Motivate Yourself!

I was working on a different Friday Inspiration the last two weeks and then scratched all of it as of yesterday morning because I had a meeting that inspired me to talk on THIS subject instead…I like getting real with others and yesterday morning proved to be a great experience of enlightenment.  It was a meeting that produced great joy…but only after the dissection of much pain.  So yesterday I took some time to collaborate my thoughts…

Motivate-yourself-nowTo perform at anything at your best, you must become your own personal cheerleader.  You must develop a routine of coaching yourself and encouraging yourself to play at the top of your game.  Most of your emotions, positive or negative, are determined by how you talk to yourself on a minute-to-minute basis.  It is not what happens to you but the way that you interpret the things that are happening to you (sometimes assumptions) that determines how you feel.  Your version of events largely determines whether these events motivate or demotivate you, or whether they energize or de-energize you.

To keep yourself motivated, you must resolve to become a complete optimist.  You must decide to respond positively to the words, actions, and reactions of the people and situations around you.  You must refuse to let the unavoidable difficulties and setbacks of daily life affect your mood or emotions.

Develop a Positive Mental Attitude!

I was given a book a few years back amply entitled Learned Optimism, by Martin Seligman, who had twenty two years of study at the University of Pennsylvania.  In the book, he summarized all of that study and determined that optimism is the most important quality you can develop for personal and professional success and happiness.  Optimistic people seem to be more effective in almost every area of life.

It turns out that optimists have four special behaviors…all learned though practice and repetition.

First, optimists look for the good in every situation.  No matter what goes wrong, they always look for something good or beneficial.

Second, optimists always seek the valuable lesson in every setback or difficulty.  They believe that “difficulties come not to obstruct but to instruct.”

Third, optimists always look for the solution to every problem.  Instead of blaming or complaining when things go wrong, they become action oriented.  They ask questions like “what’s the solution?  What can we do now?  What’s the next step?”  I’ve always thought that more important than the mistake that was ever made was the next thing that was done.

Fourth, optimists think and talk continually about their goals.  They think about what they want and how to get it.  They are always looking forward rather than backward.

When you continually visualize your goals and ideas and talk to yourself in a positive way, you feel more focused and energized.  You feel more confident and creative.  You experience a greater sense of control and personal power.  And the more positive and motivated you feel, the more eager you are to get started and the more determined you are to keep going.  It always helps when you have others around you who are supportive of your objectives and give you a clear path to cleanse yourself through advice, moral and love.

My great friend Mark Wood posted something to his Twitter account yesterday that hit me and made me know it was important to talk on this topic…he posted: “The person who will influence you the most is not the person you believe in; it is the person who believes in you.”

Great wisdom

Today’s REALITY Check

It’s not “what happens” to you. What “happens”, “happens” to everyone. It’s what you “do” about what happens. Start doing different things with the same circumstances.

Just takes a different mindset…ponder this:

STOP wishing it were easier.
START working to become better.
STOP wishing for less problems.
START developing more skills.
STOP wishing it wasn’t so expensive.
START earning more.

See, without the proper mindset…we fail. Welcome to reality. Without a plan, we postpone living until we die.

INEVITABILITY: The future will come.

So let’s stop being apprehensive and be more decisive with action and determination. Apprehension only leads to small, uncertain steps, under achievement, a low self-esteem, fear, self doubt, anger, envy, sadness and regret.

What happens if we don’t make plans for the future? NOT MUCH.

The Game of TRID – Info You NEED

trid game

As you may have heard by now…beginning August 1st, 2015 the CFPB (Consumer Financial Protection Bureau) will mandate a new closing process known as TRID which is designed to increase transparency for consumers. Basically, the CFPB wants consumers to “know before they owe!”

TRID stands for Tila-Respa Integrated Disclosure.

Soon, the HUD-1 Settlement form, the Good Faith Estimate (GFE), and the TILA or Truth in Lending Act disclosure form will go away and will be replaced by two new forms…the Closing Disclosure and the Loan Estimate.

We in the industry are being told to add additional time to close on a home if the buyer is financing the purchase. Buyers and sellers need to be aware of these changes!

