The new FICO 09 score will become available in the fall of 2014. But just because the new model is sold online by the my fico site as well as being available to mortgage lenders, doesn’t mean it will be used by the mortgage industry. For lenders, switching to a different FICO score is a complicated risk.
Lenders who decide to try the new FICO version will go through a testing process before they decide whether to adopt them. Barry Paperno, who worked at FICO for many years, explains:
“(Lenders) begin to test it on their portfolios through a process called ‘validation’ to help determine when,
and if, they choose to go with the new score,” he says. “Briefly, validation consists of looking at past credit decisions and customer credit performance using both the FICO version used in the initial decision and a ‘what if’ scenario using FICO 9. If, from this analysis, it looks like FICO 9 would have done a better job of weeding out more poor performers than the score they used, the lender may decide the possible reduction in future losses will be worth the resources required to switch to FICO 9. If, on the other hand, the validation
shows FICO 9 not appearing to provide any increased risk prediction value, then they’re likely to stick with what they’re currently using. Many of the large banks use their own custom proprietary scoring models in which FICO scores are just one of many components, making changes to these complex scoring systems, as
would be required by a change to FICO 9, is no small logistical feat.”
Lenders will be wary about having to change their whole system since the process takes time and can be quite expensive. Like most businesses, lenders have lots of priorities and the new score might not be one
of them. FICO’s last version, FICO 8, was released in 2008 and has only recently been adopted by a minimal amount of lenders. To date, Fannie Mae and Freddie Mac have not adopted the 2008 version.
In addition, lenders can also consider factors outside the FICO score when approving or declining a loan. The FICO 09 score has gotten a lot of press because it will place less weight on medical debt. However, a lender reviewing a credit report would still be free to question collection accounts or decline applications from consumers whose credit reports contained one or more of them.
Those planning on applying for a mortgage should note that if they are ordering FICO scores from the
myfico site in the fall they may have very different scores in comparison to what the lender pulls. Bankers have to be mindful that they may need to explain this to disappointed and frustrated mortgage applicants.
Realtors help your investors purchase more properties.
Your clients can enjoy a quick closing with rehabilitation loans. Rehab loans are tailored for the real estate investor who wants to purchase and rehab investment property.
Using the property as collateral, funds are available for short-term residential renovation projects that most traditional banks and credit unions won’t approve. Authorized monies will be held in escrow and released in draws, as your contractors complete renovations.
Experienced real estate “flippers”can be approved for up to 100% of the project costs with House Rehab Financing.
The property can be used as collateral and the investor can be approved for a loan up to 65% of the home’s value. The loan typically offers a loan term of about 6 months, and a low interest rate commonly under 9%.
And, there is no pre-payment penalty if the loan is paid off early. This makes it easy to quickly sell the rehabilitated property once repairs are complete.
Only non-owner occupied properties can qualify for our house rehab financing. Financing can be obtained for residential 1-4 unit properties, and even small apartments and condo conversions by exception.
All house rehab financing loans range from $25,000 and higher. 100% of renovation funds are typically advanced in 1 to 4 draws. Once the inspector certifies work is done, funds are wired within 24 hours directly to investor's account.
House Rehab Financing is one of many financing programs available for you and your clients through the Business Finance Suite.
Mortgage servicers and troubled homeowners may be losing faith that Congress will pass legislation saving borrowers from paying a tax penalty when they do a short sale.
The number of short sales fell to 33,900 in the first quarter from 48,500 in the prior quarter and from 84,860 a year earlier, the latest report by the Hope Now alliance of mortgage servicers
The first-quarter decline comes after Congress failed to extend the Mortgage Forgiveness Debt Relief Act, which expired at the end of 2013. Borrowers who complete a short sale this year could be taxed on any forgiven principal unless Congress passes an extension that is retroactive to Jan. 1.
"Some properties that may have avoided foreclosure as short sales are instead being foreclosed upon and contributing to the rise in REO stock," says Sam Khater, a senior economist at the analytics firm CoreLogic.
