Club Chaos Agents - All Things Hollish, Wacked, and Jacked

 

There has been a lot of talk about QRM, 20 percent down, and much more. For the purpose of this post, let's forget about QRM, politics, what types of mortgages this will affect, and just keep this simple. More skin in the game for borrowers is the issue. Yes or No.

I have been wanting to talk about this for a few months, but I was inspired after reading this post by Bryan Robertson. ~ Why is NAR fighting the 20% rule in QRM? ~ Regarding Bryan's post, the one thing I do agree with is that home ownership is not a right, but a privilege. And that some lending guidelines were too loose.

I am wondering if we can agree on two things. Can we all say that the economy is not as good as it once was prior to 2006? And can we say that the economy is dependent on the real estate market by over 20 percent?

Three of the biggest arguments that have been floating around regarding the mortgage mess and our economy.....

1.)  The lenders were too greedy with some of their mortgage programs, such as 100 percent no doc and stated doc loans.

2.)  Little skin in the game caused the mortgage meltdown.

3.)  Loss of jobs, loss of income.

 

 

 

One main issue that bothers me profusely, the reasons why people choose to walk away from their homes, because they were upside down on their homes, upside down on their mortgages. And so many state the main reason for this was because they should have put more down as a down payment, because home values dropped. Here is a comment that just scares me...

"The more skin in the game, the more likely one will fight extra hard to protect their investment. There's no two ways around it."

Then please explain the hundreds of thousands of strategic defaults that have plagued the foreclosure numbers. I have spoken to a dozen or so myself that had no problem financially in paying their mortgage payments and other debts. But just because they were upside down on their home, they walked away. Can I ask one simple question? Why? What was the main reason for buying that home in the first place? This will be another blog post topic in a few days.

Read : More than 28% of homeowners are underwater

 

You want shocking input?? Kenneth R. Harney wrote Who's most likely to walk away from their

 

 

 

~ Pros of 20 percent down or more ~

• Security - More skin in the game makes for a better buyer, homeowner. Me? False hope that it will keep more people in their homes, that they are better buyers. 

Quick Rebuttal - Define better buyer. FHA has been around since 1934, allowing for 2% to 3% down payments. You also have VA loans and USDA loans that allow for 100 percent financing. All three of these types of mortgages have been performing well up until 2006, when the whole mortgage meltdown began. One can say that subprime loans had a lot to do with this. Loan officers putting borrowers into loans with higher rates or worse subprime program types, just because it was easier than a FHA loan, making it easier for the loan officer, but worse for the borrower. Sorry people, but this is a fact that I have witnessed first hand and even asked certain loan officers during that borrowers mortgage process.

 

~ Cons of 20 percent down or more ~

• Stripping away Cash, Savings, Reserves - If I had a choice of putting down 3.5 percent or 5 percent over 20 percent, I would do the lesser. Why? Unless I had a million dollars in the bank, it allows me to have access to more cash on hand for emergencies. And I have shown in prior blog posts, the differences with 5% down compared to 20% down. Besides, your house is no longer an ATM. It's much harder to get cash out once you put it down.
  

Quick Rebuttal - The buyer would just have to save more to have cash left over, having reserves.

Negative Impact of more down - The borrower might have nothing left over for emergencies such as a loss of job, a death in the family, or even to fix important issues regarding the house.

• Economy gets even worse - Would more jobs be lost if the housing economy dried up? In my opinion, 110% yes. Anything from new construction, to remodeling homes, to home repair stores, and those that make such materials for everything just mentioned. Kind of like the food chain.

Quick Rebuttal - I honestly can't think of one, can you?

 

 

 

How long do you think it would take for someone in today's economy to save 10 percent, or even 20 percent. Here are some figures compiled by specific groups and independent companies. See chart :

 

 

Let's see, it could take the average person 9 years just to save 10 percent down. What so many fail to realize, that we are talking about the average person. There are so many different factors that play into the role of saving money. 

• Does a family only have one household income? How many in that household?
  

• The cost of living is higher than it has been in recent years and decades. Just look at the food prices and or gas prices, which in many cases, out-weigh what one makes on a monthly basis.

• Unknown debts that the average person does not always have, such as student loans, taking care of their parents, medical issues, etc, etc.
  

 

I have heard and seen most of it regarding these reasons in my 18 years in the mortgage business. It's been stated by several groups and those doing surveys and studies, that "High down payment and equity requirements will not have meaningful impact on default rates."  

Let's look at a $250,000 purchase price. If I put 5% down, my mortgage would be $237,500 and if I put 20% down, my mortgage would be $200,000. Do you know what the difference in mortgage payment would be? $201.00 a month. Yes, there will be mortgage insurance, depending on the type of loan program. Mortgage Insurance can be a confusing topic and can also be written off for now. Read : Mortgage Insurance

But let's say your mortgage insurance is an extra $180 a month. If you out 20% down, your total savings is $381.00 a month. But wait, that is an extra $37,500 out of pocket. Ouch... That is about 8 years of saved monies. As you can see, buying a home takes careful planning and consideration. When is it a good time to buy a home?

