Current State Of Mortgages and Homeownership WARNING!

This from Dave Stevens, President & CEO of the Mortgage Bankers Association:

Where We Are Today.

We are currently in the middle of a housing crisis.  That’s right…I said it.  Industry experts, economists and even consumer groups have predicted one would emerge, albeit this is not what they expected and it is certainly sooner than anticipated.

Dave Stevens - Mortgage Bankers Association
Dave Stevens – Mortgage Bankers Association

Yes, the word crisis is harsh and alarmist, but it accurately reflects the complete void of focus on housing as an opportunity by Washington policy makers, including the actions of the regulators and enforcement officials that are narrowing the credit box.  Fact – there is a shortage of affordable housing (both rental and owned) and the homeownership rate today is at its lowest point in over two decades.  Today’s environment is not encouraging credit expansion. It’s forcing lenders to be overly conservative – ultimately failing entry-level homeowners on every front.

What’s the number one issue choking off access to affordable credit? Regulating through enforcement and it’s happening on a case-by-case basis.  The guessing game for businesses to know if and when they may be penalized has produced the most defensive lending posture in years. This atmosphere of the unknown; this environment of fear and trepidation rather than an environment of constructive engagement and compliance have a steep cost. And we’re not just talking costs for compliance or production.  We’re talking costs for any mistake, even a minor one that may have no bearing on the efficacy of the loan, making lenders even more conservative in lending.  It’s impacting the willingness of lenders to take the risk even to some who would otherwise qualify for their dream to obtain a home.  The regulatory environment is failing the very borrowers policymakers set out to protect – young families, thriving generations of new Americans, first time homebuyers; all the while driving up rental costs and homeownership lags and rental demand soars.

Lenders must have clearer guidance on the rules and a better understanding of what will constitute an enforcement action.  We have made some progress working with regulators on issues such as rep and warrant, FHA defect taxonomy and the supplemental ratio, but it’s not nearly enough.

Some regulators appear to have an enforcement-first strategy, instead of providing clear rules and guidance – particularly regarding unfair, deceptive, or abusive acts or practices – UDAAP actions – which expose lenders to “regulation by enforcement action.”  Lenders are being subjected to zero-tolerance policies, but don’t have the necessary guidance to comply with some regulations.  Refusal to clarify the rules in writing by the CFPB leaves lenders in a position for massive penalties for minor mistakes.

The CFPB should be applauded for granting an enforcement delay on the TILA/RESPA Integration Disclosure rule (TRID).  With the number of stakeholders involved in home buying procedures, there will undoubtedly be problems.  In particular, the borrower could be affected in many ways should a closing date get pushed back (consider the cost of month-to-month rent or not having a place to go at all).  Industry stake holders – lenders, borrowers, vendors, sellers, title companies, etc., – need time to work through the initial issues before severe penalties compound the problem.

The mortgage lending industry has acknowledged and taken accountability for the role we played in actions that led to the meltdown.  Lenders have paid hundreds of billions in settlements. We’ve also made tremendous change in controls, compliance, and to improve the consumer experience.  Now it’s time policymakers – the vast network at the federal and state level – account for their role in the recovery.  It’s time to acknowledge the flaws in policy, corrections needed to the rules, and the impacts of going too far.

And it starts at the top.  Our President has only given two key housing speeches in his presidency, both in Phoenix. These were focused on enforcement, accountability, and dealing with foreclosure relief and refinance programs. There has been no public focus to promote new opportunities for homeownership and no program, other than the short-lived first-time homebuyer tax credit program, there has been a void in creating confidence in the housing market.

Unlike past Presidents in both parties – there has been no focus on homeownership as an opportunity. No discussion about unbanked, thin file, demographics and how that affects opportunities. No attempt to publicly build confidence in consumers’ views about homeownership.

Unless we call this what it is – a crisis – and focus on the critical role that our national leaders can play, there is no hope of traction. I worry deeply that this Administration may leave office having done less to advance homeownership than any previous administration in memory.  And the clock is running out.  There’s little time left before the next Presidential election to do anything more than public discussion, but the President can and should play a major role.

Let’s fix what needs to be fixed. Let’s change the dialogue of distrust to a dialogue of confidence. Let’s fix the rules to allow for innovative, sustainable, safe lending. Let’s end the relentless enforcement regimes. Give us the confidence to provide access to credit to more qualified borrowers at the lower and middle income levels. Reignite the economic engine of the real estate market.

Denied a mortgage loan? What to do next.

Everyone has the dream of home ownership.  You’ve been looking at homes on the internet, stopped into a few open houses, and finally spoke to a Real Estate Agent. You are very excited about owning your own home.

But unless you are paying cash, you are going to need a home mortgage loan.  Applying for a mortgage loan, no matter who you are can feel a bit overwhelming, paperwork intensive, and nerve wracking.What to do if you are denied a mortgage loan

You finally apply, provide your paperwork, and some mean nasty horrible rotten Loan Officer tells you that you are denied!

