Why I’m Mad at the New York Times and their view of the Mortgage World…..

Here is an article where i disagree with the author. If you read the entire post, you will see that the New York Times wrote an article detailing just how difficult it is to get a mortgage now days. The author of this post strongly disagrees with the times. But as a mortgage professional myself since 1999, I have to say that I think The Times is right on the money here.

You read and you decide.

Here is the post:

I read this article over the weekend and it was so full of inaccuracies and distortions that I had to share my perceptions on it.    My comments are in bold and italics…..  and I’ll have more at the bottom.

Tight Mortgage Rules Exclude Even Good Risks – NYTimes.com

Inna Komarovskaya was ready to do her part to revive the economy: She found a “really cute” condo to buy.
Despite a good credit score, a six-figure income and an ample down payment, Dr. Komarovskaya, a recent dental school graduate, could not get a loan. Her mortgage broker told her she ran afoul of new rules requiring two years of sufficient tax returns from some home buyers, instead of only one……

Tom here – the way they say it makes it sound like they are randomly saying, “we need two years tax returns rather than one.”   Let me tell you the details that I “know” they aren’t putting in the story:  Dr. K recently graduated from dental school and then, rather than going to work for a practice with a guaranteed salary, either started her own practice or bought into a practice where she has an ownership stake in the practice.   Because of her ownership interest, the mortgage market is going back to what they have required for years which is a 2 year history to verify income.    Is that a new and restrictive guideline?   Nope, it’s going back to the way things have worked for a very long time.

The recession is the major reason sales are dragging, of course, but it is not the only one. As Dr. Komarovskaya found, buyers once viewed as perfectly qualified are being denied mortgages……

The credit pendulum is stuck at ‘stupid,’” said Lou S. Barnes, an owner of Boulder West Financial Services, a Colorado mortgage bank. “I am turning down loans every day that my grandfather in his Ponca City, Okla., savings and loan in 1935 would have been happy to make. And he was tough.”………
Tom here – I’d like to talk to this Lou Barnes and find out what his customer baser is like.   Am I talking to customers on a daily basis who can’t do what they want to do?  Yeah, I am.   But why?  Not because the guidelines are too tight, but because the bubble burst and property values have fallen.   It’s not stupid lending to refuse to do a “secured” mortgage at 130% of the value of the property.

The denials are occurring for a wide array of reasons: the buyers’ incomes are adequate but irregular; they are self-employed and take many deductions, reducing the taxable income on which lenders focus; their credit scores are below the cut-off point, which has been raised drastically; their down payments are less than 20 percent……
Okay, I think I can disagree with a lot of things in this sentence:

• Adequate but irregular – Gee, hasn’t the mortgage world always (as in like since I was in 1st grade?) taken a 2 year average to deal with irregular income?   So what’s the problem now?   The problem now is that too many people are used to dealing with mortgage rules that allowed virtually anyone to get a mortgage.   Those days are over.
• Self employed and take many deductions, reducing taxable income:  This one has bothered me for a long time.    For many many years, well educated lenders have known that true non-cash writeoffs that self employed people take on their tax returns can be added back to their income.    The cash expenses – well, guess what “cash expenses” means?   It means that you actually paid them.   Now some of you are probably saying, “But I write off the payments on my car loan, so why should that penalize me?”   A couple of things about that:    1) If you are writing off  your car loan and doing it appropriately, you should have absolutely no issues providing enough documentation to your lender so that while you can’t count it as income, at least you don’t have to have it counted as a liability.   2) If you structure things in such a way that you can use “pre-tax” income to pay for personal expenses, then you end up not having the same amount of income to qualify for a long, but employees don’t have that option.
• Their credit scores are below the cut-off point, which has been raised drastically;  Yeah, the cut off points have been raised drastically for credit scores.   Why?   Because the people with lower credit scores are a large amount of the people who are delinquent on their mortgages.   But guess what?   Through FHA, we’re still doing doing mortgages for people with credit scores down in the lower 600’s.   So, if someone has a credit score that’s too low for an FHA mortgage, then yes, they areally shouldn’t be getting a mortgage.
• Their downpayments are less than 20%.   Have the PMI companies instituted what are called “restricted markets?”   Yes.   What does that mean?  It means that if you are located in a restricted market, you have to come up with an extra 5% down.   Take the state of Michigan for example.   We are, according to some PMI companies, a restricted market, so rather than being able to do a 5% down conventional mortgage, we’re limited to a 10% down mortgage.    Oh, and how about FHA and VA?   According to what I’ve read, FHA and VA are in excess of 30% of the entire market.   So, there are a lot of options without 20% down.

