Monthly Archive for June, 2009

In May 2009, a little-known law snuck in like a thief and clobbered a lot of homeowners over their unsuspecting heads. This is referred to as the Home Valuation Code of Conduct or HVCC. It's intent was to make sure that the appraisal you got on your property was accurate--not inflated to help a favorite Realtor or lender close a deal, or to get additional business from anyone who stood to make money on your mortgage or home purchase. But often the road to Hell is paved with good intentions.
The problem is that for an appraisal to take place, someone has to order it and someone has to perform it. Enter the Appraisal Management Company, or AMC. These guys take the order from the lender, Realtor, whoever, and farm the assignment out to an appraiser contracted with them. For an approximately 40% commission. Yep, the cost of appraisals went up and refinancing became a lot more expensive for consumers.

Then there is the quality issue. Just like in all professions, there are good, bad, and ugly appraisers. Sometimes the ones lenders want to use are popular because they are experts and turn in professional work. And provide emergency rush jobs (which helps the borrower) if needed. But with no say in who does the appraisal, the appraisers have less incentive to go the extra mile, and the chance of you getting stuck with an incompetent appraiser goes up. So borrowers have less faith in the system.

Finally, there is the portability issue. In the past, if you started working with a lender and didn't like your rate or service or whatever, you could take the appraisal (which YOU pay for) and go to another lender. Now you'd have to start over and pay twice.

Fortunately, a bill is being kicked around in Congress called HR 3044, which would put an 18 month moratorium on the HVCC. It was just a bad solution and needs to be replaced with something that will actually do what the original bill intended.

It's not just the sixth-grade drop-outs who are having mortgage problems. And not just the "greed is good" Wall Streeters either. And not the big spenders who partied like it was 1999 even though it was 2009 and they weren't pulling in the big bucks anymore. And the Realtors? The ones who many think stretched the truth when talking up property as a great investment? A lot of them are in more trouble than anyone--because they bought into the hype more than anyone. After all, you have to be pretty enthused about a product to sell successfully. Lots of these folks have no business coming in and a lot of houses going into foreclosure--including their own.
Financial experts, too. And middle-aged folks who saved money and invested like crazy (and not in jewelry and flashy cars) to make sure they'd have a nice retirement. And stockbrokers, who were in many cases as optimistic about the market as anyone. Perhaps more, because historically stocks have outperformed just about everything in terms of return on investment. And these people watched their carefully hoarded investments crash--according to CNNMoney, $500,000 shrank to $370,000 in 2008 for a typical investor.

Well, okay. The stock market always comes back, and while it's down is the time to invest even more. That's a typical strategy, often referred to as dollar cost averaging, and it's a good one. As long as you don't lose your job when your investments are in the toilet. As long as your business doesn't depend on real estate, banking, construction, or investing. As long as you're not retired and needing your funds now--forced to sell low.

Educated Stupidity
For example, an investor with a lot of years in the property business, a finance degree, and a chunk of money from the successful sale of some apartment buildings ended up completely underwater on expensive golf course lots with no way out but short sales. And of course all the profits went down the drain.

A couple with a six figure income saved thirty percent of everything they made and invested in funds with longstanding reputations and great histories--only to lose over a million dollars in investments and home equity within 18 months. They are in the processs of getting a mortgage modification. And a commissioned salesperson who made about $250,000 a year ended up going nearly nine months without a pay check, borrowing against his retirement, finally selling all stocks at their lowest, and looking into bankruptcy.

Doing ALMOST Everything Right Isn't Enough--Keep Emergency Funds Where You Can Get Them Easily
These people did almost everything right--except having an emergency fund on hand that didn't depend on the stock market to maintain its value. So while CDs and savings aren't sexy and the returns are pitiful, it pays to keep several months' of expenses in this type of vehicle. Oh, and just for the record, one of the people in those stories was me. But it won't be again.