For reference, here’s a link to what the new CD or Closing Disclosure and the new LE or Loan Estimate will look like.

To start, the Loan Estimate will be given to the buyer no later than 3 days after the loan application is completed. The buyer MUST sign and return an Intend to Proceed form within 10 days of receipt of the Loan Estimate. This form is a disclosure made between the borrower and the lender. This form is part of our disclosure systems already, so there’s really no change to procedure here.

The Closing Disclosure will be given to the buyer a minimum of 3 days before signing of the documents. Closing will not, and cannot, occur prior to this 3 day window. The LE and CD need to match as close as possible within current tolerances in order for the closing not to be delayed. That’s a big part of what needs to be known about the changes, but it’s also something that has been in place in the current world – just now those tolerances and timings have changed.

Remember, the delivery of the Closing Disclosure is critical. The three day waiting period is mandatory, so don’t think you can have it waived or adjusted. The lenders MUST let all parties know when the CD has been delivered to the buyer!

The TILA and RESPA forms have been around for a very long time. They are confusing documents for many people. Part of the thought behind the CFPB changing the closing process is to make it easier for a buyer to understand the financing process.

On the plus side of the new CFPB changes, loan documents should be ready when the Closing Disclosure is issued. This means that loan documents will be delivered to escrow three days prior to the closing date on a regular basis. That’s going to be a good thing!

There are three events that can require a new Closing Disclosure and new waiting period. i.e.: Cause a delay in the closing of the loan.

1. The addition of pre-payment penalty.
2. The changing of the loan product, such as moving from a fixed to variable rate, etc.
3. If the APR goes up by more than 1/8% on a fixed rate loan or 1/4% on a variable rate loan.

Really, none of those three things should be happening anyway, so we hope delays in the process will be minimal.

Under the new rules, The Combined Closing Statement (or CCS) will replace the HUD-1 Settlement Statement. Upon close of escrow, the file will be disbursed based on the Combined Closing Statement. This is where you will see all of the final numbers for net proceeds, cash to close, final proration’s, etc.

The clarity of the matching CD and LE will be a benefit to people who buy and sell homes.

NAR President Chris Polychron recently told the U.S. House Financial Services Committee that a grace period is needed to give lenders, title agents, real estate professionals, and buyers and sellers time to get used to new closing procedures. Just yesterday, the CFPB made it official by granting such a grace period, seen here: CFPB to grant grace period on TRID enforcement.

The KEY is communication at all levels. Envoy Mortgage is a technology and communication leader in the industry and we have been on the front side of these changes so that we will hit the change date running. We are very proactive in this cause. Our proprietary systems are already designed to handle the ins and outs of this new rule…which all of us, acting as circle of advisors to our buyers and sellers, need to understand the process, be willing and able to work with all parties of the transaction as everyone adjusts to the new requirements.

A very brief summary of the new CFPB process looks like this: An offer is accepted, the lender informs when Loan Estimate was delivered to buyer, when the Intent to Proceed was given (again, all part of a current internal process anyhow), and when a Closing Disclosure was delivered so that all parties know when the first available signing/closing day can occur. Of course, this scenario is in addition to all of the other moving parts coming together for completion of the sale of a home.

A couple of other things to think about with the new CFPB changes are:

1. Sellers need to be made aware that road blocks can occur and that delays may happen.
2. Trying to do a simultaneous closing is going to be a nightmare in the beginning.

Don’t get scared…GET BETTER. In the end, I don’t think it will be as bad as we may think it will be. Of course, time and closings will tell. Please remember, the sky isn’t falling, we’ll get through this!

“You can’t change the direction of the wind, but you can adjust the sails to reach your destination” – Jimmy Dean

Knowing When To Hold’em and When To Fold’em

Relationships of any variety are what tends to define you over the course of life. You will probably hit every gamut of the type you either desire or already have…spouse or significant other, business only relationships, friendships, acquaintances, well…you get the picture.

Personally, I search to maintain relationships which motivate or inspire me versus the ones that drag me down or pull against my every whim of balance. Balance is a constant struggle to juggle. I never let others interfere with certain priorities in my life, yet I have some relationships (or thought I did) which are hard to ignore the ugly head sticking itself way out there for me to pound on like a candy piñata. I have both relationships where I am the mentor, and others I think of myself as the mentee.

