Penalties Increase for Borrowers Who Walk Away

Borrowers who consider walking away from their mortgages have yet another reason to think twice.  Fannie Mae has implemented a new policy that penalizes borrowers who walk away even though they had the ability to pay or who did not complete a workout arrangement.  Such borrowers now will be ineligible to obtain a Fannie Mae-backed loan for seven years.  However, borrowers who experience extenuating circumstances may be eligible for a new loan within two to three years depending on the situation.  Fannie Mae is also considering legal action to recoup the outstanding loan debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments.
Fannie Mae plans to instruct its servicers to monitor delinquent loans facing foreclosure and recommend cases that might warrant the pursuit of deficient judgments.

Why is there a Limit on the Number of Financed Properties?

In 2008 Fannie Mae reduced the number of allowable financed properties from ten to five, only to reverse it a year later.  Unfortunately, a majority of the lenders have refused to change back to the ten mortgage cap.   Banks are licking their wounds with all of the foreclosed investment properties from back in the day.  Remember the 100% stated, investment program? Every bank is different.   Most banks will only permit up to four mortgages, maybe five, as long as the fifth property is a primary residence.  The lenders allowing financing for up to ten properties typically do not offer the best brother-in-law rates and may only loan on one property, limiting their investment exposure. Question:  A buyer would like to finance two investment properties.   He already owns three properties.  But there is a fourth his ex-wife received in the divorce and his name is still on the mortgage.   He is having a hard time finding a lender?  Why?   The issue with the property in the ex-wife's name is tricky.  Fannie Mae's guidelines state that if you have a court order (such as divorce decree); the lender is not required to evaluate the payment history.     Conventional Wisdom tells us that as long as there is a divorce decree that spells out the transfer of title to the ex-wife and she can provide bank statements and/or cancelled checks proving she has been making the payments out of her own checking account, that would be cool with the lender.  But lender's don't think that way in today's market.    The bank's will have their own interpretation. FYI:  Some lenders gauge the number of mortgages NOT properties.  So, if you have three investment loans, and a first and second on your primary, that may be considered five mortgages. Yes, It Is True: One bank will not allow out of state borrowers to finance investment properties.  It is gonna hurt if the loan officer is not aware of that cute nuance until underwriting.

Are You Eligible for HAMP-Home Affordable Modification Program?

In order to be considered for a loan modification under HAMP, you must meet the following basic criteria:

1. Primary Residence -This must be your primary residence.
2. Date - The loan must be dated prior to January 1, 2009.
3. Size Limit - The loan must be equal to or less than $729,750.
4. Hardship - Borrower must demonstrate a hardship or change in circumstances which make it more difficult to pay the loan such as a reduction in household income, increase in necessary medical bills or a significant increase in the monthly loan payment due to an interest rate increase.
5. Debt to Income Ratio - First loan payment which includes principal, interest, taxes, insurance and HOA dues equals more than 31% of the borrower's current gross income.
6. Current Income - Borrower must show adequate current income to make the reduced payment if the modification is allowed.


Lender loan modifications can be a forbearance agreement, interest rate reductions, conversion of ARM's to fixed rate loans, deferral of past due payments and in rare instances even principal reductions.

Unfortunately, negative equity is not sufficient grounds for a modification!!!!  So it's best to explore other options (with a lawyer or real estate broker) such as a short sale before walking away from a home and letting it go into Foreclosure.




Linda Shank Broker Owner Linda Shank and Company is a 32 year real estate veteran in Phoenix's Southeast Valley.  Contact her at www.ISellAZSunshine.com

Fannie Mae Conventional Loans are now requiring a 2nd Credit Report

Lenders must now obtain a 2nd credit report, no earlier than 7 days prior to funding, on all conventional loans.  Any new credit inquiries must be explained, and any new credit obligations must be re-underwritten with those debts included in the qualifying ratios.

Jay Starks @ Bell Mortgage states they will not be required to obtain a new credit score and they will not be charging the borrower for the additional credit report at this time.

Jay further comments that he would not be surprised to see FHA and VA follow this path. And, it is possible that investors may decide this is a great idea and require lenders to do the same on all loan files regardless of what the agencies mandate.

Linda Shank Broker Owner Linda Shank and Company is a 32 year real estate veteran in Phoenix's Southeast Valley.  Contact her at www.ISellAZSunshine.com 

Buyers Beware of a 2nd Credit Report done prior to Closing your Loan

This just in from Jay Starks @ Bell Mortgage:

FNMA and Freddie Mac are on the verge of requiring lenders to pull a 2nd credit report just prior to funding.  When they do, we expect all of our secondary market investors to do the same, and they will probably require us to do so on government loans as well as conventional files.  The ramifications of this are enormous:

 

1)  Small FICO score changes due to something as simple as a slightly higher credit card balance could change a customer's interest rate, or cause the loan to be denied, at the last minute.

 

2)  New debts or obligations could cause a customer to no longer qualify.

 

3)  Recently recorded judgments or collection accounts that were not on the original report could derail a transaction just before funding.

 

 

I know that many of you counsel your clients regarding their use of credit while they are shopping for homes or while they are in escrow, but it will be more important than ever going forward that we all work together to remind them of what can happen.

 

No more moving back in with Mom and living on charge cards while you save up your down payment!

 

What you Should Know about FHA loans

Loans can be underwritten by an approved lender which includes most of the major banks in the country.  FHA has the some high loan limits as Freddie Mac and Fannie Mae (which have been extended to the end of 2010).  You can buy a home with a 3.5 percent down payment as compared to at least 10 percent down for a Freddie Mac or Fannie Mae home.  You can get your loan scored for approval through a variety of underwriting engines including Fannie Mae's Desktop Underwriter and Freddie Mac's Loan Prospector.



 Linda Shank is a Real Estate broker in the Phoenix Southeast Valley Gold Canyon area.  She can be contacted at www.ISellAZsunshine.com