 

 

 

 

We need to compare Apples to Apples - People keep comparing today to the 1970's and 1980's when their parents were able to save and put 20 percent down. Many say that it was just as hard back then as it is now to save. I disagree because of several different factors.

By forcing higher down payments, would this not penalize the responsible borrower? Which would make home ownership more expensive or out of reach to millions?

In my opinion, I consider Cash is king and a necessity to survive in today's economy. Since many are screaming about at least making it 10 percent down, here is an example of 3.5% down vs 10% down.

What are your thoughts and opinions? For those reading this, even though I am strongly against making more down a requirement, I still always try to respectfully dissect both sides with pertinent information so I can make a sound decision.

Adam Cohn wrote this post (I love stats and facts - research):

QRM would have cut out 39% of homebuyers in 2010: CoreLogic

 

 

Understand the facts before screaming for such ludicrous changes that could kill the housing market. I do believe in tweaking some of the mortgage guidelines. Such as :

• Stronger debt ratios

• Required reserves

 

Here are some scary facts and not just opinions.

Understand the types of people that would truly walk away from their homes.

 

Maybe the economy would rebound better if the mortgage servicers improved. Recovery depends on mortgage servicers?

Maybe higher escrows withheld on jumbo loans? Fed rules on jumbo escrow requirements

 

Call to Action - If you believe in my thought process, print or e-mail this and send it to your Congress person, to other realtors, agencies....

 

One of my calls to action that I wrote about in June of 2009 :

Call to Action - We must fix the real estate market ourselves !!!

 

 

Jeff's cliff notes (remember those?  In my opinion, here are 3 excellent comments out of the 240 + from Bryan Robertson's post mentioned above. Keeping in mind that I have only read about 60 of the comments and not in any order)

Karen Hunt - comment # 167 - Unemployment, tax structure, and lax banking guidelines.

Brian Hoffman - comment # 169 - If forced to put 20% down only, economy would crash.

Dave Jerierski - comment #203 - 20% doesn't guarantee loan payments.

 

 

I wrote about tougher guidelines about a week ago.

Realtors can't sell!!! - Because of Tight Mortgage Guidelines?

Are mortgage guidelines actually tougher? I don't really think so. I think it begins with the loan officer properly educating both the consumer and realtor, and setting expectations to a certain level before one sets out to buy a home. How many of the loans that didn't closed in the last 12 months were probably do to loan officer errors not understanding credit, credit scores, or their lending guidelines.... and not just because the person didn't qualify, which should have been mentioned previous to the agreement of sale.

 

"Fight or argue with facts and not just your heart on your sleeve."

 

 

It's bad enough that some loan officers, aka MLO (mortgage loan originator), make less than what they should on a borrower for several reasons.

Examples :

1.) If I spend countless days and hours helping someone work on their credit instead of them going to a credit repair person that could charge from $500 to $1,000. And just by helping them, this is already included in my total pricing, and is just another part of my service to my borrower's.

2.) Or if some issues come up to where the borrower doesn't have some of the money for closing now and or has to pay off something, I will dip into my profit margin to make the deal work.

Where am I going with all of this? It's about the big guy, aka the government, pushing out the small guy who wants to help out the consumer. Can we say conspiracy, that the big banks might have a hand in this? Possibly, but that is not my argument here.

 

 

Janet Guilbault wrote this excellent post :

You, Me, and the YSP: Dirty Rotten Kickback or A Borrower's Best Friend?

This post couldn't be more spot on and you need to read her post before you continue on with mine, to get the best understanding of what I am about to talk about. In the cliff notes version, Janet talks about the Dodd-Frank act that will abolish YSP, which is yield spread premium. Truly understand what YSP is and what it can be used for, before you state that it's just another way for lenders and or loan officers to make more money. From wikipedia - Yield Spred Premium

 

Janet mentioned a few things on how taking away the YSP could hurt the consumer. The biggest ingredient/issue? More cash required to close for the borrower. My other complaint is that it could hurt those buying properties of $100,000 or less or those that are strapped for closing costs to begin with. Before I continue, I don't want the debate about people needing more money to buy or more skin in the game. I have written about this and that is another subject.. so thanks

 

Let's break down a few scenarios.... Scenario #1, the total profit margin is $4,500, for both the company and the loan officer combined. Scenario #2 is $4,400. In both scenarios, I am not including the cash needed for the down payment. Assume that the down payment is already covered.

 

Scenario #1

So as we can see, you have $500 left over. Sorry, but I am a firm believer that cash is king and that you should have a few months reserves, if not, more. So what does having $500 do for you when buying a new home? I wrote this series comparing different down payments, mortgage programs, and how to utilize your cash.