So why the title of this blog today? The title says it all…but I chose it because I had an experience within the last month with someone that completely caught me off guard. It made me mad. There was unpleasant exchanges hidden behind emails. It reminded me of the famous song from Kenny Rogers, “The Gambler”. For those of you who don’t know this, I am an avid poker player. I play it with passion…so this is a natural fit for title to me. So, I went home and garnered it up on my iPod to listen to the lyrics. And I imagined what it would sound like in our world where we deal with all kinds of relationships and the decisions we make about prioritizing/categorizing them. Just read some of the words and imagine this is about friends and relationships:

Now ev’ry gambler knows that the secret to survivin’
Is knowing what to throw away and knowing what to keep.
‘Cause ev’ry hand’s a winner and ev’ry hand’s a loser,
And the best that you can hope for is to die in your sleep.

You got to know when to hold’em, know when to fold’em,
Know when to walk away, and know when to run.
You never count your money when you’re sittin’ at the table,
There’ll be time enough for countin’ when the dealin’s done.

What’s funny here is that the above lyrics never rang louder to me than on that day. I’ve had plenty of experience “hiring” and/or “firing” relationships, business partners, friends…but beyond appreciation for what is you do or who it is you are lies an underbelly of how you think, what you REALLY think, or how you would respond to unpleasant news. It’s a wonderful notion to think you will always be in a relationship that is happy and lasting. However, between what we want, and the reality of our society (which sickens me by the way), there’s a deep chasm of false hopes and unfulfilled promises. I have some ideas for…basically, a relationship compatibility test. The barometer of which will resemble a marriage-type relationship and the keys to a long-term partnership…judge for yourself:

1. Do you trust your partner/relationship? Without this one…the rest of what I will say about this topic won’t matter much. Trust is complicated. Some people trust blindly but others have trust issues which are often seeded from negative experiences from their past. A great gauge of trustworthiness is based on a strong overall record of dependability. So, ask yourself:
• In general, is my partner reliable and dependable?
• Do they keep important promises and/or agreements?
• Can you count on this partner to be a “rock” in your life?

2. Are you and your partner compatible? Things to look for here would be in the following categories (this is someone ‘showing their hand’):
• Emotionally – do they effectively express themselves in a manner that’s nourishing and constructive and respond affirmatively when you do the same?
• Intellectually – personally, I think having brains is important. 🙂 I feel a sense of kinship when I engage in discussions or endeavors with a partner who is an intellectual equal.
• Shared Activities – this builds a positive memory bank of shared experiences…it’s not really the activity that matters but more in the binding with interaction.

3. What type of person shows up within YOU in this relationship? Do different friends bring out different sides of you? Possibly more reserved with one and more rambunctious with another? I know in some of my relationships I’m more patient and some I quarrel with too easily. I have trigger points, as we all do. Your partners/relationships/friends can elicit a particular side of you, so consider:
• Does my better-self or my worse-self show up when I’m with these people or talking with these people?
• Fundamentally, do I like myself in this relationship?

4. Does your partner’s communication lift you up or bring you down? This one is big for me in a couple of ways. The first being the fact that I try to lift others and inspire others through many means, such as my Friday Inspirations which you are reading now. The two biggest considerations should come from asking yourself, “Is my partner’s communication soft on the person, firm on the issue, or the other way around?” and “What about the ways I communicate with them?”

5. How do you and your partner deal with conflict? It’s normal. Conflicts and arguments won’t necessarily jeopardize a relationship. In fact, there are times when disagreements can actually help the bond of your relationship. The key is in how you and your partner decide to handle the conflict. Some good advice was once shared with me that I have tucked away: Let the little things go. People who struggle in life often fight over little things. We obsess over things that don’t really matter. We create resistance instead of letting things glide off us. (GUILTY) Let the little things go, breathe, and move on to the important things.

6. How do you and partners handle external adversity or crisis together? This is my ‘Calling the Bluff’ stuff. From personal to worldly, one of the traits noticeable about highly successful and enduring relationships is the ability to stand together in the face of challenges. A true test is whether two people have each other’s back when times are tough. Does adversity bring you closer together or pull you apart? In difficult life circumstances, do you act like adults or children? Can you and your partner share the bad times, or only enjoy the good times?

