Nevada Real Estate >> Las Vegas Real Estate Specialist: David Krushinsky (Mortgage Professional - Phoenix, AZ - NMLS 202115)

It appears that the government has finally found another solution to stop Mortgage Loan Originators (MLO) from abusing and deceiving consumers.  This new rule will likely have the same benefit to today's consumer that HVCC and the new GFE has - more fees and higher loan costs.  Below are the highlights on the final rules on the Loan Originator Compensation and Steering.

The final rules protect mortgage borrowers from unfair, abusive, or deceptive lending practices that can arise from loan originator compensation practices.

The new rules apply to all persons who originate loans, including mortgage brokers and the companies that employ them, as well as mortgage loan officers employed by depository institutions and other lenders.

The final rules, which apply to closed-end loans secured by a consumer's dwelling, will:

• Prohibit payments to the loan originator that are based on the loan's interest rate or other terms. Compensation that is based on a fixed percentage of the loan amount is permitted.
• Prohibit a mortgage broker or loan officer from receiving payments directly from a consumer while also receiving compensation from the creditor or another person.
• Prohibit a mortgage broker or loan officer from "steering" a consumer to a lender offering less favorable terms in order to increase the broker's or loan officer's compensation.

Provide a safe harbor to facilitate compliance with the anti-steering rule. The safe harbor is met if:

• The consumer is presented with loan offers for each type of transaction in which the consumer expresses an interest (that is, a fixed rate loan, adjustable rate loan, or a reverse mortgage); and
• The loan options presented to the consumer include the following:

1. the lowest interest rate for which the consumer qualifies;
2. the lowest points and origination fees, and
3. the lowest rate for which the consumer qualifies for a loan with no risky features, such as a prepayment penalty, negative amortization, or a balloon payment in the first seven years.

The final rules are effective April 1, 2011, to provide lenders and originators time to develop new business models, implement necessary changes to their systems, and train personnel.

The Dodd-Frank Wall Street Reform and Consumer Protection Act also restricts practices concerning loan originator compensation. The Reform Act includes provisions that are similar to the Board's final rules but also addresses other practices not covered by the final rules. The Board plans to implement the Reform Act provisions in a future rulemaking with opportunity for public comment.

Short sales, in most cases, are one of the most economical solutions for all parties involved when a borrower can no longer afford their home.  The bank typically incurs a smaller financial loss than would result from an ultimate foreclosure or continued delinquency on the mortgage payments.  Borrowers may be able to soften the overall damage to their credit, and potentially settle future deficiency judgments. The big question on hand is.......What is life like after a short sale??  

If you're married and your spouse has recently had a short sale, you may still be able to purchase a home. 

For the majority of married couples, their homes are purchased together using joint credit, income and assets. This article will address the following situations; the spouse purchased a home before the couple was married in his/her name, or the spouse purchased a home, qualified on his/her own qualifications and the other spouse disclaimed their interest in the property. 

Let's take a look at an example of what a typical scenario might look like for a typical borrower. 

Mr. Smith bought a home in 2002.  He was forced to do a short sale in 2008 because he lost his job and could only find employment that paid 50 percent of his previous income. When Mr. Smith purchased his home, he was able to qualify on his own and Mrs. Smith was not included on the loan.  Mrs. Smith signed a disclaimer deed at the closing.  Mrs. Smith has since graduated from medical school and returned to the workforce.  Mr. Smith and Mrs. Smith would like to purchase a new home together. Unfortunately, Mr. Smith's credit will not allow him to be part of the loan due to the short sale.  Even if Mr. Smith's credit score has rebounded from the effects of the short sale, Mr. Smith still must wait 2-3 years before he can buy using most traditional financing. 

Mrs. Smith can qualify for a home on her own even though Mr. Smith had a short sale less than 2 years ago, provided she meets the standard qualification standards.  Mrs. Smith would like to purchase the home with a FHA loan.  In community property states, such as Arizona, Mrs. Smith can still purchase the home even though the lender will review Mr. Smith's credit history.  However, any additional debts which appear on Mr. Smith's credit report will have to be included in her qualifying ratios.  As long as she can qualify on her income alone, she will be able to purchase a home.  Mr. Smith will have to sign a disclaimer deed, relinquishing all of his rights to the property. 

Please note: This article was written per Arizona State laws and other states may differ.  Please consult your mortgage consultant to discuss the laws and regulations applicable to your state.

As consumers, we've all been taught that shopping around for a mortgage to get the best deal is critical.  When shopping for your Phoenix home mortgage, it's fairly easy to check online or make some phone calls to determine rates.  

