Tax Credit Extended and Expanded

Good news for those feet draggers that waited until the last minute to buy. The first time home buyer credit has been extended through June 30, 2010. Buyers will have to be under contract before April 30, 2010 and the loan must close by the end of June. First timers will still get the $8000 and the income limtis have been raised to $125000 for single persons and $225000. Income above those limits begins to be phased out as it increases until no tax credit is available.
In addition, the program has been expanded to move up buyers that have resided for 5 consecutive years over the last eight years in their same residence. This tax credit follows the same income guidelines but the tax credit is limited to a maximum of $6500. This program is exceptionally good for any senior planning to make a move. They can use a reverse mortgage to purchase their new residence instead of paying all cash or using a new forward mortgage and still bank the $6500 if they qualify. Call my office for details or visit our website at: http://www.cme4loans.com/8000.  Cobranded flyers are available.

Congressman Drafts Bill to Increase FHA Downpayment

Republican congressmen are becoming more concerned about the Federal Housing Administration's financial plight and they want to increase FHA's downpayment requirement to 5%. Rep. Ed Royce, R-Calif., said FHA is operating at the same dangerous leverage ratios that led to the takeover of Fannie Mae and Freddie Mac. Rep. Scott Garrett, R-N.J., said he has drafted a bill that would increase the FHA downpayment requirement to 5% from the current 3.5% level. "There are increasing reports of the likely necessity of a taxpayer bailout for the FHA and this legislation aims to implement reforms to try to prevent such a bailout from occurring," Rep. Garrett said at a House Financial Services Committee hearing. The Garrett bill also calls for a General Accountability Office study to determine the appropriate leverage ratio for FHA. In the early 1990s, Congress mandated that FHA maintain a minimum 2% capital ratio. A recent audit shows that the federal mortgage insurance fund has fallen below the 2% minimum. But FHA officials say the insurance fund should be able to maintain a positive capital position and FHA will not need taxpayer assistance.

I must say that should this occur, it will further damage a fragile housing growth as home buyers already stuggle to provide the current 3.5% down payment.  What we really need is a zero-down FHA product with strict guidelines such as increased up-front mortgage insurance, higher credit score, stable income, and adherance to standard ratio guidelines. Given that, the success of an FHA zero down product would more likely.

I suggest a preemptive letter to your congressman and/or senator expressing your feeling how an increase to 5% in down payment would affect the housing industry. Currently, almost 50% of all loans closing are FHA and my feeling is there would be a significant drop should buyers need to come to the table with more cash.

Seller Mandated Use of Title Company

Many have expressed concern regarding the steering of title companies by sellers of residential property. This includes many REO companies. See below the actual rule from RESPA Section 9.

RESPA: SECTION 9 - WHY WAS I REQUIRED TO BUY TITLE INSURANCE FROM A SPECIFIC TITLE COMPANY BY SELLER?

The Real Estate Settlement Procedures Act's (RESPA) Section 9 (12 U.S.C. §2608) and Regulation X (§ 3500.16) prohibits, either directly or indirectly, a seller from requiring a purchaser to buy title insurance from a specific title company in any transaction as a condition of the sale.
Section 9 of RESPA (12 U.S.C. §2608) states that:
1. No seller of property that will be purchased with the assistance of a federally related mortgage loan shall require directly or indirectly, as a condition to selling the property, that title insurance covering the property be purchased by the buyer from any particular title company.
2. Any seller who violates the provisions of subsection (a) of this section shall be liable to the buyer in an amount equal to three times all charges made for such title insurance.

The only way a Seller can mandate that purchaser use a particular title company is if the seller paid 100% of all title insurance and related title costs. HUD's RESPA Division has stated on numerous occasions that unless the seller pays 100% of the title related costs then the seller has violated RESPA. REO companies need to pay particular attention to Section 9 because required use practices by REO companies are on the HUD's radar right now.

Lately, many builders and REO sellers (banks) have been steering and mandating the use of their preferred title companies in their addendums. Unless they pay for it, it is a clear violation of RESPA.

Additionally, there are several local real estate purchase agreements that are in use in parts of the United States where the language in the purchase contract states that Seller picks the title company but purchaser pays for title costs. It should be clearly noted that you can not contract out of a RESPA Section 9 violation. Just because the purchase agreement is signed by the borrower doesn't prohibit the borrower from coming back and suing the seller for required use if the borrower is stuck with any of the title related fees.

Another clever technique that is in use is where the seller (quite often found in builder addendums) says they will pay for the owner's title insurance policy but that purchaser has to pay for the lender's title insurance policy and all other costs. This does not pass the smell test nor does it pass HUD's smell test. The practice while novel in its approach is still considered a Section 9 violation.

Many borrowers still do not understand that they are allowed by law to use any title insurance company they want to and if the seller dictates that they must use the sellers preferred title company, it is in violation unless seller is going to pay all costs for title insurance.

Finally, with the rapid approach of the new good faith estimate that has tolerance limits, sellers and real estate agents should be aware that the buyer is going to see the difference in title and escrow charges that the loan officer originally quotes and any variance in actual costs of the agent or seller directed title and escrow company. When forced to pay more, is the buyer going to be happy with your choice? I would encourage all agents to consider learning about the new good faith and HUD-1 Settlement statement coming out January 1, 2010. Education on how it is going to affect your transaction could mean the difference between a happy buyer and a disgruntled one.

I would be happy to schedule a meeting with agents to go over the new rules. Just call my office at (253) 536-5626 or email me.

New Rules Increase Closing Times

Now that the new TILA rules have gone into effect, all lenders are scurrying to determine how they are going to interpret this new bit of legislation. Suffice it to say, all lenders agree at one thing: Deals are now going to take longer to close. Most lenders are now reporting that they view the minimum time to close on a transaction to be 30 days, but tell us that the minimum they really think is going to be 45-60 days. The smallest change in a good faith estimate and how it affects the truth in lending statement can pootentially retrigger an additional disclosure time and further delay a deal. Some lenders are saying that the time starts after 7 days, while others say 10 days. When matched up with the conventional loan HVCC rules, delays are becoming commonplace.
Now more than ever before, an agent needs to be keenly aware of how these changes will affect the style of transactions they are doing. Those agents selling distressed or REO properties need to allow more time for there borrowers. The banks know these rules and are trying to use them to their advantage by still shortening closing times knowing full well that some of these dates cannot be met and will potentially cause additional fees to the borrower.
IMPORTANT - All lenders must follow these new guidelines. You need to be very wary of any loan officer touting a faster than 30 day closing on conventional transactions. Remember that after the signing around of a purchase and sale transaction, the clock starts ticking and it will be a minimum of 7 days before the appraisal is allowed to be ordered and with some lenders, it is 10 days. With HVCC taking up to 2 weeks to get the appraisal done, you can quickly see how 30 days comes and goes in that short time.
Protect your buyers! Learn how these new regulations affect your business model and make the necessary changes to work within the new rules. Use them to your advantage by informing and educating your buyers. You do not need an unhappy buyer that finds out about closing delays that you should have known about!
If you are interested in a meeting at your office, please call us. We have powerpoint and visual information about these new regulations and would be happy to share them with you.