I’m pretty sure I could go on and on over this topic. When you read the above it certainly looks like marriage advice, right? Relationships mirror each other that way…there are similar traits found in business partnerships as there are found in intimate relationships. It’s just a fact. When you do this “accounting” of who are your best relationships, etc. I can assure you it will come to mind, “who do I keep tight hold of and who do I let go”… precisely. Knowing when to hold’em and knowing when to fold’em gives you the happiness…

“Complex, fulfilling relationships don’t appear in our lives fully formed. Rather, they develop one encounter at a time”

Who Qualifies For HARP (Home Approval Refinance Program) in Phoenix, Arizona?

The HARP Refinance is mainly targeted at rewarding homeowners who have been making their payments on time, but can’t qualify for a traditional refinance due to their high loan to value, (the fact that they owe more than 125% of what their property may sell for).

Here are a few of the new HARP Program qualifying guidelines:

•Loan is backed by Fannie Mae or Freddie Mac
•Your current upside down Phoenix mortgage home loan must have been securitized prior to June 1, 2009
•You must be paid on-time for the prior 6 months
•You must be paid on time for 11 of the last 12 months

Get In The Front Of The HARP 2 Refinance Line:

It may be until early March before banks will start accepting applications for HARP Refinances, but the numbers of packages are already stacking up…and if the program is all that we hope it will be for Arizona home owners, there will be a bunch of people running to get through the door.

Your best option is to get everything ready to go so you can be one of the first through the door. Get started by contacting me today. If you are underwater on your mortgage, regardless of whether or not you think you qualify, give me a ring at 623.594.7600 to schedule a strategy session.

Do I Need To Sell My Home Before I Can Qualify For A New Mortgage On Another Property?

Although every situation is unique, it is still possible to qualify to purchase a new home while keeping your current primary residence in Phoenix.

Perhaps you are outgrowing your current house, or have been forced to relocate due to a job transfer?  Regardless of the motivation for keeping one property while purchasing another, let’s address this question with the home mortgage approval in mind…

So, Do I Have To Sell?

Yes.  No.  Maybe.  It depends.

Today’s mortgage guidelines are based on the past few years of rising defaults and risky lending practices.  So one simple question can no longer be answered with one simple answer…and all of them may be right.  If you are in a financial position where you qualify to afford both your current residence and the proposed payment on your new house, then the simple answer is Yes

Qualifying based on your Debt-to-Income Ratio is one thing, but remember to budget for the additional expenses of maintaining multiple properties.  Everything from mortgage payments, increased property taxes and hazard insurance to unexpected repairs should be factored into your final decision. 

What If I Rent My Current Property?

This scenario presents the “maybe” and the “it depends” answers to the question.  If you’re not quite qualified to carry both mortgages, you may have to rent the other property in order to offset the mortgage payment.  In that scenario, the lender will typically only count 75% of the monthly rent you are proposing to receive.  So if you are going to receive $1000 a month in rent and your current payment is $1500, the lender will factor in an additional $750 of monthly liabilities in your overall Debt-to-Income Ratios. 

Another detail that can present a huge hurdle is the reserve requirements and equity ratios guidelines which most lenders have in place.  In some cases, if you are going to rent out your current home, you will need to have at least 30% equity in order to offset your payment with the proposed rent you will receive.  Without a sufficient amount of equity, you will have to qualify to afford BOTH mortgage payments.  You should also plan on showing some significant cash in the bank.  Generally, lenders will require six months reserves on the old property, as well as six month reserves on the new property.

For example, if you have a $1500 payment on your old house and are buying a home with a $2000 monthly payment, you will need over $21,000 in the bank.  Keep in mind, this reserve requirement is incremental to your down payment on the new property.

What If I Can’t Qualify Based On Both Mortgage Payments?

This answer is pretty straightforward, and doesn’t require a financial calculator to figure out.  If you are in this situation, then you will have to sell your current home before buying a new one.  If you aren’t sure of the value of the home or how your local market is performing, please contact me and I’ll refer you to a great real estate agent that can assess values in your neighborhood.