Once you have had an opportunity to narrow down your search for the right lender, it will also be important to ask some essential questions to make sure they're educated regarding mortgage rates.  With Phoenix mortgage interest rates changing quite frequently, sometimes several times during the day, it's important to make sure your lender can answer basic questions. The following questions and answers will allow you to determine if your lender can provide you with an affordable loan and, most importantly, have the expertise to get you the lowest rate.

•1.       Who determines mortgage rates and what are they tied to?

Mortgage interest rates are determined by the pricing of Mortgage Backed Securities or Mortgage Bonds.  The media often implies mortgage rates are based off the 10-year Treasury Note, which is incorrect.  While the 10-year Treasury Note typically trends in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions.

•2.       How often do mortgage rates change?

Mortgage rates constantly change throughout the day; however, since mortgage rates are based on Mortgage Bond prices, they only change on days when the Bond markets are trading securities.  Think of a Mortgage Bond's sales price similar to that of a Stock.  It trades up and down during the course of a day.  For example, the FNMA 30-Year 4.50% coupon is selling for $100.50.  The price is 50 basis points lower from the previous day's closing price of $101.00.  In simple terms, the consumer would have to pay an additional .50% of their loan amount to have the same rate today that they could have locked in the previous day.  Alternatively, the consumer would also have the option of increasing their rate by .125%.

•3.       What causes mortgage rates to change?

Mortgage Bonds are largely affected by various economic forces that influence the ever changing demand for bonds within the market.  Each week various economic reports are released that influence the movement within the bond markets.  Some of the key economic factors that have the greatest impact are unemployment percentages, inflationary fears, economic strength and the overall movement of money in and out of the markets.  Like stocks, most fluctuation is caused by consumer and investor emotions.

•4.       What do you use to monitor mortgage rates?

There are several great subscription based services available to monitor Mortgage Bond pricing.  The key is to make sure the lender is aware they should be monitoring Mortgage Bond pricing, such as the Fannie Mae 30-Year 4.50% coupon, and not the 10-Year Treasury Note.

•5.       When the Fed changes rates, why do mortgage rates move in the opposite direction?

It is a common misconception that when the Federal Reserve implements a rate cut that it is immediately correlated to a reduction in mortgage rates.  The Federal Reserve policy influences short term rates known as the Fed Funds Rate ("FFR").  Lowering the FFR helps to stimulate the economy and increasing the FFR helps to slow the economy down.  Effectively, cutting interest rates (FFR specifically) will cause the stock market to rally, driving money out of bonds and creating potential for inflation.  Mortgage Bond holders need to obtain a higher rate of return on their money if inflation is increasing, thus driving up mortgage rates.   With the Federal Reserve Board meeting every six weeks, this is an important question to ask.  If your lender does not have a firm understanding of this relationship, they may leave your rate unprotected costing you thousands of dollars over the life of your mortgage.  

•6.       Do different programs have different interest rates?

Conventional, FHA and VA loans can all carry different rates on a 30-Year fixed mortgage.  FHA and VA loans are insured by the Federal Government in the event of defaults.  Conventional mortgages are insured by private mortgage insurance companies, if insurance is required.  Typically, FHA and VA loans carry a lower rate because the investor views the government backing as less of a risk.  While rates are usually different for each program, it may be more important to compare the monthly and overall cost during the life of the loan to determine which program best suits your needs.

•7.       Why is an Adjustable Rate Mortgage (ARM) rate lower than a fixed rate mortgage?

An Adjustable Rate Mortgage (ARM) is usually fixed for a specific period of time.  The period is typically 6 months, 1 year, 3 years, 5 years or 7 years.  The shorter time period the rate is fixed, the lower the interest rate tends to be initially.  This is due to the borrower taking the future risk of increasing interest rates.  The only instance where this would not be true is when there is an inverted yield curve where short-term rates are higher than long-term rates. 

•8.       Why are rates higher for different factors such as investment property?

Mortgage interest rates are based on risk-based pricing.  Risk-based pricing allows adjustments to par pricing for risk factors such as; FICO scores, loan-to-value percentages, property type(SFR, Condo, 2-4 Units), occupancy (Primary, Vacation or Investment) and mortgage type (Interest Only, Adjustable Rate etc).  This allows the investors who lend their money for mortgages to receive additional compensation for taking additional risk.  An example is if the borrower encounters a financial hardship, are they more likely to make the payment on the home they live in or the one they rent?

Does creative financing still exist or are there ways to purchase homes in Phoenix without traditional financing these days?  If you're like me, you're probably saying, "No way".  If so, read on. 

Recently, I had the privilege of speaking with a real estate investor, by the name of Nick Johnson, that specializes in Short Sales and "Subject To" purchases.  Nick and I got introduced through a mutual friend, Matt Rosen @entrepreneurHI, from Twitter.  I learned a lot about Nick after talking with him for only an hour on the phone.  I learned all about his high regard for his family, his unparalleled ethics and his business philosophy.  Additionally, I also learned he is also the author of the eBook, "Subject2".    