What To DO If You Are Denied For A Mortgage Loan

The first step is to find out why.  Ask your Loan officer to be very specific in explaining the why of your denial and ways to fix it for the future.

The most common reason for denial is poor credit.  There are no poor credit loans in today’s mortgage world. For most people, you will need a minimum credit score of 640. You may read of lower score possibilities, but realistically, don’t bother applying with a score under 640.

When a Loan Officer tells you that the denial was credit related, don’t just take a quick answer of “it was your credit”.  Ask them specifically what on your credit report is the issue.  Any good Loan Officer can discuss with you the credit challenges, and give direction on ways to improve credit.  I personally have coached many people that were denied today, but in just a few month, they are back and approved.

If possible, have them provide a copy of the actual credit report that you can reference.  Good free alternatives are places like CreditKarma.com, and AnnualCreditReport.com.

Lack of down payment money is right up there near the top of being a problem for many first time home buyers.  For some, there may be other options, like a no down payment VA loan available for active a former U.S. Military personal, or the no down payment USDA Rural Development loan available for more rural homes.  There may be options for down payment assistance programs too.  But for everyone, you need to have some money to be in the game.  Regardless of the program, if you have no money, you are not buying a house – even with no down payment loans or down payments assistance. At a minimum, everyone should have $3,000 IN THE BANK that they can put into the transaction. Earnest money, inspections, and appraisals are often forgotten about, but need to be paid up-front regardless of loan type. A good Loan Officer can help you search for options.

The next biggest area I see is DEBT to INCOME RATIOS. Basically this comes in two areas.  Simply trying to buy a home too expensive for your income, or having way too much debt.  The basic rule of thumb is that most people can afford about three times their yearly income in a home, as long as they don’t have too much other debt, like credit cards, car loans, and student loans. If you have a lot of debt, you’ll probably have to pay it down or look for a less expensive home.

Finding The Right Lender

I always say that 10% of the success of buying a home is the company you choose, and 90% is the Loan Officer you choose.  Most people choose very poorly, by simply talking to whoever picks up the phone at the bank, or by applying with a company who advertises all over about how quick in loan they are (get it?  🙂   Many Loan Officers have limited knowledge, don’t fully understand guidelines, and are more of an application clerk type, versus a professional Loan Officer, and may not even be aware of some programs.  Next, not every lender offers all loan products.  A great example on this one is I see a lot of people who said a credit union told them they need 20% down because they don’t offer FHA Loans. Yet I can easily offer the same person a 3.50% down FHA Loan.

On a very regular basis, I am able to provide financing to someone who was denied by another lender. This is why it is important to understand exactly why you were denied, and get a second opinion – especially if you were talking to a bank or credit union loan officer. On the other hand, I am no magician either.  If you have very poor credit, you can call every lender in the nation, and you still won’t get a loan.

Finally, don’t give up hope. For a lot of potential home buyers, just a little bit of time, and a little bit of effort can easily put you.  Paying down some debt, and fixing a few things on a credit report generally don’t happen overnight. But if you want to buy a home, follow your Loan officers advice, and together we’ll make it happen in short order.

New USDA Loans when you already own a home

USDA Rural Development Home Loan Primary Residence Guidelines

The USDA Rural Development is one of our most popular home loans for buying a home in MN, WI, IA, ND, SD.

USDA Rural Development LoansBecause the program is a means tested assistance program (the assistance is no down payment), it does come with a few more quirks and wrinkles compared to other mortgage loans.

The USDA Rural Loan Program may not be used for second homes or investment properties.  Only for primary residences located in eligible areas.

Technically you can only own one home at a time with a USDA loan. However, in situations where a homeowner wants to purchase a new primary residence before their current property sells, a USDA loan MAY be possible, but proceed with extreme caution as USDA loan eligibility can be confusing and frustrating!

In order to qualify for a USDA loan when your existing home is not sold, the loan will have to be approved by both underwriting and USDA Rural Development (RD) to have met their property superiority condition which could be anyone of the following:

  • Upgrading from a manufactured home (mobile home) to a single family residence. (Restrictions apply)
  • Increase in family size which now requiring a larger home because the current home is now too small
  • Current residence is outside of a reasonable commuting distance due to employment change, relocation, etc.
  • Provided the reason is acceptable and makes sense, the home buyer then must still be able to qualify for BOTH house payments, taxes, lot rent, etc. because the existing house has not yet sold.

Upfront work and communication at the beginning with an experienced USDA Loan Officer is critical between all parties to determine if this could be considered an eligible situation for you.

For your personal scenarios, click here to get pre-qualified for a MN, WI, or SD USDA mortgage today, or call me directly at (651) 552-3681.  Note, we lend in MN, WI, IA, ND, SD only.