As you can tell, purchasing one home while living in another can be a very complicated transaction.  Please feel free to contact me anytime so we can review your specific situation and suggest the proper action.

My 10 Inner Secrets to Success

 

In all the studies I’ve read and seminars I’ve attended, plus the career/life coaching I’ve received personally…I’ve been conditioned to know that positive events often come via positive thinking and the applying of those measures in every day practices.  Oppositely, society today is conditioned to blame circumstances for our problems.  But if this were true, wouldn’t we all be in the exact same circumstance?

The difference between all of us is in the quality of our thoughts and ideas.  We can become effective in making changes if we know the underlying factors that govern our lives.

As I thought about this and looked back at my sales career, I took notice of 10 specific keys that I can attribute to my success.  They are called inner secrets because you can’t see them, but when you apply them to your life, the possibilities are unlimited.

  1. Cheerful expectancy:  Many of my mentors have used this analogy with me…imagine waking up and seeing a large package at the foot of your bed wrapped in beautiful gold paper with a big red bow tied around it.  Guess what’s in there?  Today is your gift, and you can make it whatever you want.  You choose to focus on the positive or the negative. You can be enthusiastic, eager to do things and happily go about the simple matters of life.  Or you can be tired, complain and expect the worst of things.  Your approach to your day, family and clients determines what you get back.  You may find that your attitude will be infectious and more good will come to you. 
  2. Set a goal and make a plan:  After reading Napoleon Hill’s book Think & Grow Rich , I discovered the importance of having a goal and the six steps to setting one.  You don’t have to know how to achieve some things; you only must start advancing toward a goal to attract all the people, things and circumstances you need to fulfill it.  Build an image of what you want to achieve, make a simple plan and take action.
  3. Do one proactive thing daily regarding your goal:  Vow to do just one thing each day that will move you closer to your goal, and do it before you do anything else that day.  Otherwise, one skipped day can turn into a month or year.  You must put the urgency into what’s important in your life because no one else will.
  4. Deliver exceptional value and strive for excellence:  Look for how you can give your best in each interaction.  But remember: Striving for perfection can be exhausting.  Nothing will be perfect.  Instead, strive for excellence.  Why?  Because excellence is a commitment to completion.  Complete the unfinished projects around your house and office.
  5. Build on your successes:  Many of us are conditioned to compare our weaknesses to other people’s strengths and our failures to their successes.  If that isn’t bad enough, we use our memory to remember everything that didn’t work out – just at the time that we want to step out and do something new.  Change that habit by writing out your strengths and playing to them.  Congratulate yourself for each new success and use that fabulous energy to create more.  Get on the phone and talk to others because they will be excited by your enthusiasm.
  6. Make decisions:  Learning how to make a decision is one of the most powerful things you can do.  Once you make a decision, everything you need to make it happen starts to move toward you.  Without a decision, it stays away from you.  Instead of asking if its right or wrong to do something,  it’s far more powerful to ask and answer this question: ”If I do this, will it move me in the direction of my goal or purpose?”
  7. Take responsibility:  Do this for everything happening in your life.  Resolve today to stop blaming, complaining or making excuses.  People who refuse to accept responsibility for the life they have created also don’t make decisions.  Refusing responsibilities and fearing a decision must be overcome to be an effective business leader.  Instead, look for your next step to improve the situation.
  8. Learn constantly:  Many people often stop developing themselves.  Instead, be someone who is continually learning, be it through workshops, seminars, motivational CDs, books or more.  There’s no standing still because the world is constantly changing, and we must stay abreast.  If you aren’t willing to invest in yourself, don’t expect anyone else to invest in you.
  9. Be grateful:  I have found that the more gratitude that I have for everything in my life, the better it gets.  When something happens, whether we call it good or bad, it’s there because we need it now. There is a message in that experience.  Everything is in your life for a reason.  If you are unhappy, then you aren’t being grateful. 
  10. Give:  We’ve all heard that we must give in order to receive.  It’s the absolute truth.  But there are many who are trying to get without giving and consequently living a life filled with unhappiness.  The way we give is the way we should expect to receive – whether it is how we give our services in business, how we give of ourselves in our friendships and relationships, or how we give back to the community.  If people aren’t selling enough, it’s because they aren’t giving enough service.