While most of us in the Phoenix area and beyond are all too accustomed with the term Short Sale, "Subject To" was not a practice in which I was all too familiar.  Being the type of individual that prides myself on keeping current with what is available in today's marketplace, I immediately had to do some investigative research.   I figured that I would share a little overview of what I discovered. 

"Subject To", also referred to as "Subject 2" or "Sub2", is a form of creative financing in which the seller deeds the property to the buyer while keeping the existing mortgage note fully intact.  The buyer, typically a real estate investor, simply makes the mortgage payments on the existing mortgage.  These transactions can provide an array of benefits for both the buyers and sellers.

 The buyers do not need to go through the headache (I know all about this) of getting qualified for a new mortgage note.  There is no credit, income or asset verification required.  The investors own the property, but do not assume the loan.  This leaves personally liability on the sellers.  Typically, the main advantage for buyers in these transactions is acquiring a property at a much lower interest rate than if they were to purchase the property outright.

It may seem unbelievable to most of us that a homeowner would deed over their property to another individual, but there are many reasons that sellers find this a great option.  The primary reason that many sellers opt for Sub2 financing is to obtain debt relief.  Some are facing foreclosure and unable to sell their property due to lack of equity.  Owning a property that is "underwater" is a concept that many Arizona homeowners can relate all too well.  Others simply want a fast sale.  They may be moving, transferring jobs, getting married, divorced or a whole list of various scenarios.  

Subject2 contracts should be implemented by a knowledgeable real estate professional.  We've all witnessed the dangers of working with someone who claims to be an expert but has no more expertise than you or me.  A sub2 contract is essentially the same as a standard state approved contract.  The only difference is the 'sub2′ addendum states the terms of the existing loan. 

In today's credit climate, we all know someone who may be struggling to qualify for a loan or continue making their monthly mortgage payments.  I would encourage you, no matter what your preconceived ideas of traditional financing are, to have them contact me before it's too late.  There are many times that I may not be able to help them but I can guide them in the right direction.  Don't let them become just another statistic.

So you've decided that you want to buy a home in Phoenix, AZ.  Besides the many advantages to living in the Valley, interest rates reaching all-time lows coupled with the recent plunge in home prices make Phoenix a very affordable and attractive option.   Nowadays, it is actually cheaper to purchase a home in the Phoenix area than rent.  The only down side to this scenario is that you're short on cash for a down payment.  Unfortunately, you cannot get a gift from your family, you've already tapped out your 401K, you are not eligible for a VA loan, you make too much money to qualify for down payment assistance, and you have no desire to live in a rural area.  So, the question is..... What can you do without a down payment???  Meet the qualifications for the $100 Down Payment HUD Home Program.

Let's take a trip back in time and describe why the availability to finance a home with the $100 Down Payment HUD Home Program arose.  During the housing boom, many of the homes in Phoenix were financed with Conventional loans.  Prior to the run-up in home prices, many first-time homebuyers used FHA loans to purchase housing.  Once home prices started rising at unsustainable levels; homeowners began to refinance their FHA loans into Conventional loans to pull cash out, remove mortgage insurance, and lower their monthly obligations.  Once these homes, now with Conventional financing, went into foreclosure, the banks began to sell their inventory at a discounted price.  At the beginning of 2007, many of the new homebuyers were forced to use a FHA loan due to inability to finance their purchases with Conventional mortgages in Phoenix.  These homebuyers were unknowingly still buying homes at inflated home prices.  Sadly, many of these homes purchased in 2007 and 2008 with FHA loans are currently going into foreclosure.  In most cases, the current values of these homes are significantly less than what is owed.  The $100 Down Payment HUD Home Program is a result of a FHA borrower foreclosing and HUD repossessing the home that is now for sale.    

So Who Qualifies? 

 Now that you've been able to determine you may be able to qualify, here is an outline of the next steps you need to take.

Step 1 - Get pre-qualified for the $100 downpayment HUD Homes Program

Step 2 - Choose search area and type of home (i.e. North Phoenix - 3 bedroom, 2 bath with 1,500 square feet or more)

Step 3 - Create a login and password at our customized database to search homes

Step 4 - Contact us to match you with one of our Realtor partners that can assist you with viewing the homes you are intrested in.  Please note, not all Realtors are trained and educated for HUD homes.  It's very important to work with one of our preferred partners that has experience with HUD homes.

Step 5 - Submit an offer, get acceptance and go through the loan process.

Step 6 - Close on your purchase using an FHA-insured loan.

It can be a very simple process but the first step is to get pre-qualified.