• FHA Loans vs Conventional Loans – Comparing 10 percent down – Part 1 of 2 – Rumor Mill

• FHA Loans vs Conventional Loans – Comparing 10 & 5 percent down – Part 2 of 2 – Cash is King

 

 

Scenario #2

In this scenario, the borrower is now going to be short $1,400. I am not talking about getting seller help or gift funds, etc, etc. Each borrower is different and each seller is different. KISS <Keep it simple stupid?>

 

Key points : It's hard enough to save for a lot of cash. And even if you save a lot of cash, why should you be forced to put it all into the purchase of a new home. I truly believe that less skin in the game is better, just so you can have more reserves for emergencies.  PS : to those that scream more skin in the game. FHA loans and VA loans were doing pretty well until the last 3 years. Gee, not only are people foreclosing on FHA and VA loans, but those that did put 10% to 20% down on conventional loans. Just think about this before you scream "more skin in the game needed."  Think about unemployment, job losses, divorcees, and deaths in the family; that could be some of the major causes for the high foreclosure rates.

 

Conclusion : What about the fact that many buyers could be affected by this new act. What about the MLO, mortgage loan originator, who wouldn't take the time on someone buying a $100,000 or $80,000 house because the profit margin will be reduced. What about those deals that take a lot of work, a lot of elbow grease, but that I might not make more than $1,000. To some, $1,000 might seem like a lot of money per deal. But not if you know what goes into many of these deals. And what does that say for my expertise and knowledge? How much is that worth? Would a doctor or lawyer spend years of extended education and higher expenses, just to make little to nothing when it's all said and done? What about athletes? Don't they have a rare talent and get paid for it? (don't get me started, I think some salaries are just ridiculous - just trying to make a point)

What does it do when you have a loan officer that gets in over their head, realizing that it will be a lot of work to close that deal, but now drops the ball and the deal doesn't close now. People, it happens now. Wait until this new act goes into effect.

 

 

It's never to late to let those on Capital Hill know what this could do to the real estate market and industry. Let's get Janet's post and my post out to the public, to our congressmen and women, and get more people involved.

 

You, Me, and the YSP: Dirty Rotten Kickback or A Borrower's Best Friend?  By : Janet Guilbault

 

Examples of eliminating Yield Spread Premium - Thanks to the Dodd-Frank Act     By : Jeff belonger

 

 

There seems to be a lot of talk about taking away the Mortgage Interest Deduction as a tax break. Common sense thinking would have most angered at this proposal.

Anyone know the history of Hamburger Hill? In comparison, from the outside looking in, one would think that Hamburger Hill was a waste of time, money, and lives. (but there was an actual reason for this battle) The same could be said by eliminating the Mortgage Interest Deduction, but that it would just be lost monies. Knowing that every dollar is valuable, our common sense instincts tell us that this is absurd, that the government is at it again, destroying our real estate market and our economy.

Au contraire, mon frère.. I beg to differ. For those that read me, you know that I like to dig deep and find meaning, showing all the pros and cons.

 

 

 

Cons - I like to start with this first

• Can't write off your interest on your taxes

• It could lower home values (in my opinion, this is a weak argument) - this would be for more expensive homes
  

• The Mortgage Interest Deduction (MID) costs the Treasury as much as 130 billion per year in lost tax revenue

• Misleading claims that home ownership rates would decline
  

• And the #1 con : that it would not be a very popular common sense decision amongst the public.

 

Pros - hold onto your seats

• #1 - It will allow us to reduce our national deficit - raising ton of revenue. But more at the bottom.
  

• It won't affect the majority of the tax payers
  

• You need to understand the tax code, which I will give examples below.

 

 

Looking at this closer -

When we do our taxes, we have 2 choices -

1.) We can itemize deductions - adding up mortgage interest, property taxes, medical expenses, charity, work related, etc, etc

2.) We can use the standard deduction of $5,700 for single return, $11,400 for joint return, and $8,350 for a head of household.

From my research, the deduction only benefits 1/3 of those who itemize their tax returns. Scott Burns gets into more details here : Possible demise of mortgage interest deduction may not be so bad. Scott talks about geography and itemizing. He also gives examples of the tax code. This is a good read.

We just need to study the facts, the implications, and not just assume.

 

 

 

Summary : I know some out there have argue, I want my money now. I want to throw some food for thought out there. What about those of you who have children or grandchildren. Our national debt should be of some concern, now and in the future, both near and far. Maybe I don't believe 100% in doing away with the mortgage interest deduction, but reducing some aspects. Possibly instituting a better tax system that would not discriminate. Some have mentioned the flat tax. The percent would be a number that would give about the same tax payment for a middle class family at the current rates with deductions.

Lastly, in regards to my first Pro above.... There are two issues and they are vastly different. The fiscal deficit is the government spending more than it takes in. The debt is the amount the gov't owes because of deficits. The debt is the issue, not the deficit. If we reduce the deficit, we still increase the debt. We must reduce the debt and the only way to do that is not to have the yearly deficit. We must spend less than we take in.

 

My opinion : I do truly believe that taking this away will not destroy the housing market. Most people when buying don't focus on the tax write off, even though it's implanted into many heads, especially from parents and such. One needs to fully understand the pros and cons, hence why I wanted to write about this. Here are a few good articles to help better understand this topic of killing of the mortgage interest deduction.