Forget about what you will gain and focus on what you can give.  By giving to others you ultimately are giving to yourself.  You’re giving yourself real value.  Your world will change quickly.

Borrowers Need to Understand Three Credit-Score Realities

As a mortgage professional, I work with credit reports and credit scores most of my day.  They are the lifeline upon which crucial decisions are made in lending.  With the climate ever-changing in the housing market, it is important for me to understand how loan modifications, short sales and foreclosures may affect a borrower’s credit.  Many distressed clients are turning to me for credit advice – so the more I know, the better I can help.

This is why I’d like to share information that I feel is important for the masses to understand.

Knowing that credit rules the roost is only the beginning.  Client need to improve their overall understanding of their own credit, and I typically like to help them by explaining what’s on a credit report and sometimes offering advice about improving credit scores.  Credit not only affects how much money mortgage borrowers must put down, but it also affects the rate they will receive.

When former clients are having trouble making their mortgage payment, the second person they often call after their service provider is me…the person who obtained their financing.  I often answer questions such as:

  • What options do I have?
  • What effect will this situation have on my credit score?
  • How long until I can get a new mortgage?

Those questions can sometimes be intimidating, but knowing and understanding the answers does arm me with valuable information and adds an important tool to my professional repertoire.  I’m not a credit EXPERT, but I did play one on TV…

The three most-likely outcomes for distressed borrowers are

  1. Loan modifications;
  2. Short sales; or
  3. Foreclosures.

All three of the above have a negative impact on borrower’s credit scores.  The size of that impact, however, can vary substantially.

Modifications

Most struggling homeowners first will attempt to modify their loan with their current service provider.  Loan modifications have been pushed by the federal government through its Making Home Affordable programs, which include the Home Affordable Modification Program (HAMP).

Servicers with loans that Fannie Mae or Freddie Mac own or guarantee must participate in HAMP, and other servicers have been encouraged to follow suit.  In addition, proprietary loan-modification products have been introduced to the market.

In theory, decreasing struggling borrowers’ mortgage payments to a manageable amount is great.  All borrowers must do is fill out some paperwork and have their payments drop.

There’s at least one problem, however:  Many lenders won’t consider modifying borrowers’ loans unless they’re at least 90 days behind on their mortgage (although they don’t ever come right out and say that!).  HAMP rules, however, state that mortgage delinquency isn’t a prerequisite to loan modification. 

When borrowers miss a mortgage payment for the first time, their credit scores begin to drop.  If they continue to miss payments until a modification is complete, their scores continue to fall.

The road to credit-score recovery begins when the modification is complete.  Although borrower’s scores may have taken a significant hit during the modification process, their rebound will occur faster than if they had decided to go through with a foreclosure.

Short Sales

When modification attempts don’t work, distressed homeowners will likely seek counsel to sell the house in question.  Often, this is when reality has set in that the house is worth much less than the amount owed.  In such cases, a short sale may be required.

Short sales typically harm credit scores more than loan modifications but less than foreclosures.  A line that appears in the credit report like, “Settled for less than full amount,” likely will be inserted after the short sale.  Such a report can subtract 100 points from credit scores.

Homeowners facing short sales also will have seen previous knocks to their credit scores if they were late making any mortgage payments.  For those who stayed on top of their payments despite needing to execute a short sale, a 100-point drop could seem fair.  Short sales can linger on credit reports for as many as seven years.

Foreclosures

When modification and short sale attempts fail, borrowers typically have one final option: foreclosure.  Borrowers who undergo foreclosure will see their credit scores plummet, after the scores are first tarnished by the nonpayment of the mortgage.  In most foreclosure scenarios, credit scores continue to decline until the process ends, which could be as long as one to two years.

After the foreclosure hits the report, scores can drop by as much as 200 points.  Foreclosures will stay on credit reports for seven years.

According to a recent FICO report, credit scores can dip by as many as 160 points following a foreclosure – not counting late payments (see the Credit-Score Effects sidebar below).

