Rates WILL Rise a Good Reason to Buy Now?

This article is related so can be considered as a follow up to the last article “If You Don’t Buy a House Now, You’re Stupid or Broke. The answer to that question is… Well that it really depends on you and your debt to income ratios and ability to repay and previous repayment history of debt.

Lenders are subject to extreme scrutiny at the moment. Above average defaults can have drastic consequences and no lender is immune. This has led to over the top caution and excessive documentation and underwriting requirements.

It is what it is, so we’ll have to deal with it and only deal with mortgage reps on top of their game and don’t make promises they can’t keep!

FYI Rates continue to be at or near historic lows.

Given the eternal optimism that is inside all of us we believe the low rates are here to stay (or go lower yet) but think again.  The writing is on the wall for higher rates next year!  With the Fed buying approx 80% of all mortgage loans now, they will stop doing this by March, and there are few other buyers at current price and interest rates.

As the Federal Housing Administration (FHA) considers  raising the minimum credit score requirement for new borrowers to reduce risks to the single-family insurance fund, Fannie Mae (FNM: 1.04 +13.04%) has increased the minimum borrower credit score from 580 to 620.

Brian Faith, a Fannie Mae spokesperson confirmed the minimum hike, adding that the adjustment reflects a careful analysis of borrowers’ ability to repay their mortgage obligations over the life of the loan.

Faith said “Our experience with recently delivered loans with credit scores below 620 is that they reached a level of serious delinquency at a rate approximately nine times higher than other acquisitions during the same period.”

Fannie also reduced the allowable debt-to-income (DTI) ratio to 45% when executing loss mitigation efforts under the Home Affordable Modification Program (HAMP). Under HAMP, the US Treasury Department provides allocated capped incentives to servicers for the modification of loans on the verge of foreclosure.

Faith said that “high DTI ratio loans also have higher levels of serious delinquency. “In other words if you have a lot of debt and keep stacking it on with new cars, credit card bills and other investments and leveraged to the hilt, maybe you shouldn’t be buying a home until you pay down some of that debt first.

It’s not enough to help borrowers buy a home – we must also ensure that they can stay in the home over the long term. Repeat business through ill-gotten gains is rare, immoral and unethical, at least in my book.

Contact us today for a free consultation to see if home ownership may be in your future.

www.MarivicRealty.com
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Edison, NJ 08817-3330
Office: 732-650-9911
Toll Free: 1-866-745-4622

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HUD FHA Condominium Complex Approvals

I’ve been coming across this issue more and more lately so decided to write this article to address the issue of condo complexes being approved so that would be buyers can use an FHA loan to fund the purchase.

 
Since condominiums are becoming more popular across the country, I think this information will be helpful to you if you are new to FHA or if you are in need of a refresher on condominium requirements.

There are two types of condominium approvals for FHA:

• Full project review and approval by HUD
• Spot loan review and approval by the lender

To check see if a condo complex is HUD approved for FHA loans the first step would be to determine the name of the condominium project and conduct a search at HUD’s website to see if the project is currently approved. You’ll need to go to https://entp.hud.gov/idapp/html/condlook.cfm where you can search by condo name, condo id, alias name, city, state or zip code.

If the search concludes that the project is not currently approved, your mortgage rep would want to do one of two things:

1. Determine if the property is eligible for spot loan review and approval or
2. Determine if it’s best to gather project documentation and submit to the HUD Homeownership Center that oversees the jurisdiction of the property for full project review and approval.

For Spot Loan Approval
To proceed with spot loan approval, you would want to refer to Mortgagee Letter 1996-41 which explains spot loan approval requirements. You will find a spot loan questionnaire/checklist attached to ML 96-41. You will need to have an officer of the condominium project’s homeowners association or a representative from the company that oversees and manages the association complete the spot loan questionnaire as early in the process as possible. With the completed spot loan questionnaire, you will need to obtain a copy of the association’s most recent annual budget and you will need to obtain a copy of the certificate of insurance for the subject unit of the project. The association must have appropriate insurance coverage for the common areas and exteriors of the buildings within the project.

Most lenders also require a copy of the condominium declarations and bylaws to be submitted with the questionnaire, annual budget and certificate of insurance for the subject unit. You will want to check the specific lender procedures for spot loan approval because some lenders actually employ their own department for project reviews and approval. Most underwriters are able to determine project acceptability at the same time they underwrite the rest of your credit package but there are a few that differ in their processes. Make sure you’re clear up front on the exact process with the lender of choice.

One thing worth mentioning that you will not find within the Mortgagee Letter or the questionnaire: To be eligible for spot loan approval, the project must consist of no less than four units. This eliminates two unit duplexes and three unit triplexes which have been zoned as condominiums from being eligible for spot approval.

For full project review and approval
For cases where a particular originator has the potential to land a number of deals within the subject project, HUD advises pursuing full project approval. You will find full condominium project requirements at CFR-234.26(i) and also in HUD handbook 4150.1 Chapter 11. Each HUD Homeownership Center has their own specific project review process so you will want to be clear on what to include in your project submission, where to send the documents and to whose attention you need to address the documents.