While foreclosure starts and home sales have been on the decline along with short sales, a report by CoreLogic shows the number of repossessed properties on the market has risen from 375,000 in August to 430,000 in March. This is due in part to lower investor demand for foreclosed properties but may also reflect Congress' failure to extend the Mortgage Forgiveness Debt Relief Act.
Senate Republicans are filibustering a tax-extender bill that contains a two-year extension to the debt relief act. The House is expected to delay any action on a tax extender bill until after the November elections.
Short sales generally considered less damaging than foreclosures because the former owner generally walks away with a few thousand dollars in pocket and a better credit score. The home is generally in better shape and commands a better selling price. Short sales peaked at 422,600 in 2012 and fell to 281,078 in 2013, Hope Now data show.
Driven for the most part by income from legal settlements Fannie Mae and Freddie Mac saw combined profits of $10.2 billion last quarter,.
Fannie Mae saw net income of $5.3 billion in the first quarter, according to a Reuters report. That includes $4.1 billion from legal settlements over various banks’ sales of mortgage-backed securities. Freddie Mac, meanwhile, posted $4.0 billion, including $4.9 billion from litigation over mortgage-backed securities. The first quarter was Freddie’s 10th consecutive profitable quarter.
All told, Fannie and Freddie will return $10.2 billion in first-quarter dividends to the Treasury. By the end of June, the companies will have returned $213.1 billion to the government.
The mortgage finance giants got $187.5 billion in government aid after being placed under conservancy at the height of the financial crisis. Under the terms of the conservancy, Fannie and Freddie must turn their profits over to the Treasury as dividend payments.
Applications for home mortgages, including both new purchases and refi’s are at the lowest levels in more than a decade. While many observers blame rising interest rates for the paucity of new loan applications, factors such as a poor job market, flat to down consumer income and excessive regulation are probably more important. Commercial banks are fleeing the mortgage lending and loan servicing businesses, in large part because of punitive regulations and new Basel III capital requirements which demonize private mortgage lending.
"Rules enacted last year appear to be steadily forcing banks to exit the mortgage servicing business, transferring such rights to nonbanks," Victoria Finkle writes in American Banker. "The situation is stoking fears on Capitol Hill and elsewhere that regulators went too far." Those fears are well founded.
The latest data from the Federal Deposit Insurance Corp. confirms that the loan portfolios of commercial banks devoted to housing are running off. For example, the total of 1-4 family loans securitized by all U.S. banks fell almost 5% in the fourth quarter of 2013 to a mere $610 billion. Real estate loans secured by 1-4 family properties held in bank portfolios as of the fourth quarter fell to $2.4 trillion in the last quarter, the lowest level since the fourth quarter of 2004. The FDIC reports that the amount of 1-4 family loans sold into securitizations exceeded originations by almost $30 billion.
As 2014 unfolds, look for lending volumes in 1-4 family mortgages to continue to fall as a lack of demand from consumers and draconian regulations force many lenders out of the market. While leaders such as Wells Fargo have indicated that they will write loans with credit scores in the low 600s range, there are not enough borrowers in the below prime category to make up for the dearth of consumers seeking a mortgage overall.
The Treasury Department has directed mortgage servicers to notify borrowers 120 days in advance of upcoming increases in monthly payments on loans previously reworked through the Home Affordable Modification Program.
Some borrowers' monthly bills could rise by as much as $1,700, although the increases will be gradual and the national median increase will total around $200, the department says. Treasury officials want to ensure borrowers have plenty of advance notice of a reset and counseling will be available if necessary.
"Treasury will maintain its oversight of participating servicers," Mark McArdle, the chief of Treasury’s Homeownership Preservation Office, said in a March 12 note to servicers. "We will monitor the interest rate resets to ensure that if signs of homeowner distress arise, servicers are ready and able to help by providing loss mitigation options and alternatives to foreclosures."
Many distressed homeowners saw their interest rates reduced to 2% and the median monthly payment cut to $773 under the HAMP program, which was launched in 2009.