Fannie Mae, the government-controlled company that buys mortgages, is so dominant in the lending market that its rules set the standard. It recently toughened its policies, saying it would count only 70 percent of the value of stocks and mutual funds when calculating a buyer’s assets. Previously, that figure was 100 percent…….

Mortgage brokers say those who are being rejected for loans are often entrepreneurs who are used to taking risks. “They are chomping at the bit to get into this market, but are forced to the sidelines,” said Stuart Fraass of Guaranteed Rate Inc. “If you’re self-employed, you have virtually no chance of getting a mortgage now.”……..
If you are self employed, don’t claim all of your income, write off a lot of personal expenses as business expenses, haven’t been in the business for at least 2 calendar (tax return) years, yes, you’re going to find it challenging to get a mortgage now.   But if you are self employed, are showing a profit and are reasonable about what you want to borrow, you should be good to go.   If that applies to you and you are having troubles getting financed, call me.

Mr. Fraass was unable to help Raghbir Singh, a real estate investor who owns a gas station in Dover, N.H. Mr. Singh tried to buy a $301,000 house for himself and his family with 10 percent down and excellent credit, but was rejected. “It was unfair,” Mr. Singh said. “I’m a good risk, but I’m forced to rent.”

A couple of things about this story that don’t “line up.”   Let me explain:   1) Mr. Singh is a real estate investor who claims that he’s “forced to rent.”   What’s up with that?   2) I’d be willing to venture that Mr. Singh’s tax returns don’t show quite the same income amounts that he’d like to “tell you” he makes.  3) “I’m a good risk?”   Didn’t we get away from the borrower underwriting (stated income loans) because they performed so horrendously?

Members of Congress are proposing to extend and enlarge an $8,000 credit for first-time buyers, which is due to expire in December. One bill would extend the credit to all buyers through next June. Another would extend it to all buyers through 2010. A third bill would expand it to $15,000 for all buyers.

Some economists, noting that tax incentives helped stoke the boom, say these proposals should be shunned. “When do you decide enough is enough?” said the housing consultant Ivy Zelman. “I don’t want to feed the drug addict with more drugs.”

Okay, a couple of additional thoughts to wrap things up:

• In case  you can’t tell, this sort of “half story” journalism really bothers me.    Is the mortgage world a lot harder than it was 3 years ago?   Absolutely.    But don’t tell lies and fabrications and half truths that make it seem worse than it is.
• Can people still get a mortgage?   Absolutely!   If you have a downpayment (as little as 3.5%), verifiable and stable income, are looking at buying a house that is reasonable for your income and debt levels and have decent credit, you’re good to go.
• This is exactly why I wrote my book, “Straight Talk About Mortgages – How to Survive and Thrive in Today’s New Mortgage World.”
  
• The world already believes the mortgage industry is dead.   It’s not and we don’t need irresponsible stories and half truths making it worse.

Are Housing Prices Finally Stabilizing?

Bloomberg is reporting this morning that einmonth. They take this as a sign the the economy is beginning to level off. But consumer confidence has sunk a bit and the most experts agree that we will have what is known as a jobless recovery as far as the recession is concerned.

For more info, you can read the full story here.

How To Get A Government Mortgage Loan

Gov Mortgage LoanSecrets That Lenders Don’t
Want You To Know That Will All But Insure That You
Get the Best Deal When You Refinance

Don’t Make The Same Mistakes That People Who Get Ripped Off Make. Follow These Tips And You Can Save Thousands Of Dollars On Your Gov Mortgage Refinance.

You are going to hear a lot of advice  from a lot of people — Most of them are shifty-eyed mortgage salesmen trying to get their greedy hands on your loan.

But if you want to avoid the over-payment trap that many Americans fall into when they shop for a gov mortgage than you must follow this advice.

What I am about to spell out, are not mere suggestions, but they are mandatory steps that you must take to avoid getting ripped off.