 

• Should mortgage interest deduction be eliminated? - I found this article very informational. Please read the 3 people that said no, that were against this. hhhmmm  I found their answers to be generic. Some saying that it wouldn't be a popular decision and one stating that it might be a good idea from an economic efficiency point of view, but many would not find it popular based on political reasons. LOL.. sorry, but the those that voted yes gave actual good reasons why it would be good to get rid of the MID.

 

• Two huge misconceptions about killing the mortgage interest deduction by Morgan Housel - Another very interesting article showing facts and good opinions over misleading thoughts.
  

 

• Who does the mortgage interest deduction benefit?  by Ezra Klein - Excellent article because he displays graphs showing who this would affect.
  

 

 

I was inspired to write about this was after reading this article, Lose the mortgage interest deduction, improve the real estate market?, by David Karp and many of the comments that didn't seem to fully understand this. Please read the comment by : John Mulkey.

 

 

UPDATE as of : 12/11/10 6 pm ~   Brian Brady made this comment on my facebook status when I posted this : 

 

Another true con in which I didn't state, because I would have added more to the post. But Brian summed it up very nicely in my opinion.

 

 

 

DISCLAIMER - I am not a CPA, tax accountant, or an expert in this field. This is just merely my opinion, but also based on some researching that I found very interesting.  Never say no until you know all the facts. Sometimes our common sense can do us wrong.

 

 *** My next article, about Ben Bernanke's interview on 60 minutes last week - My thoughts and opinions about our economy - Completed - Put Economy on "Black" for all the marbles ....***

 

 

 

Alert - I know some of you hate doom and gloom. This is not to be a negative post, but a awake up call and I will explain later why I make this statement.

 

Do many of you even know how the government or where the government spends our hard earned tax dollars?

How Congress spends your money - Click here for some sad news & the 13 + Trillion dollar deficit

 

Pssssss - We are only 200 million dollars away to going to 14 trillion dollars in the hole.  See the US National Debt Clock

 

 

 

 

How can we be the solution and not the problem?  Did anyone ever see the movie "Dave", with Kevin Kline and Sigourney Weaver. Wow, what an inspiring movie and could truly be inspiring for those young politicians that want a role in Congress or the House of Representatives. There was a scene where Kevin Kline, as the fill-in President, holds a meeting with his staff and makes some major budget cuts. People, I know this is not easy, but I do think it requires some common sense, setting aside ones ego and their hunger for power .

 

Try this Fun deficit puzzle : Budget Puzzle - You fix the budget

Jeff Belonger's results fixing the budget - My results

 

 

 

 

I wrote this post over a week ago....

Do you know where your MONEY is going? QE II - Quantitative Easing

Read it.. the government is spending another 600 billion on US Treasuries.  We were so worried about a double dip in inflation, but now there is major fear of deflation. No, not inflation, but deflation.Understand inflation vs deflation - This is a must, in order to understand what could possibly happen.

Food prices seem high right now, right? If there is fear of deflation and the government steps in, where do you think food prices could be in 6 months or so? UP... higher, and that could hurt your wallet.

The band-aide methods must stop or slow down, and let this economy correct itself.

 

 

Conclusion : In the last several weeks, I have been hearing reports that the economy is doing better. Some in the real estate industry are making some good money now. Don't let any of this fool you regarding a recovering economy, that it's getting better now. Think of our current economy as a Tsunami.  Little waves until the big one hits. We need common sense to step in at times. Are there better numbers now because the holidays are fast approaching and more people are spending, even if they don't have it? Maybe parents want their kids to have a good Christmas? Unemployment was down this week, but maybe less apply during the holidays or maybe a large wave of those that are unemployed fell off the charts when their unemployment was stopped. The overall unemployment number is still very high, over 9.5%, and needs to be below 7.5%.

I wrote this post about a month ago ...

The Tribe has SPOKEN...... The Home Buyers tax credit is like crack

I received this comment by a realtor :

"Our economy is the worst it has been in a 100 years. Since the last tax credit expired what exactly was the financial impact to you (not you specifically Jeff) regarding "our" tax dollars?  Here is what I know to be true in my personal wallet: The tax coming out of my pocket, did nothing, caused no financial hardship, my family still went to bed at night and got up in the morning.  However, the month the credit expired I had a HUGE month and so did many many Real Estate agents."

This is what I am talking about. You might be making more money, but at whose expense. And in regards to the home buyers tax credit, don't be fooled, it will cost you down the road.

 

Call-to-Action - Should we hold politicians responsible for their decisions?  I think there should be some cause and effect solution. We need to hold those accountable.

A New Bill to FINE Politicians for non-performance !!!!! Can it be so true???

 

Anyhoo... what do you think?  What do you say?  Opinion?  Thoughts?  --

 

ps.. These are just my opinions, some based on facts, others based on common sense.