There are currently 782,748 HAMP active mods that are slated to complete a multiyear reset process by 2021.
An estimated 30,126 HAMP mods will start to reset this year and the interest rate will go up one percentage point per year until it adjusts to the rate agreed upon at modification. The reset rates will range from 4% to 5.4%, according to aTARP Inspector General report. That is lower than 6.4% median interest rate that the borrowers had before the modification.
The multiyear median monthly payment increase will be $196 when the HAMP reset process is complete. However, the maximum payment increase could be $1,724 in places like California, compared to $789 in Arkansas.
Ten states and the District of Columbia will "face mortgage payment increases that are more than the $196 national median," the inspector general's report says
This is a reprint from MONEY TALK NEWSOctober 25, 2013
By Marilyn Lewis
Rents rose 7.6 percent nationally in the last five years, The Wall Street Journal says. In some cities they’re up 10 percent.
Apartment rents (that’s the average rent, excluding perks and freebies) are expected to rise about 16 percent — from $1,049 in 2012 to roughly $1,215 by the end of 2017, Reis Inc. analyst Michael Steinberg tells Money Talks News.
Blame it on the recovery, which is in itself is a good thing, of course. It means, however, that more people are in the market for rentals. At the same time, builders are struggling to bring new apartments online fast enough to meet the increased demand.
“The country has been on a decades-long drought of large-apartment-building construction” because, until recent years, homeownership was growing, writes Slate economic writer Matthew Yglesias.
Investors have been buying up foreclosed homes and renting them out, but even that’s not enough to satisfy the demand for rentals.
“Finding an apartment to rent got even harder in the third quarter, as the U.S. apartment vacancy rate fell to its lowest level in more than a decade,” says Reuters, citing statistics from Reis Inc., a provider of commercial real estate data and services.
More renters in the market
Here’s why the population of renters is growing:
· Foreclosures. The share of Americans who rent a home is at a record high, in large part because of the millions of foreclosures that followed the real estate crash. Since 2006, the first year the U.S. saw more than a million foreclosures, an estimated 21.57 million homes have been foreclosed on, according to this chart at StatisticBrain.
· Recovery. By 2012, 45 percent of 18- to 30-year-olds were living with older family members, says the Atlanta Federal Reserve. Compare that with 39 percent in 1990 and 35 percent in 1980. As the economy recovers, economists expect more workers to find jobs and start entering the competition for rentals.
· Tighter lending standards. Homeownership has dropped to an all-time low after the crash as lenders grew very fussy about whom they’d offer a mortgage. Homeownership rates in the U.S. fell to 65 percent in June, after climbing to a record high of 69 percent in 2005, according to the Census Bureau (see Table 14).
· Rising home prices. Lenders are loosening up their standards a little (but not a lot). But just as it started getting easier to finance a home, prices began rising – skyrocketing in some areas. That’s also pushing more people to rent, The Wall Street Journal says.
· Busted boomers. A growing population of downsizing retirees and empty nesters who’ve lost retirement savings and need to rent is contributing to the demand.
Rents are rising
All of this translates into rising rents. Given the increased competition and tight supply of homes for rent, it’s no surprise that landlords are pushing rents higher.
Reis, which analyzes rents, says the average apartment rent now is $1,073. It rose 1 percent last quarter and 3 percent over a year ago. Not one of the 79 markets tracked by Reis saw rents fall.
In fact, the weak growth in salaries and new jobs has kept rents from rising even higher, Reuters says.
“Landlords would like to raise rents faster, but most tenants simply can’t afford to pay more right now,” Reis senior economist Ryan Severino told CNBC.
In the third quarter, according to Reis:
· Vacancies. The supply of apartments was tightest in New Haven, Conn., and most plentiful in Memphis, Tenn.
· Increases. The nation’s biggest rent hikes – 2.2 percent – pushed the average price paid to $2,043 per month in San Francisco, and $1,686 in San Jose, Calif.
