The Ready Way

The Rise of the Government loan.

Monday, December 21st, 2009

Question:  How to get out of a box that keeps getting smaller?

Answer:  The Government.  Seriously.

Conventional lending is getting tighter.  Beyond the new max 45% debt to income ratio you now have the push back on appraisals escalated to an all time high. One would think that with all our new and expensive shiny hoops we get to jump through to get an appraisal that then that appraisal would be enough. Jump through the hoops=get to the end.  Not so much.

 Keep in mind as a loan officer we are now not allowed to choose who does the appraisal.  Appraisers are chosen at random and then we are not told who it is until after we get the appraisal back.  This is so we will not contact them and “convince” them to “inflate” the value of the home.  This system was set up to protect consumers from corruption and greed.  Well, one would think that since the appraisal is now done in such a non- corrupt way that it would actually be used as a way to value the home.  That is what you are paying $375-$450 for right?

Not so much.  Enter the 2nd appraisal my friends.  Jump through the hoops see the end and then 30 more hoops pop up.  If you are buying a home with 20% down the chances of you needing either a desk review appraisal or full 2nd appraisal are 90%.  If you are putting 25% or more down the chances go down, however, some banks require a desk review on all loans even if you put 90% down.  Other lenders/banks require a field review or full 2nd appraisal on purchases or refinances with 20% down.  Why is 20% down not enough to escape the 2nd appraisal?  Because investors are scared and we are in a declining market. 

The 2nd appraisal is like a little yummy cookie in the file that makes the investor feel like they are getting a good deal.  If two appraisals say the house is worth $200,000 then it must be.  While this is a lovely cookie for the investor it is less than great for the borrower who gets to pay for 2 appraisals. 

The lender is stuck with the desk review fees in many cases but if the underwriter wants a 2nd appraisal (which is becoming more and more common every day; loans need to be sold, my friends)  then you get to pay for it.  Awesome right?  Bright side; you will have multiple opinions on your home and pictures:)

Strangely enough on a FHA loan under $417,000 with 3.5% down we never need 2nd appraisals or desk reviews.  Easier and faster to get a government loan?  Yep, that is the way the cookie crumbles. You can have higher debt to income, put less down and have less appraisal drama. We all know who the investor is on these loans and they are insured which means we do not need “cookies” in the files. Keep in mind in late 2007 FHA was a bad word. Inmost offices there were few people who did FHA loans.  They were considered too difficult and time consuming.  Now the majority of loan consultants in the business who stay busy have become FHA experts and can quote the guidelines in their sleep.  What a difference 2 years makes.  If you had told the loan consultants of 2006 that 2009 would be the year of the government loan they would have thought you were mad. 

Forecasting for 2010 it will be another year of the government loan.  The conventional market will not loosen up for quite awhile.

FHA, VA and USDA (yes they do loans) bring it on, we can quote your guidelines in our sleep. ZZZZZZZZ

Posted in Government, Important lending changes | No Comments »

Suggestion: Hey right hand see what the left is holding and other wild ideas to solve the crisis

Monday, December 14th, 2009

It seems as though often these days the left hand does not know what the right is doing.  The government has just greatly restricted lending via Fannie Mae reducing the back end debt ratio down to 45% from 64%.  The back end ratio includes your principal, interest, taxes and insurance + all your credit card, auto, student loans, etc…   What this means is yout total debt cannot exceed 45% of your gross income.  Dropping from 64-55 fine but 64-45 is HUGE.  That restriction will make it impossible for many people to buy or refinance a home unless they do FHA.  FHA, which keep in mind is also looking at adding new restrictions.

Since Fannie Mae made the move to 45% the banks are following suit as they should, since they have been targeted for risky practices in the past.  This has led to a giant segment of people virtually being stamped with denied on their loan applications.

Today our President, implored the banks to lend more.  Hmm…Did no one tell him about Fannie Mae’s new rule?  Did they forget to tell him about the troubles with FHA?  

Banks are lending right now as long as people fit within the guidelines.  Generally, the guidelines that Fannie Mae sets. Obviously the banks have noted the ludicracy of the contradiction and thus the quick movement to pay back bail out funds. 

In theory if one really wanted people to get help with modifications why doesn’t Fannie Mae have a loan modification program where you can refinance your house even if your note is not currently owned by Fannie Mae for a lower rate even if it is completely and utterly upside down. I am talking about houses worth $600,000 with $700,000 loan amounts. If they can qualify to make the payments at today’s low rates, why not? I mean all the money used to bail out the banks was to help people right?  They want the banks to modify loans that are utterly and completely upside down. 

I constantly have people come to me who are in ARMS and slightly upside down.  All they want to do is finance into a fixed rate and we cannot because they are upside down.   That seems like a missed opportunity to fix what will potentially become another foreclosure if not handled. 

There are solutions. We just need to think outside of the box.

Posted in Foreclosure, Government | No Comments »

I guess I really do need a blog for my less than PC thoughts

Monday, December 7th, 2009

Julie and I blog on Trulia about the market almost daily.  I have never had any problems and generally the blogs are well received.   Well last night I wrote a blog that was meant for The Ready Way but ended up on Trulia because the server for Ready Way was down.  Big mistake.  I posted the blog, checked it had posted and went to sleep happy; feeling that I had pointed out some solid issues.  This morning I told Julie to check it out and lo and behold it was gone. No email, nothing.  It was as though it had never existed.  What did I talk about that would need to be scrubbed so quickly?  Must have been pretty wild right?  Not really.

Of course I do not have a copy as it did not cross my mind it would be scrubbed, but here is my position.  I had read an article in a local newspapers about modifications.  It was the same article I have read in various newspapers and magazines for the last year and a half.  There is always a picture of a nice family doing something wholesome (lawn with kids; cooking etc..) and the article says nothing substantial.  We get it loan modifications are hard to come by and the nations largest banks are not rushing to do them.  This is not “news.”  What would be news is if they told us what various investors guidelines were for a modification.  What would be news is if a newspaper or magazine actually had some useful facts in their story.  Crazy right.  I called out journalists to do some investigative work and get to the bottom of what is really going on.  We need a lending Watergate.  It is insane that we know all of  a famous golfers text’s but not the guidelines for modifications.  Instead of looking into how to help Americans by providing them an inside look we are getting an inside look into a red headed starlets propensity to go back to rehab. There is something off in the balance system here. I challenge all journalists to right the balance.

Posted in What the media is saying | 1 Comment »

Another reason to live in Sonoma County

Tuesday, December 1st, 2009

Tonight I watched Food Inc.   I had read the omnivores dilemma and fast food nation and they had slightly traumatized me but not like the actual Food Inc movie.  After this movie I am officially eating localonly.  The beauty about Sonoma County is that eating local is an option.  In many parts of the state I would need to become a vegetarian but here we have such amazing sources of food that now I just have to shop at Sheltons or the Farmers market.  If you have not seen Food Inc check it out.  It is life changing.  The Government may want to put a little less energy into cotrolling financial institutions and a little more into providing safe food sources.

Posted in Uncategorized | 1 Comment »