 

 

No, it's not Christmas time, but I guess the government feels like it's time to spend again. Do you have a spot in line for your handout?  The economy is not growing quickly enough, so the economists and the Federal Reserve feel the need to spend more. Besides, there is good fear of deflation and the need for keeping prices higher. So what is Quantitative Easing? -  Quantitative Easing from wikipedia - And we have been through this before. when the government spent an initial $600 billion in November of 2008. Four months later, the Fed added another 1.8 trillion.

So the government is spending $600 billion more on U.S Treasury securities, after spending 2 trillion the first time around. But wait, the federal Reserve has announced that they will be spending another 250 to 300 billion on more U.S. Treasury securities. This other spending is from the proceeds of its mortgage portfolio. Great Scott Bat World... will this work?

 

From the Bloomberg article, many have said... "that the plan won’t boost growth, half said it will help avoid deflation. That may be more important to Bernanke because a general decline in prices makes consumers and businesses less willing to invest." More from Bloomberg.. "A total of 75 percent surveyed in the Bloomberg poll said the securities purchases will have little or no effect on joblessness."

 

I am sorry my fellow Americans, but wasn't a lot of what we were fed over and over, telling us why we were spending so much, was to create jobs? Yet more than70 percent are saying that this next spending won't have an effect on our unemployment situation? Yes, many jobs were created, but within the government. And don't these kinds of jobs cost us more money? Shouldn't we be focusing more on small businesses, more incentives so they can hire more. I know the government just started to talk about this prior to the elections, but my common sense tells me that this should have been talked about 1 1/2 years ago.

 

Hey, I am not a Harvard graduate with a MBA in Economics.  I know many of us don't like bad news. And I am hearing many reports that state that we are turning it around, that we came out of a recession back in the summer, yet we need to spend more money.  I just want us all to understand what is happening around us, and don't think just because it seems to be getting better, more so by the news, that we will end this soon. My prediction, a good three more years or more. Someone told me a few weeks ago that the NAR says 2011 will be the 4th best year in real estate in the last 15 years. Let's not forget people, just because you might be making more money, doesn't mean all of America is comfortable. How about the fact that we have more than doubled our national debt in the last 2 years.

 

Overall... you need to watch this video. Not only do I think it's spot on, but there was some humor to it, especially at the end.... enjoy...

 

 

 

I presume that this will be a hot topic this week and until the end of the year. I just read this by Leslie Ebersole - QE2 is not a cruise ship

How about the news when we were finally out of the recession - Yippie, we are out of a recession !!! - I wrote this on 9/24.

 

 

 

Just bare with me on this one... roll with me here. This is not about pointing fingers, but possibly what we can do and with the current elections coming up.   A Call to Action

 

 

 

 

Remember Schoolhouse Rock and some of the videos that they ran doing Saturday morning cartoons?  This was one of my favorites, I am Just a Bill.  but talk about an excellent message and good solid education at such an early age. Have we gotten away from this kind of thinking with our kids now? Shouldn't they bring this kind of stuff back?  I better many adults and young adults could use a quick history lesson in how Capital Hill works.

 

 

 

How about we get back to the fundamentals, knowing how the system works, and basically make people accountable. Hhmmm... Accountability, there is a loose word that seems to get abused. In football, you are held accountable if you lead with your helmet and make a vicious hit. You get fined and now the NFL has changed this so that a referee can actually throw you out of the game at that moment. And you could still be suspended by the NFL for future games. Hey, the NFL is a business. Why can't we take some of our leads as a government from other such businesses?  Just food for thought.

 

 

So... what can be done"?  We as the American people, can we push such an issue? Have you noticed some of the commercials lately, of those running for office, on how some have spoken from the side of an American?  Stating..."I am one of you, working for you." Hey, I think it's a start, even if they don't mean it, because we can now hold them more accountable. And say to them, hey, you made me think this way, that you were sincere and genuine, yet you went against your promises. So you are out next term. I think the American public is not putting up with this anymore. So, where am I going with this?

How about someone steps up to the plate and pushes some sort of Bill to hold politicians accountable? Some might say, wishful thinking. Was electricity wishful thinking? What do you say?  Opinion?  Thoughts?  We need to get real about this, no matter what side you are on.  My Call to Action To You, The American public

 

I was inspired to write about this when I read Pat Kennedy's post, Cabbies, mind your manners.  Sorry, but I have this huge pet peeve regarding "common sense".  It really makes you think and wonder what others think. And how we need to stand up and let everyone know our opinions, and not just sit back, "hoping" that things will work themselves out.

 

 

 

 

There are just so many questions in regards to mortgages of which consumers and realtors search for places to ask such questions. My problem from searching the internet is that I have seen some really bad, false, or misleading answers to such questions. Sometimes even answered by those that aren't even in the mortgage business. I have seen this happen so many times on sites such as Trulia and or Zillow. These sites allow anyone to answer mortgage related questions. But how great would it be to have one place where such questions are answered only by a handful of mortgage professionals. 