· Highest rents. New Yorkers pay the highest rents in the nation: $3,049 per month on average, an increase of 0.9 percent.
· Lowest rents. The cheapest rentals in the country are in Wichita, Kan., at $529 per month, a 0.8 percent increase.
The future for renters
It’s hard to tell how high rents will go. On one hand, demand is likely to keep growing. According to real estate brokerage Marcus & Millichap:
The oldest echo boomers just turned 28 years old and will create a significant number of households over the next two years. Additional households will form with the arrival of 1.2 million [to] 1.6 million immigrants annually through 2017.
On the other hand, new construction will eventually absorb demand. Rental investors have been slow to respond with new apartments because construction takes a long time from start to finish. Builders must find and buy land and submit to the local permitting process before they can even break ground.
Rents won’t keep rising forever. “‘You just can’t have double-digit rent growth every year or rents would be a million bucks,’ said Bob Faith, founder of Greystar Real Estate Partners, a Charleston, S.C.-based company that owns and operates about 216,000 rental units nationwide,” the Journal says.
Life is complicated for homebuyers these days. There can be lots of competition with other homebuyers — too much, in some cities. And the selection of homes for sale in many cities is skimpy. Add in rising home prices and jumpy interest rates and you’ve got a lot of stress.
If you’re shopping for a home, you don’t need one more headache. And yet, here it is: Banks no longer want to preapprove customers for a home loan.
Preapprovals becoming extinct
MarketWatch looked at data from the Federal Financial Institutions Examinations Council. The report may not include all mortgages but it does include many.
· In 2012, the 25 biggest lenders saw only 29,912 preapprovals become mortgages. That’s just 4 percent of their loans for home purchases.
· In 2007, 101,626 preapprovals became mortgages — 9 percent of purchase loans.
Last year 14 of the 25 top lenders did not have even one preapproval that resulted in a loan. (MarketWatch doesn’t say whether that’s because the banks had stopped making preapprovals or because customers didn’t follow up their preapprovals by purchasing a mortgage.)
MarketWatch offers two reasons why preapprovals are disappearing.
1. Preapprovals weren’t paying off
Home prices fell so fast in the recession that it was hard for appraisers and banks to get a fix on a home’s value.
Lenders hire appraisers to figure out the market value of the home a customer is buying. That’s how banks make sure they aren’t lending more than the home is worth.
But that system developed problems after the crash. Lenders would watch borrowers and sellers agree on a sale price only to have the appraiser decide the home wasn’t worth the price.
Those buyers were left with two choices: Add cash of their own to make the purchase, or forget the deal. Many walked away from the deals and their banks got tired of spending time and money vetting borrowers only to see the deals fizzle out and die with no mortgage sold.
2. Banks don’t need to
Before the recession, lenders used preapprovals to attract would-be borrowers. Banks found that customers who engaged them for a preapproval were likely to stick with them to buy the mortgage.
When the dust cleared after the recession, fewer banks were left standing. Competition for your mortgage loan isn’t what it used to be. Preapprovals take staff time and, with fewer competitors offering preapprovals, banks have lost the incentive.
What it means to you
Why should you care? Because shopping for a home with a bank’s letter of preapproval gives you an edge with sellers. The letter gives you leverage when you’re up against multiple offers, cash buyers, and buyers with big down payments – all common today.
Your preapproval letter tells a seller that you can get financing, and that you are already partly through the process. That’s because, to get preapproved, you had to bring the bank documentation — proof of earnings, tax filings, bank statements, pay stubs, retirement assets and down payment funds – to prove you’re creditworthy. The lender checked your credit score and determined whether you could borrow and, if so, how much.
Your best option now
Now, you’re likely to be offered a “pre-qualification” instead. It’s a much easier process for you. The loan officer calculates how much you can borrow based on your word about your down payment, credit score, income and assets.
The difference between a pre-qualification and preapproval is significant, The New York Times says. Also, according to MarketWatch:
Pre-qualifications are typically based on average mortgage rates rather than the rate that’s close to what the borrower would actually get. Also, most lenders can rescind a pre-qualification, whereas a preapproval is a commitment that usually lasts two to three months.