At a conference today for the National Association of Real Estate Editors, Congressman Barney Frank (D-MA) reiterated his view that "homeownership for all as a goal is flawed." And that as there are many out there who would be "more appropriately renting", that "rent reform" will also be a priority with the administration.

The problem of buyers acquiring property with zero down is a major focus -- Frank's stated goal was to eliminate 100% mortgage financing altogether and require minimum investments of 5%. He also wants to severely restrict sub-prime funding, not as it currently is curbed by the simple fact that lenders are out of business and no one wants to buy those loans, but through legislation.

Paul Kanjorsky (D -PA) also indicated that he felt rent reform was going to replace subprime lending as a major concern. He feels that current efforts have stabilized the real estate and mortgage markets somewhat but that they are temporary band-aids and more complete reform is required to support a long-term recovery. Mr. Kanjorsky claimed that there are viable institutions out there which deserve support as long as they are capable of servicing borrowers and cited Fannie and Freddie as examples.

Both Frank and Kanjorsky advanced the idea that institutions should not be allowed to get so large that Americans cannot let them go under. Punitive measures were supported, including the immediate dissolution of shareholder equity and the firing of the CEO of the most egregious offenders.

However, Kandorsky indicated while we may not repeat this exact crisis, it's impossible to stop the next one-it will just be different. He asserted that it's part of America's history that we undergo some sort of financial crisis every 25 years or so. And, he claimed, "It's the nature of capitalism to fight containment."

Anyone considering refinancing their mortgage under the Making Home Affordable plan had to be scared to death after looking at Fannie Mae's new risk-based pricing adjustments. The Loan Level pricing Adjustment matriax, aka the Chart of Death, added prohibitive surcharges to refinances for nearly anyone without perfect property and perfect credit. But as of July 1, 2009, refinancing through the making Home Affordable program will be a lot less scary and a lot less expensive.

Per Fannie Mae's Announcement 09-15, "Additionally, Fannie Mae is implementing a maximum cap of 2.00 percent on the total LLPAs and Adverse Market Delivery Charge assessed on Refi Plus and DU Refi Plus mortgage loans. This cap will reduce the cost of refinancing for some borrowers, which should help more borrowers take advantage of the refinancing benefits provided by Fannie Mae’s Home Affordable Refinance options."

This should put some teeth in the program and make it a lot more useful for those who qualify. To see if your loan is owned by Fannie Mae, click here for Fannie Mae's Loan Lookup Tool.

No, ECOA isn't a company that makes aluminum foil. It stands for the Equal Credit Opportunity Act. And this act protects even octo-moms from certain practices that lenders used to routinely be able to engage in.
ECOA prohibits lenders from any of the following:

1. Treating borrowers or prospective borrowers in any way (including but not limited to advertising to phone wait times to treatment in the office) that would discourage a reasonable person from applying there. For example, making statements to a minority applicant that he isn't likely to be approved before his information has been examined.

2. Asking about alimony, child support, or separate maintenance payments, without telling the applicant that he or she doesn't need to disclose this income. Applicants generally choose to disclose this kind of income only if it's needed to qualify for the mortgage.

3. Asking anything about the sex, race, color, religion, or national origin of an applicant (except as provided in 12 CFR 202.13 regarding information for monitoring purposes). Even an innocent, "That's a nice accent. What country are you from?" can get a lender into hot water with regulators.

4. And the biggie--at least for women--Lenders absolutely can NOT ask about birth control practices, or how many kids you plan to have, or if you plan to continue working once you have kids, etc.So if you are 8 months pregnant and have three kids in tow when you sit down with your loan officer, ECOA does not allow that to become a matter of concern for the lender. If you qualify for the loan, you get the loan.

End of story.

You have your money together for a down payment. You've gotten preapproved by your lender. But if you have less than 20% for a down payment, you may not get your loan if you live in certain states. Because it's not just Fannie Mae or Freddie Mac approving you for your mortgage. There will also ...