ethical, and motivated people seems to be diminishing due to the lack of perceived opportunities our industry provides.
Ask any educated, finance-focused, successful-to-be college graduate what their top 20 industries of choice are and you will not hear the mortgage industry. Graduates talk about corporate finance or financial consulting in the health care, energy, construction, communications, agriculture, banking and government sectors.
To outsiders, the mortgage industry seems to present too many barriers to entry, and aspect to which we as an industry should pay close attention. Some might say: why hire new people when there’s barely enough business to go around as it is? The simple reason is this: a service industry like ours that fails to attract high-quality talent is destined for a horizon of disappointment when we are once again represented by the boiler room call centers instead of the highly sought-after professionals that we have worked so hard to be.
Consider the requirements for entry into our business. Twenty hours of education, pass two tests and a background check and you’re in – well, almost. Next you need to find someone to train you, be willing to wait for a paycheck somewhere above minimum wage for two to three months, and manage the pressure of being told to either find business on your own or you’re out. Layer on top of that what our true role is: to help people with the most significant financial decision of their lives.
What qualifies a person to be in that role? And at what point do the barriers become too great, and yet stay high enough to keep our horizon looking the way we want it? Our industry has to maintain a fine balance to preserve the new requirements and yet still offer the realistic opportunity for newcomers to succeed.
So how do we as an industry attract new talent that is willing to overlook the challenges our industry presents and see the same horizon of opportunity? The age-old model of apprenticeships comes to mind. Take blacksmiths from the Renaissance period, for example. They taught their apprentices to craft fine horseshoes, which required a great deal of experience and understanding of how to work with the various elements, much like our industry. Using the wrong metal (selecting the wrong loan program) and you’re bound to have a bum horse. Overworking the elements (applying too much pressure to your support staff and rushing closings) and the shoe is likely to break. Spilling the molten metal on your boot (violating RESPA) will stop you from doing your work in a hurry. What a highly skilled blacksmith was back in those days is much like what a highly skilled Mortgage Loan Officer is today. We spend years learning our trade and constantly perfecting it while overcoming challenges and occasionally getting burned a little.
Perhaps the best way to learn our business is to observe it first-hand from the true professionals that remain in our industry today. We can take this opportunity to show newcomers all the wonderful opportunities our business offers, show them how to be successful and how to do the job the right way. Most of all – we can show them the difference they can make in peoples’ lives for the better, all the while building a career for themselves they wouldn’t have had working in some corporate finance job.
Steve Furlong, MBA
MN Mortgage Loan Originator, NMLS 275939
Home builders have had a tough go the last 5 years. Part of the issue now is finding the labor source to do the construction. Many small home builders tell us that their laborers are all in North Dakota working on the oil pipeline. The other difficulty is in available land for development. You would think that we have plenty of places to build new houses, but consider the infrastructure needed for a new housing development in the suburbs. It takes time and resources to create a space for a home to be built, and up until 18 months ago we had very little demand for new homes.
Most of the new construction you might be seeing around the Minneapolis/St. Paul urban areas is well in excess of $300,000 as available land is scarce inside the 494/694 loop, and the costs of removing the previous structure drive the final price up. Demand in this market is also strong, which pushes prices up as well.
If you are looking for an affordable new construction home, are you willing to expand your geographic area beyond the metro? Many new construction homes closer to $200,000 are available if geographic areas further from downtown Minneapolis/St. Paul are an option.
We are nearly a month into the Consumer Finance Protection Bureau’s (CFPB) rules for Qualified Mortgage (QM). I found a helpful guide to the new rules here: CFPB Whitepaper on ATR and QM. So far, the primary issues we are working through deal with upfront private mortgage insurance. This is required for conventional loans greater than 80% loan to value, or loans with less than a 20% down payment. Part of the QM rule says that all origination charges, including mortgage insurance, must be less than 3% of the loan amount for loans greater than $100,000. The confusion is in regards to refundable versus non-refundable mortgage insurance. The CFPB indicates that refundable doesn’t count unless it exceeds the FHA upfront amount of 1.75%. Many of our investors are requiring that we count the upfront mortgage insurance whether or not it is refundable. Before giving an example of how this can affect a home buyer, let’s review the benefit of upfront mortgage insurance.
For example, a $200,000 loan amount on a purchase price of $210,526 (5% down payment) would require mortgage insurance. On conventional loans, 5 options exist for this mortgage insurance: The buyer can pay it monthly, part monthly and part upfront, all upfront, the lender can pay it (by building it into the interest rate), or the seller can pay it through seller’s contribution (the seller isn’t actually paying it, rather it is built into the purchase price and financed). The cheapest option over time of these 5 is buyer paid upfront. Here’s why: the lowest upfront single premium amount is 1.7% of the loan amount. The cheapest monthly premium is .56% annually. Since PMI is required for 5 years, that means the annual cost x 5 is over 2.5%. So, by paying the MI upfront you recoup your money in a little over 3 years, never have to pay the monthly mortgage insurance as long as you have the loan, and don’t have to worry about getting the PMI cancelled.