Here are your remaining choices:
If you can still find a bank willing to preapprove you, it’s a good idea to grab it.
Otherwise, get pre-qualified before you start home shopping. It’s an important tool in learning roughly how much you can spend on a home. Also, it is better than nothing when you’re negotiating with sellers.
Prepare for mortgage shopping as much as a year in advance by improving your credit score, repairing any problems on your credit report, saving for a down payment and gathering the documents you’ll need to apply.
This post comes from Christine DiGangi at partner site Credit.com.
The U.S. Department of Housing and Urban Development earlier this month announced changes to the reverse mortgage program, which allows homeowners 62 and older to pull equity from their homes without making payments. Once the changes go into effect Oct. 1, it may be more difficult to get a reverse mortgage, and homeowners will have access to less of a home’s value.
HUD issued new principal limit factors, which reduce the maximum amount a homeowner can withdraw. Industry experts estimate principal limits will be about 12 percent to 15 percent lower starting Oct. 1. In addition, a new financial assessment requirement means an applicant’s credit history may impact his or her ability to get a reverse mortgage.
Less money for more security
HUD says the agency made these changes in order to strengthen the program. As a result of the Great Recession and declining home values, the Federal Housing Administration Mutual Mortgage Insurance Fund took a hit, and because the viability of the program depends on that fund’s resources, the agency says it established the new guidelines.
“It’s actually just to kind of shore up the program,” said Carolyn Fields, a certified reverse mortgage professional in Florida. She further explained the changes. “Bottom line is we’re all living longer, the baby boomers are retiring earlier — this is just to kind of help them plan retirement and just to kind of make sure that the program stays healthy.”
The deadline to apply for a reverse mortgage under the current rules is Sept. 27. With the passing of that deadline goes homeowners’ ability to take their loan in a lump sum. With few exceptions, people can tap only 60 percent of their principal limit in the first year of a reverse mortgage, and the amount a homeowner pulls will affect their upfront FHA mortgage insurance premium.
Who will qualify?
Fields said HUD is still working out the details of financial assessments, which will roll out in January. But potential borrowers can expect lenders to review all of their income sources, as well as their credit history, as part of the process of determining their capacity to pay insurance premiums and property taxes.
As is the case with all loans, consumers need to check their credit reports before applying. Studying one’s credit score using a free tool like the Credit Report Card will show areas that need attention, and allow you to plan ahead and improve your score to make a smoother loan-qualification process.
With the changes in cost and procedure, reverse mortgages will become less of an emergency fund and more of an asset for retirement. But that’s not such a bad thing, since long-term planning is the core of the program.
More than 10 million homeowners are still deeply underwater on their mortgages, according to a leading housing analytics firm.
In a report released Thursday,RealtyTrac said that 10.7 million U.S. homeowners owe at least 25% or more on their mortgages than their properties are worth, and another 8.3 million are either slightly underwater or just barely above it.
The numbers are improving, however. Deeply underwater homeowners – with a loan-to-value ratio on their properties of at least 125% -- represented 23% of U.S. residential properties with a mortgage in September, according to RealtyTrac. That number is down from 11.3 million deeply underwater homeowners – about 26% of all residential properties – in May. A year ago, there were 12.5 million deeply underwater properties.
“Steadily rising home prices are lifting all boats in this housing market and should spill over into more inventory of homes for sale in the coming months,” said Daren Blomquist, vice president at RealtyTrac. “Homeowners who already have ample equity are quickly building on that equity, while the 8.3 million homeowners on the fence with little or no equity are on track to regain enough equity to sell before 2015 if home prices continue to increase at the rate of 1.33 percent per month that they have since bottoming out in March 2012.”
Trevana Properties is a placement company working with a variety of hedge funds, REIT's, commercial banks, specialty boutique lenders, private investors and other funding sources not widely known to the general public.