 

 

Credit counseling has always been part of my duty as a mortgage professional and I expect that to continue forever.  Informing my clients and any distressed homeowners about their options right now in this marketplace is a key to the longevity of their financial profiles.  I personally believe homeowners have a right to expect that from the person and/or company who originated their mortgage in the first place.

Hurdles of Home Lending

So I picked up the Wall Street Journal recently and read some snips and bits of an article about a guy finding out the pitfalls of today’s lending environment.  Mr. Davis has a nearly perfect credit score, equity in his home, considerable savings and a solid pension plan.  But he recently found out that his lender didn’t want to refinance his mortgage.  The problem?

Mr. Davis’s income-tax return showed he had taken a loss on an investment he made in a small, family-owned business. That was enough to raise doubts about his otherwise strong financial condition.

Three years after the onset of the mortgage crisis, lenders are continuing to tighten credit standards.  The initial moves were a natural reaction for a business badly burned by rising delinquencies and defaults.  But conditions are now so tight that lenders are frustrating borrowers who have enviable financial situations but still can’t easily satisfy lenders’ rigid checklists.

This one guy…we’ll call him a Wells Fargo rep (wink wink…’cause he is one) was quoted as saying, “The pendulum may have swung too far the other way.”  Really?  Tell us something we don’t know Mr. Economist.  Jeez…we’ve got Government agencies saying they will do one thing (guidelines) and all the lenders overlaying those policies and guidelines with their own filtration system…sometimes flushing the otherwise clean paper down the toilet.  Risk “tolerance” ended long ago in the lending world.  Underwriter’s fear for their jobs because of the enormous responsibility they have to their responsible party, which is the end investor who is buying the paper from the originating mortgage company (typically referred to as the servicer of the mortgage).  CYA is happening everywhere in this industry.   

Some analysts thought that by this point in the business cycle, lenders would have started to relax credit conditions slightly after clamping down on the risky bubble-era practices.  Instead, the screws are still tightening.  This is partly because lenders are taking every precaution to avoid being forced to buy back loans from mortgage investors Fannie Mae and Freddie Mac in the event of default.  If you didn’t know, when a borrower defaults…Fannie and Freddie typically buy the loan out of the mortgage-security pool and pursue a workout or foreclosure.  But they can force lenders to repurchase loans when they find flaws in the way they were underwritten.  Hence, the underwriter is scared.  Repurchases were a minor nuisance when defaults were low but have escalated over the past year.

Fannie and Freddie have already tightened their standards:  Borrowers with credit scores above 720 accounted for 85% of all loans purchased by Fannie and Freddie last year.  But some banks are being even more stringent to prevent repurchases and want several years of pay stubs, tax returns and other paperwork from potential borrowers.

The Wall Street Journal reports that during the first quarter of this year, Freddie kicked $1.3 billion in loans back to lenders, up from $800 million during the year-earlier period.  At Fannie, repurchase requests jumped to $1.8 billion from $1.1 billion one year earlier.  To be sure, the government has taken steps to keep mortgage spigots open.  FHA still allows down payments as low as 3.5%.

Borrowers who have received standard paychecks and have uncomplicated finances generally aren’t getting tripped up.  But others face hurdles, such as self-employed borrowers, for example.  They document their incomes with tax returns that include business-related write-offs, which might (almost always) understate their cash flow.

Such caution in lending right now is helping to hold down lending completely, despite the lowest interest rates in more than five decades.  Remember Mr. Davis?  He thought he was exactly the kind of customer lenders love.  He hoped to lower his interest rate to less than 5% from the current 6% through a refinance.  But his mortgage broker turned down the application, citing the investment-related loss, which Mr. Davis saw as a minor setback rather than a threat to his financial health.  Rather than continuing to shop around for a refinancing, Mr. Davis decided to cash in some of his investments and pay off the mortgage.

People with complicated financial situations can still find some willing lenders, but it takes more persistence than most people want to put forth.  Heck, don’t make me tell you the story I heard recently of an arranged refinance for a borrower with a very high credit score and lots of home equity and debt payments totaling just 19% of pretax income.  The lender was worried about this client’s credit report showing a $14 missed payment to a credit-card company in 2001.  The lender insisted on proof the money had been paid, which was impossible to get.  That creditor long disappeared and was out of business anyhow!  Who cares?  Right?  I mean, we’re talking nine years ago and it’s $14!  This borrower appeased the lender by writing a $14 check, though no one knew where to send it.