FHA Loans Are Great For Consumers Because They Are EASIER TO QUALIFY FOR. And The Rates Are Pretty Darn Good Too.

But many people think that if they get a gov mortgage, an FHA loan or a VA loan that the government is actually giving you a loan.

This could not be further from the truth.

Government loans are handed out by the same greedy bankers that give out all the other mortgages. The only difference is that a government loan is guaranteed by Uncle Sam.

Meaning that if you stop paying the loan, the folks in Washington pay the bank for any losses they might incur.

So the difference between a regular mortgage and an FHA loan is practically nothing. The guys who were responsible for this hell of a mess that we are in right now are the same guys who are now handing out all these FHA Loans.

And believe me, they are just as greedy today as they ever were. They can make as much or more profit from FHA loans as they do from conventional loans.

So how do you protect yourself?

Obtain Information from Several Lenders

Home loans are available from several types of lenders, commercial banks, mortgage companies, and credit unions. Different lenders may quote you different prices, so you should contact several lenders to make sure you’re getting the best price.

Obtain All Important Cost Information Up Front

Be sure to get information about from several lenders or brokers. Know how much of a down payment you can afford, and find out all the costs involved in the loan. Knowing just the amount of the monthly payment or the interest rate is not enough. Ask for information about the same loan amount, loan term, and type of loan so that you can compare interest rates the information.

You want to look at several lenders and compare the interest rate, points and fees.

Check The Fees

A home loan often involves many fees, such as loan origination or underwriting fees, broker fees, and transaction, settlement, and closing costs. Every lender or broker should be able to give you an estimate of its fees. Many of these fees are bogus and can be reduced or eliminated.

Obtain the Best Deal That You Can

Once you know what each lender has to offer, negotiate for the best deal that you can. On any given day, lenders and brokers may offer different prices for the same loan terms to different consumers, even if those consumers have the same loan qualifications. The most likely reason for this difference in price is that smart consumers negotiate better terms.

Who To Call To Get The Best Deal On A Gov Mortgage

With so much at stake, you should always seek the advice of trusted professionals. We believe that information is power and that you should obtain as much information as you can.

A great place to start would be through a company such as LendingTree Mortgage Loans . They are great because they are able to get multiple government loan offers for you by filling out simple form.

With Lending Tree,  You Have The Ability To Look At All The Offers Side By Side And Get Down To Some Serious Negotiating.

Also, they are great because you don’t want to have a bunch of companies pulling your credit report over and over again.

The more times your credit report is pulled — The lower your credit score will drop. That does not happen with Lending Tree.

It doesn’t cost a dime to get your quotes — And They have the biggest and most stable banks in the country on their roster which means you won’t be dealing with any fly-by-night banks that will disappear tomorrow.

So we like Lending Tree because –

1) They Are Trusted

2) They Are Easy To Work With

30 They Have The Best Banks In The Country

4) It Costs Nothing To Get You Quotes From Many Lenders That You Can Compare.

I am confident that the information that we provided here for you will help you get a great deal on a government loan or a conventional loan. Follow the steps that I have outlined and you can’t go wrong.

For Your convenience, we have put the lending Tree Form Below.

FHA Loan To Value Restrictions For Cash Out Refinancing

Maximum Loan To Value Drops For FHA Loans

WE knew it was coming for sometime and it finally arrived. As expected, the FHA has lowered the cash out refinance Loan to value from 95% down to 85% as of April 1st.

This change is not permanent as of yet. The Department of Housing and Urban Development wants some time to take a look at all the loans it currently has in its portfolio. But we do not anticipate that it will go back up any time soon.

As we understand it, if you currently have a second mortgage which combined makes your loan to value ratio greater than 85% that would be allowed of your keep 2nd mortgage in tact.

In order to receive cash out from your property there must be 12 months seasoning, meaning that you must have owned the house for at least a year.

No longer will the FHA allow non occupied co-borrowers to help the borrower qualify for the mortgage.

If your loan amount is greater than $417,000 or if you live in an area where home values are declining, you must have two appraisals done.

Any borrower who is delinquent will not qualify for a cash out mortgage.

Although these changes are hard to swallow for some it may be the best course of action right now to preserve the FHA as strong alternative to a tight lending market.

FHA loans are one of the best resources for home loan financing right now and they are needed to revive our slumping housing market and our slumping economy.