Why this is important: if the 1.7% counts into the 3% maximum fees calculation, and the lender charges the customary 1% origination fee (I know some lenders advertise no origination fees – they are simply building it into the rate instead), and the underwriting and processing costs exceed .3% (which they generally would or be close to exceeding that), then the total fees would exceed 3% and the buyer would not get the advantage of having the option of doing one-time, upfront mortgage insurance. It also makes no difference if the lender or seller pay this, it still has to be counted into the 3%. Our solution to this is to move to a split premium (buyer paid part monthly, part upfront), or remove the origination fee. The mortgage and mortgage insurance industries also continue to press the CFPB for clear definition on excluding the refundable upfront premium from the calculation.
The other noticeable change has been in underwriting. Thus far, the underwriters have indicated that they will examine income documentation under a modified lens, or in other words some people that would have qualified before will no longer. The best answer for a home buyer: contact our team to review your scenario. We explore every option available to find the best solution for you and do the underwriting upfront (no pun intended!) to eliminate surprises.
For business owners, many benefits exist to owning a home near your principal business location. In addition to all the standard benefits of home ownership, business owners can help offset commercial and industrial tax levies by strengthening the residential tax base of a municipality.
When a home is sold it generally carries positive economic value (improvements are generally made by new owners, the supply of homes is decreased). Home ownership has a compounding positive economic effect on a community by improving schools, improving community safety, and providing an additional support base for community services (fire, public safety, etc.). As residential values increase, the share of tax levy burden is shifted away from commercial and industrial to the residential base.
Add in shorter commuting and now not only do you reduce the fuel and maintenance expenses for your vehicle, but you lower your carbon footprint and thus improve the environmental quality of the general area. Expand upon this for your employees by providing incentives to live near your workplace, and now you provide additional strength to the residential base.
Mortgages Unlimited, Inc – Furlong Team can show you ways in which we can partner to offer home ownership solutions for you and your employees to create a win-win for your business, your municipality, and our region.
During the weekend of November 16, 2013, Fannie Mae will implement Desktop Underwriter® (DU®) Version 9.1, which will include the key changes described below:
- The maximum debt to income ratio (DTI) for most programs will be 45%. The maximum loan to value will be reduced to 95% (or 5% down required for conventional financing going forward). Those clients who had a deed-in-lieu or pre-foreclosure sale that haven’t been approvable in the past may now be eligible for new conventional financing.
- The Furlong Team will accept new clients and purchase agreements under the 3% down program until November 15th.
- The Maximum Allowable Debt-to-Income Ratio and Minimum Credit Score Requirements sections below have been combined. DU will not apply additional requirements of a maximum debt-to-income ratio (DTI) of 45%.
- The LTV/CLTV/HCLTV Ratio Cap Lowered to 95% section below has been updated to include information on the timeframes in which mortgage loans exceeding the maximum LTV/CLTV/HCLTV ratio of 95%.
- DU will continue to allow CLTV ratios of 105% when the subordinate financing is a Community Seconds® mortgage.
- Identifying a Deed-in-Lieu of Foreclosure or Pre-foreclosure Sale can now be done manually, where DU was unable to read the credit report accurately before. This may help these clients gain approval.
Read the complete Fannie Mae DU release notes here.
Upcoming Changes to the Qualified Mortgage Rule
The primary impact home buyers and home owners will see from the Qualified Mortgage (QM) rule is the ability to repay provision. Here in Minnesota, we have been ahead of the national curve due to changes made to state law in 2007 and 2008. Mortgage originators have been required to document a borrower’s ability to repay a mortgage by comparing their income documentation and outstanding liabilities from the credit report and total housing expenses. However, the specific definition of “ability to repay” wasn’t provided, other than to say “reasonable.” The standards will become more strict.
Read the state law here.
Ability to Pay and DTI
The new ability to repay federal law comes with a definition stating that a borrower does not have the ability to repay a loan if their total debt to income ratio (DTI) exceeds 43%. Today, we can get loans approved with a much higher DTI, which for some borrowers does make sense and they do have a “reasonable” ability to repay the mortgage.
However, the primary impact of the new rule will limit everyone to the same DTI regardless of “reasonable” or not. Critics of “reasonable” will state that no one should have a DTI over 43% as that is too high, but they fail to consider a wide array of circumstances where the DTI is not a valid test of ability to repay.
Here are a few examples: self-employed persons, commissioned employees with less than a 2-year history of commission, non-borrowing spouses, roommates that pay rent, part-time employees, and other situations where a “compensating factor” applies but the total income picture cannot be used to qualify the borrower. When reviewing these scenarios under the “reasonable” microscope, it sometimes makes sense to approve a loan with a higher DTI, knowing that they strong ability to repay regardless of the ratio.
The current Consumer Finance Protection Bureau (CFPB as created by Dodd-Frank 2010) rule allows for a “temporary” exception to the 43% DTI rule when the loan is eligible for sale or guaranteed by either Fannie Mae or Freddie Mac. It doesn’t say how long this temporary exception applies, and most FNMA/FHLMC approvals are currently limited to 45% anyway (except HARP refinances and other applications with very strong qualifying criteria).
Read the complete QM Rule here.
Mortgage loan officers will adhere to the Qualified Mortgage rule as it gives us “safe harbor” from future liability if the loan fails to perform (or the borrower defaults, depending on how you look at it). No loan officer will want to be sued because their client could not or did not pay their mortgage payment.