I have a client who is a rookie in the NFL and has a contract in black/white paying him close to seven figures.  He and his wife want to purchase a home at the price of $279,000.  He has an above 800 credit score and all other parameters are impeccable.  The underwriter/bank balked because he was recently put on IR for his team and wouldn’t be on the active 40-man roster at the start of the season.  When I got the player’s agent involved to uncover the way contracts are paid when a player is on IR (paid in full by the way) and went back to the underwriter/bank, you know what they said?  “Once Player X comes off of the IR, who knows if the team will cut him or not, so we are not willing to take the risk.”  Unbelievable.

As companies go out of business and the workforce shrinks…and there are job gaps in employment with potential buyers and borrowers…we’re going to see an awful lot of people whose business disappeared unless the banks learn some flexibility.

Until then though…have your blood and urine samples at the ready!

FHA Statistics…Will Good News Make For Bad Changes?

Recently, the FHA released some interesting stats that puzzled me even, since active legislation has been petitioning and FHA responding to possible changes increasing the monthly premiums with regard to FHA MIP…this shortly after the change in annual premium going back up to 2.25%.  I’ll try to keep it to a minimum for all of you.  There’s a lot of positive news below, which is of course why new legislation wants to rain on the parade. 

FHA believes that the combination of down payment and FICO score is an excellent predictor of loan performance.  Below is a chart FHA presented at a March 2010 Congressional Hearing.  The numbers are based on an index. Claim rates are roughly 3 times the index value.  For example, loans with FICO scores above 680 and LTVs above 95% have an ultimate claim rate of about 4.5% (1.5 x 3), which is very good.  Conversely, loans with FICO scores between 580-619 and LTVs above 95% have an ultimate claim rate of about 16.8% (5.6 x 3), which obviously is not very good and the government incurs losses on these loans.  It is interesting to note that low down payment loans with FICO scores above 680 (more than 50% of FHA’s recent origination numbers) perform better than all categories of loans with FICO scores below 680 (even loans w/ 10% down payments).

Loan-to-Value Ratio Ranges Credit Score Ranges6
500-579 580-619 620-679 680-850
Up to 90% 2.6 2.5 1.9 1.0
90.1 – 95% 5.9 4.7 3.8 1.7
Above 95% 8.2 5.6 3.5 1.5

FHA loan performance continued to improve in each of its major indicators in May 2010.  Here are some of the highlights:

  • FHA’s serious delinquency rate for its total portfolio ($860 billion) declined to the lowest level of the fiscal year (8.41%).
  • Claims are still running about 30% below projected levels.
  • FHA’s serious delinquency rate for loans insured in the last two years (June 2008 – May 2010) has fallen to the lowest level since September 2008.
  • Probably even more important, the number of seriously delinquent loans has declined 18% since December 2009.
  • FHA’s serious delinquency rate for loans insured in the last year (June 2009 – May 2010) has fallen to the lowest level since this analysis was introduced in December 2009.
  • Even more encouraging, the number of seriously delinquent loans insured in the last year has declined 43% since December 2009.  
  • In May, there were 13,091 seriously delinquent loans.  In December, there were 23,712 seriously delinquent loans.

 Better loan quality must be the key!   

  • FHA’s average credit score is 698 in May 2010.
  • It was 640 in 2007.
  • 58% of FHA borrowers have credit scores over 680 in the first six months of FY 2010.
  • FHA loans with credit scores above 680 (even with minimum down payments) perform better than loans with credit scores below 680 even if the loans have 10% down payments.
  • In other words, high credit scores are at least the equivalent of a 10% down payment in the FHA program.  
  • Less than 4% of FHA borrowers have credit scores under 620 in the first six months of FY 2010.
  • FHA’s auditors expected at least 16% of FHA’s FY 2010 activity to have credit scores under 620.

 Seems encouraging.  Probably is.  One can wonder.  What’s next to get stymied?

 Only time will tell…