 

 

 

 

 

CLICK ME

 

 

The Mortgage Myth Busters is a good group of Mortgage Professionals that have over 150 years of experience in the mortgage industry. If we don't know the answer rigth away, we will gather the correct information to give the right answer or set of answers. We are passionate about this and take pride in ourselves in putting the correct information out there. One problem that I see often is that someone's opinion is mistake for a fact, because it's not mentioned as an opinion.

 

If you have any mortgage related questions as a consumer or as a realtor, then can be asked in our questions forum @ Mortgage Myth Busters Questions Forum -

 

You can also ask questions here :

Our Facebook Fan Page : Mortgage Myth Busters on Facebook

Mortgage Questions Group on LinkedIn : Mortgage Myth Busters Questions Group on LinkedIn

 

 

Mortgage Myth Busters group description :

The Mortgage Myth Busters is a group of experts from different companies all over the country that share the commitment to provide consumers with the right answers to their real estate finance questions. Our unique approach of collaborating and combining forces enables us to provide factual mortgage information and invaluable insights especially during these trying times.

Our purpose is to educate and assist the consumer in navigating the often confusing process of obtaining financing. It is our goal to dispel the confusion, myths, and lies that surround the real estate and mortgage industry. We do this in hopes of earning your trust and eventually your business.

 

 

 

Conclusion : Thoughts?  Opinions?  Feedback? 

On a side note, some time in the future, we will have selected realtors from different states that will be answering real estate related questions also.  thanks

 

 

I know it's been all over the news since the 20th of September, that we are now out of a recession since June. But I am curious, where the hell have I been all of this time. Who is stating these facts?  Did we just pull millions of dollars magically out of a hat?

Let's look at several facts.

--  We are going into an election period.  So is this just 'feel good' talk to get one to think otherwise?

--  The Homebuyers Tax Credit.  In my opinion, that artificially stimulated the economy. But that helped some real estate numbers look good, like there was a real recovery.

--  Jobs? Sure, some jobs have been created, but within the government and this could add to the free spending that has taken place. So how has that helped. What about those small businesses that keep laying off or close shop.  Just some ideas for food for thought.

--  Foreclosure numbers keep rising and mortgage modifications not only become more difficult, but 50% or more that are helped, fail 6 months later.

 

 

If you don’t want the truth or face the facts, don’t continue reading.

So let’s define recession. All definitions below are from wikipedia.  “A recession in economics is a business cycle contraction, a general slowdown in economic activity over a period of time.” There seems to be two strong definitions of recession outside of what was just mentioned.

• The main rule of thumb, which is simply defined “as a period when GDP falls (negative real economic growth) for at least two quarters. The GDP is the measure of a country’s overall economic output.”

• Then you have the NBER, the National Bureau of Economic Research, who is generally seen as the authority for dating U.S. recessions. The NBER states a recession “as a significant decline in the economic activity spread across the country, lasting for more than a few months, normally visible in real GDP growth, real personal income, employment not to include farm payrolls, industrial production, and wholesale-retail sales.”

Here is what scares me the most. Back in mid 2007 to early 2008, I had written several times which can be documented that we have been in a slight recession since early 2007.  But look at this. It wasn’t until December 2008 that the NBER stated that the recession had started one year earlier, in December 2007.  Here is a good article from MSNBC,  ‘Great Recession’ over, research group says.

So here is the main question at hand. What or who actually determines when we are out of a recession?  Glad you asked, because it seems to be based on more of a thought process than in general terms. What specific numbers that look good in a month or two, when in reality, the overall picture is not good. And common sense?  My common sense tells me that it's not getting better.  Read along....

 

 

We don't want bad news, that is all we hear. We hate doom and gloom. But if we don’t know about it or think things are better just because we are told so, how does one fix the problems that we face now as a country?  I certainly don’t want to be sweeping this under the rug, just because it’s been determined that we are now out of a recession.

What should be very important and talked about most, right now, so we can move forward?

• Unemployment/jobs – What happened to this so-called stimulus package in May 2009 that was going to stimulate jobs?  The only jobs I truly saw created were those within the government.

• Small businesses – we need to keep focus on helping the small business not fail. In my opinion, without small businesses, it will hurt our economy greatly.

• Real Estate – Home values have plummeted in many areas. We are still seeing more and more foreclosures and over 50% of those that get mortgage modifications, fail on their payment plans 6 months after.

• Wall Street – It’s been a yo-yo for the last 12 months, with hardly any consistencies. Up 100 pts, down 100 pts. People are afraid to invest. Many would rather keep the money under their mattress.

Mark Zandi, chief economist at Moody’s Analytics, made this statement. “It was noteworthy that the panel settled on June, as it was during that month that the spending from the Recovery Act stimulus was at its maximum.”

In my honest opinion, I think nothing should have been said, because every month I see specific numbers fluctuate up and down. I didn’t graduate Harvard with an MBA in Economics, but from talking to so many on the streets, seeing it daily with my own two eyes, small businesses going out of business, we have a ways to go. Why try to make us feel good with such a statement, based on numbers that keep changing, or indicators that can be manipulated.  Could this just be a political spin because of the upcoming elections?