For more information about purchasing or selling a home call
Marivic GMAC Real Estate
www.MarivicRealty.com
Local: 732-650-9911
Toll Free: 1-866-745-GMAC(4622)
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IMPORTANT: Short Sale, Refinancing, Loan Modification info

Mortgage Default Income Tax Relief
H.R. 3648

Important information:

Have you recently or are thinking about doing any of the following:

• Refinancing
• Short Sale or Pre-Foreclosure Sale
• Loan Modification
• Loan Restructuring
• Ask your Lender to Reduce or Forgive a Debt

Although disliked today by many people with short memories or who don’t even follow his politics and forgot or never even knew all the good that President Bush has done, it seem hating him is the Politically Correct or PC thing to do these days as so many follow suite.

This is really another great thing President Bush has done which is taken for granted these days but many find themselves so thankful for without giving the proper credit where it is due. Without H.R. 3648 real estate would really be dead in the water today to a degree which would be catastrophic in comparison to what is currently being experienced; so for all the leftists and Bush haters out there, I am certain this bill has touched you or someone you know in ways you cannot even begin to imagine.

Due to the act which this article will address many have been able to keep their homes or sell them and make settlement agreements with their lenders for an amount less than what was owed without having to pay an additional income tax for the amount which was forgiven by the lender.

Many people who are using the short sales method today to sell their homes, which has become so common only makes financial sense to do so and made possible to do so due to this act initiated by none other then George W. himself.

"When your home is losing value and your family is under financial stress, the last thing you need is to be hit with higher taxes. So I'm working with members of both parties to pass a bill that will protect homeowners from having to pay taxes on cancelled mortgage debt."

─ President George W. Bush, 9/1/07
VIDEO: President Bush Signs H.R. 3648

Thursday December 20th 2007 President Bush signed into law H.R. 3648: Mortgage Forgiveness Debt Relief Act of 2007 to amend the Internal Revenue Code of 1986 to exclude discharges of indebtedness on principal residences from gross income, and for other purposes.

So what are we really talking about here?
Tax laws consider forgiven debt as income, which can leave those of you with foreclosed homes with some unexpected tax bills. Let's say I loan you a million dollars. Now I go, "Oh, wait. Never mind. You can keep it." The IRS considers that income. You would have to pay the taxes on your million dollars.

The tricky part comes in when I'm not just loaning you a million dollars. I'm loaning you money to buy an overpriced home that you can't afford and I can't sell for as much as you owe me once I take it back from you.

So how does this bill affect me?
Here is where the Mortgage Forgiveness Debt Relief Act of 2007 comes in to play.

Under current law, if the value of your house declines, and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as income that can be taxed.
Under the tax code, a lender who forgives a borrower's debt must provide a form 1099 to the IRS reporting the forgiveness of indebtedness as income to the borrower. The new legislation from Bush provides taxpayers who experience a home loan foreclosure or renegotiation resulting in forgiveness of indebtedness income with three year exclusion up to $2 million.

Bush said during the signing ceremony: "The law will increase the incentive for borrowers and lenders to work together to refinance loans -- and it will allow American families to secure lower mortgage payments without facing higher taxes."
Ahhh…. You may be scratching your head at this point so let’s simplify that a little further.
Under the Mortgage Debt Forgiveness Act of 2007, some homeowners granted forgiveness of mortgage debt won't have to pay taxes on that amount. But there are some restrictions:

1. There is a limit on the forgiven debt: up to $2 million or $1 million for a married person filing a separate return.
2. The tax break also has a time limit. It only applies to mortgage debt discharged by a lender in 2007, 2008 or 2009.
3. The loan also must have been taken out to buy or build a primary residence, not a second or vacation home. If debt is forgiven on those additional properties, the owner will owe cancellation of debt income as usual.

This law comes with a new tax form which must be filed if you find yourself in the unfortunate situation of having to do a short sale or if you are able to manage to work with your lender and by the grace of god manage to get them to forgive some of the debt and restructure you loan so that you can keep your house among other possible scenarios where you experience a debt forgiveness.
You will be required to file the new IRS tax Form 982.

If home mortgage borrowers are entitled to forgiveness for the income tax consequences of their default, who is to blame? Forgiveness of indebtedness income corresponds with the forgiving lender's bad debt deduction.

The House Ways and Means Committee in September, Rep. Kevin Brady, R-Texas, said that he wished the cost of paying for the relief was more tightly targeted to the lenders and real estate speculators who helped create the subprime lending crisis. Committee Chairman Charles B. Rangel's, D-N.Y. response explains it all for you. "It's so much easier to give the tax break than to pay for it."

Either way without the help of the Mortgage Forgiveness Debt Relief Act of 2007 we would be seeing a lot more of this going around. Read the story

Additional Sources:

• IRS on the Mortgage Forgiveness Debt Relief Act
• Mortgage Work Outs Now Tax-Free
• Hope Now The Home Owner Preservation Alliance 1.888.995.HOPE
• FACT SHEET - The Mortgage Forgiveness Debt Relief Act of 2007
• VIDEO: President Bush Signs H.R. 3648
• Official White House Press Release about H.R. 3648 Mortgage Forgiveness Debt Relief Act of 2007
• Wikipedia About George W. Bush
• George W. Bush Presidential Library