There needs to be a call to action and that Main Street America deserves more than just some ‘feel good’ words. How can we help?  Your vote means more now than ever before, this coming November. It’s a start and we need a fresh start. We need to think this through and all come together. What do you say?

 

 

Lewis Poretz even wrote about this and stated all of what I stated in simple terms.

Will the second dip be worse than the first?

 

Myrl Jeffcoat gives an excellent quote from Charles Dickens at the end of her post... please go and read it.

The Recession is Over – But Is it Really?

 

Here is some more news... Durable goods orders fall 1.3% in August, missing expectations 

Just more reason why I think, again, that we jumped the gun in stating that the reason is over....

 

 

IMPORTANT CALL TO ACTION - Hot topic - Reduction of seller concessions on FHA loans to 3% max

 

 

I wrote this article the other day, HUD seeks public comment on three main issues for FHA loans. - The main issue and focal point is that FHA wants to reduce the seller concession from 6% to 3%. I can understand why. Two reasons I can think of :

1. The real estate market has crashed and home values have dropped significanly in some areas, that homes are upside down. Some feel that with a FHA mortgage, that you basically start underwater if you need to sell quickly.

2. HUD/FHA feels that home values are inflated some, pushed a tad higher to cover the seller concessions so that it actually doesn't come out of the seller's pocker per se. This is an never ending argument by several.

 

 

So we have a slight debate from some thinking that anyone receiving 3% to 6% seller help is to much. And then we have another side that feel that making 3% as a maximum percentage, that it could cripple an already devistated real estate market.

The basic argument - 6% is just to much.  Okay, I agree, on a $300,000 house, because that would be $18,000 in seller help. Not many sellers actually would be willing to give up $18,000. Many don't even have the room to do this.

Reality depending on certain real estate markets - What about those homes that are selling for $50,000 to $100,000. AT 6% that would be a seller concession from $3,000 to $6,000. Make it a maximum of 3% and it drops from $1,500 to $3,000.

 

 

The defense to such an argument -   Example - $80,000 home. If the seller could on give 3%, that is only $2,400 in help.  The down payment alone would be $2,800. Depending on taxes, how many months that must be escrowed, etc, etc, you could be looking at $3,400 to $4,000 in closing costs.  In the state of PA, 12-13 months of escrows must be collected and there is either a 1% to 2% stamp tax that must be paid by the buyer. So you add that into this equation, that is another $800 to $1,600 just on the stamp taxes. And this example is not even including points or lender fees. I would rather have the borrower keep at least $2,000 or more in their account as cash reserves.  You take that away from them for the costs, then you have nothing.  What if something happens, then what? Just food for thought.

Important Reminder : Keep in mind, real estate is local and each state is different on their different fees that must be collected. Some states have state stamp taxes, transfer taxes, or require taxes to be escrowed for 6 or 13 months. This greatly adds to the buyers costs.

 

 

 

Jeff Belonger's solutions :

Why don't we come to terms, meet half way. How about impossing checks and balances if a borrower gets 3.01% to 6% in seller help. Or have a graduated scale. Maybe add some specific clauses.

 

1. Appraisal Values - FHA is concerned about values being pushed higher to cover these concessions. Why not get 2 full appraisals. An appraisal is an opinion of value determined by several factors, to include average market values and true comparisons. Real Estate Appraisal by wikipedia.

2. Credit Scores - This one could be tricky and hurt the less fortunate. But if are to receive more than 3%, that you have to have higher credit scores, possibly making a graduated scale.

3. Cash reserves - That the borrower must have at least 2 months in reserves in order to receive from 3.01% to 4%. Maybe 4 months to go from 4.01% to 5% and so on.

 

 

SUMMARY : SOme of my solutions might seem harsh or hurt those that don't fit.  But isn't this much better than just reducing the seller concessions to 3 percent no matter what? Let's think this through, come up with a comprimise. I feel that if we don't do this, that it will cripple our economy even further.... We need not be rash in our decision making and not just for political agendas. What se thee?

 

 

 

List of solutions from other comments :

 

     1. From Julie Odum - comment #2 - In my comment to HUD, I recommended a sliding scale for seller help. 6% for sales under $125,000, 5% for 125-150k, 4% for150-175 and 3% for 175+k.

     2. From Tim Bradford - comment #9 - Similar to rules on Reverse Mortgages - A 3% limit with a mininum of $3,000 being allowed and a Maximum of $6,000. 

     3. From Drew Sygit - comment #21 - Tie the seller concessions above 3% to other lower risk identifiers.  Examples: to get the 6% require either higher credit scores, more reserves, maybe 5% down instead of 3.5%, allow lower DTI ratios, etc.

 

 

 

 

 

Here is the actual page to go and make your comments - Comments for reduction of seller concessions and new loan to value with credit scores - Click submit a comment which is on the right side of this page, in blue.

 

 

 

 

CALL to ACTION : Send this to other agents and loan officers.  Don't hesitate to reblog this, to get the message out. And you can even copy the link to this post in your comment when commenting to FHA/HUD, so it repeats the message to FHA, the government, and to others that fight this issue.  Link :

http://activerain.com/blogsview/1749213/issues-regarding-the-3-seller-help-proposal-by-fha-can-we-fight-fha-loans-with-solutions-yes-

 

 

 

Please don't hesitate to leave your own solutions in the comments below, so others can read them.  I will then come back and list those solutions in this post.  Thanks & thanks for your support.

 

I will be forwarding this post to FHA, to HUD, and to some members of congress before the 30 days is up.  This way they can have all of our solutions rolled up into one.  Just like the Declaration of Independence. Why not make it our Declaration of FHA Financing !!!

 

 

 

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- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- FHA Home Loans - Mortgages -

 

Experience & Knowledge at its BEST !!!

 

 

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For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc

You can make a difference - you have 30 days to comment against FHA's proposals

 

With a difficult economy and possibly some new FHA mortgage changes coming in the new future, this could be time to make your voice heard. HUD made this announce back in January 20th, 2010 - FHA announces policy changes to address risk and strengthen finances - I parlayed this announcement into layman's terms. - FHA loans and some possible mortgage changes.

 

So now, FHA just announced that there will be a 30 day period for comments on these issues described above.  These proposals are designed to limit the risk in regards to the Mutual Mortgage Insurance Fund and at the same time, trying to promote sustainable homeownership for FHA borrowers.

 

 

 

The 3 possible changes to FHA Loans :

 

1. Changing the combination of credit scores and downpayments. You will need a credit score of 580 or above to still be eligible for the regular 3.5% downpayment. If below 580, you will be required to put 10% down. And FHA loans will not allow any loans with credit scores below 500.

My opinion :  I am not concerned with this proposal. Most lenders require credit scores of 620 or higher on FHA loans. I wrote about it here. - FHA home loans have no minimum credit scores - So FHA, you can have this one.

 

2. The reduction of seller concessions from 6% to 3%. Many of us know that this could have a huge impact on many different housing markets.

My opinion : I truly think this could affect those buying homes from $150,000 and below. Especially those homes prices at $100,000 and below. That would mean on a $100,000 home, the buyer could only get $3,000 of help towards closing costs. - FHA, since I gave you #1, I want #2, and keep it at 6%. Update... keep this in mind - If a borrower has to come up with more money now, what does that do to their cash reserves in many cases.  In troubled times, does this mean that they will default quicker now?

 

3. To tighten FHA underwriting standards for manually underwritten loans. FHA's purpose would be when using compensating factors while underwriting, lenders will be required to consider those factors which would be best predictive indicators of the performance of the loan.

My opinion : I guess I would have to wait for a better explanation letter in the mortgagee letter, if this is approved.  You already are required top have compensating factors when manually underwriting a FHA loan, making sure that the loan will perform. I just think this is FHA's way of saying that they want underwriters to be more critical when approving a loan and to have more solid compensating factors. Ex. Instead of making sure that your borrower had 2 months in reserves (money left over after closing to cover 2 mortgage payments), that they would like to see 6 months. Who really knows on this one. Could be more political chit chat.

 

 

 

Conclusion : As I mentioned above, I am not worried about numbers 1 and 3. But number 2 could have an impact on the housing market in many areas. On the positive side of things, HUD could have increased the down payment to 5%. This was talked about in congress several times, but shot down. Talk of FHA loans raising the down payment to 5%. -  Here is the argument about why some want more money down. The FHA argument - I want more skin in the game.

 

 

Where and how to comment :

Regulations.gov - (main site) please to search for government proposals.I give the specific page below, where to comment.

 

Here is the link to the different proposals and FHA's reasoning's for such proposals. Federal Register for HUD changes and the reasons why. If you go to the middle of the first page, you will see how they explain the different ways to comment. They highly suggest doing it electronically, which I mention below.

 

 

CALL to ACTION : Send this to other agents and loan officers.  Don't hesitate to reblog this, to get the message out.

 

Here is the actual page to go and make your comments - Comments for reduction of seller concessions and new loan to value with credit scores - Click submit a comment which is on the right side of this page, in blue.

 

 

 

Important Update as of 7/17/10 @ 1:05 pm - Please read and make your voice heard - If you are going to comment to FHA, please copy and paste this link into your comment :  http://activerain.com/blogsview/1749213/issues-regarding-the-3-seller-help-proposal-by-fha-can-we-fight-fha-loans-with-solutions-yes-   (this article is below)

Issues regarding the 3% seller help proposal by FHA - Can we fight FHA Loans with solutions?? - YES !!!

 

 

 

_____________________________________________________________________________________________________

 

                  

                                                                                                           FOLLOW ME ON FACEBOOK

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- FHA Home Loans - Mortgages -

 

Experience & Knowledge at its BEST !!!

 

 

Follow me on:

 

 

_____________________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc