Nevada Real Estate >> Las Vegas Real Estate Specialist: Deborah "Dee Dee" Garvin New American Mortgage (New American Mortgage)

What does your ActiveRain "Body of Work" say about you?  Seriously, we are all here for a reason...most of us it is because we want to build or improve our business, meet fellow professional colleagues, keep abreast of changes in the industry and/or maybe just spy on our competition!

Whatever the reason, I wonder if some people actually THINK about what their entire ActiveRain presence looks like from the outside.  Now, we all know that many people do NOT think before they Tweet or post on Facebook...(I am soooooo not going there with this post).

The genesis of this post was a comment on my most recent 203K post (people who know me know I just won’t quit on this one...check out “Why is the FHA 203K so Maligned” ).  The comment was insightful, open, realistic and had depth of understanding...AND the author is from my area.  I immediately knew I had to find out more about this Debbie Espinoza person.

So, of course, I click through to her profile....I know a little more....

I am interested by her experience, background, referrals....Now, I want to know more...

So, of course, I click through to her blog.....Hey, there is substance here.  

I start reading.  And, I keep reading.  Debbie hasn’t been on ActiveRain a LONG time and I had totally missed connecting with her (shame on me!); but, within a few “reads” I have a feeling I KNOW this woman.  Just a bit, but.....

Enough that I KNOW consumers are lucky to have her as an agent and agents are lucky to have her as a colleague...

And, I want to know more.....

So, of course, I click through to her comments....More substance, more knowledge, more involvement.  No “Nice post” here....... ;-)!

Now, I am hooked.  Of course, I subscribe.  Of course, I add Debbie as an associate.  

Of course, I do!  I do because I want people to know that I know this seasoned agent who takes the time to connect, really connect in her posts and comments.  I want people to know that “birds of a feather flock together”.  

Of course, Debbie Espinoza is not the only Rainmaker who does all of this...she is just my latest “discovery” of my many friends on ActiveRain.

Debbie does what I have tried to do since joining ActiveRain.  She is REAL, she takes the mask off and provides her reader with an authentic voice.  In just a few clicks I feel like a know a professional real estate agent pretty well and, more importantly,  I know I want to know more.

So what does your ActiveRain “Body of Work” say about you?  

I am amazed at how many vacant profiles there are on the ActiveRain platform.  Rest assured, mine is not spectacular (maybe a “3”).  Want to see a “10 plus” check out our own Lenn Harley.  We would all benefit if we took a few tips from Lenn’s playbook.

What do your blog posts say about you?  Listings are nice...and I like good pictures as well as anyone.  But I won’t call you for your pics (unless your name is William, Russel, Richard...and several others.  LOL!).

And, those comments?  I think they reveal where the gold is buried!  Blog posts are structured, planned and can be drafted and revised time and time again.

But, comments????  They are like a window into your soul and reveal the real thought and intent behind the professional profile picture and carefully crafted profile.

So, laying it all out there......

I HOPE my ActiveRain “Body of Work” conveys that I know my profession, that I truly respect the trust an agent or consumer places in me when referring business and that I live my life ethically and with care and compassion and passion for others and the world around me.

The fact is that I am not the judge of my “Body of Work” (on ActiveRain or anywhere else).  We put it out there and the evaluation or judgement is for others to determine.

At least I have THOUGHT about it.

I hope you will stop by Debbie’s blog and say hi.  I think you will be glad you did!

I have written several articles on the FHA 203K loan and continue to believe it is the most under used, misunderstood, and absolutely the most creative finance product available in todays’ real estate market.  

SERIOUSLY, what other product will allow a consumer to finance up to 110% of the FUTURE value of their owner occupied property for either a purchase or refinance?????

Misunderstood is probably not the right word.  Maligned would be more appropriate.  Many listing agents are loathe to suggest buyers accept an offer for a 203K; sellers have rarely heard of them and, therefore, seldom question their listing agent’s sage advice; buyer’s agents are focused on finding the exact (perfect) home for the buyers; buyers don’t understand the product, the process and often just cannot envision the home as the “new and improved version”

Really, I get that agents, sellers and buyers don’t understand the program.  After all, it is my job and that of other MLO’s to educate and counsel everyone in the real estate process on ALL options in the mortgage financing world. 

What I do not “get” is that many lenders and Mortgage Loan Originators malign the program more than real estate agents or consumers.  Well, that is not exactly correct:  I do get it.  But the reasons are usually masqueraded   as dire warnings of nightmare processes and failed closings.

Take off the mask and FHA’s 203K Renovation loan is not scary at all!!!

The reality of why a lender or MLO does not offer the FHA 203K program is usually one of just a few reasons:

1).  The lender does not offer the product; therefore the MLO HAS to sell against the product so the consumer will want something “SAFE” (in other words, something that MLO has access to).  The alternative, of course, would be to lose the client to someone who can (and does) do FHA 203K loans.  Bear in mind, probably less than 5% of lenders offer the FHA 203K loan.

2).  The lender does offer the product, but has no process and procedure in place to be effective.  The savvy and experienced MLO will run as far and fast away as possible from ANY product or process that will jeopardize their  relationship with either real estate agents or consumer.  (BTW, no fault can be assessed to the MLO in this circumstance.  In fact, in my “mortgage past” I have worked for lenders who offered any number of products that I would not originate for my clients.  Every lender does some things well and others not so well (based upon their investor relationships).  As a MLO, you need to know what to hold them and when to fold them).

3).  The most likely reason a MLO will (does) malign the 203K renovation loan is that they (he or she) does not understand the product and does not know how to educate the agent or the consumer.  All to often it is easier to convince the agent or the consumer that a mortgage product is “BAD” rather than educate oneself to provide access to a full range of financing options.  

If you are interested in learning more about FHA’s 203K Renovation Loan check out some of my previous posts:

Understanding the FHA 203K Loan:  Part One

Understanding the FHA 203K Loan:  Part Two

Understanding the FHA 203K Loan:  Part Three

Interested in buying or remodeling your “Custom Home”?  Need to renovate for life changes such as disability, parents or children moving home or need first floor access to bedrooms?  The opportunities are almost limitless.  Contact me for a no obligation consultation to thoroughly understand your options. 

A Long and Winding Road or A Path to a Closing Nightmare:  A Primer on Privately Maintained Roads

Some of the most beautiful properties lie at the end of a long and winding road.  Many people yearn for the quiet, solitude and exclusivity of living off the beaten path.  However, when the “Dream Property” is located on a privately maintained road there can be considerable challenge in obtaining mortgage financing.

I was compelled to comment on Elliott’s post Is Your Listing Located on a Shared or Common Driveway--Recent underwriting changes may behoove you to act in advance to avoid underwriting issues.  In his post Elliott recounted the challenge of a delayed closing because the underwriter requested a Private Road Maintenance Agreement “at the last minute”.  As has been true of all of Elliott’s post on ActiveRain, he shared his experience as a “heads up” on how to avoid the same issue.  

Thankfully, largely due in part to the influence of the buyer, enough pressure was applied to the “offending” (my words, not Elliot’s) underwriter that the condition for a PRMA was finally waived and the transaction successfully closed.

The only thing I would suggest changing in Elliott’s post is “Recent Underwriting Changes”....there is nothing “Recent” about the need for a PRMA.  In fact, I have never closed a loan without a signed and recorded PRMA (signed by ALL homeowners of the properties abutting the road).  

Actually, I cannot imagine why  lender/investor OR borrower would ever want to close on a property without a PRMA.

For clarification’s sake, let’s be clear that a “privately maintained road” is NOT a “private county/city road”.  The distinction is specifically that the city/county will NOT maintain the property’s access road in any way, shape or form.  Maintenance by the homeowners is required and essential.

As in the case Elliott discussed in his post, the road has always been maintained by mutual agreement:

“For the past almost forty years, this responsibility has been stewarded by one abutter, who arranged for the various services, and periodically presented a bill to the abutters for their share. Evey abutter paid promptly, and there was never an issue about how this informal approach worked. It worked flawlessly, and all abutters have been satisfied”.

So, what’s the problem?????  After all, everyone has always played nice and payed their portion of the costs associated with the access road!  Why on earth would the underwriter be so picky and require a separate, and legally enforceable, PRMA?

Simply because the “accountability” of the previous owners in no way predicts the propensity of the new and subsequent owners to assume their allocated portion of the road maintenance costs.  As I indicated in my comment in Elliott’s post, this situation is akin to “Good Fences make Good Neighbors”.  

At Elliott’s request I contacted my underwriting departing for clarification of the issue and the following is the response:

If a subject property is located on a community-owned or privately-owned and maintained street, an adequate, legally enforceable agreement or covenant for maintenance of the street is required. The agreement or covenant should include the following provisions and be recorded in the land records of the appropriate jurisdiction:

The appraiser is not required to provide a copy of the Maintenance Agreement, but must report that the subject meets the aforementioned requirements.

The KEY words in the guidelines (and the explanation of WHY a lender/investor would require a PRMA) are “Default remedies” and “Perpetual”.

In order of significance, I believe all parties should operate with “the end in mind” and address the issue of a Private Road Maintenance Agreement before any issues arise:

Current Property Owner

If available, review your current PRMA to ensure it is up to date and all current property owners have signed it.  If, as in Elliott’s transaction, all current owner’s have been operating with a “gentlemen’s agreement” be sure to disclose to your listing agent immediately.

Listing Agent

Do your due diligence the minute you are aware of the fact the property is accessed via a private road.  In a PRMA is in existence get it reviewed by a trusted source (broker or lender partner).  If there is no PRMA, talk with at least one or two mortgage professionals to get insight into what will be required.

Buyers Agent

Get all information you can on the private road and explain the significance and possible challenges to potential buyers.  Talk to at least two trusted mortgage professionals to get guidance from them on their specific lender/investor requirements.  (YES, even if the listing agent has already done this...Never, ever take anyone’s word for any issue that can potentially derail YOUR transaction).

Buyer

If the property you want to buy is located on a private road, tell your mortgage partner IMMEDIATELY...even before an executed contract.  Provide your finance profession with opportunity and access to get feedback from the underwriter on what the lender/investor will accept and/or require.  Also, have the existing or prepared PRMA reviewed by someone other than your lender or real estate agent!!!  Just because a lender accepts an agreement (or even lack thereof...RARE, but possible) does not mean the agreement is “good” for you!  The lender requirements are required to protect the lender/investor, not you the homeowner....this is a cold, hard fact.

Mortgage Professional

Obviously, address the issue the minute you are aware of the existence of a private road.  If, as in most cases, no one bothered to tell you anything about it and you only find out through the appraisal and/or final title policy; the best course of action:  POUR YOURSELF A GOOD STRONG DRINK!!!

The fact is the transaction will probably go the direction of the example in Elliott’s post and, without a doubt, all fingers will be pointed at you.  There will be much weeping, wailing and gnashing of teeth and you will probably have numerous skid marks across your back from the various buses that each involved party has thrown you under.

All cryptic banter aside:  Your mortgage professional is very likely to be the LAST person to know about a private road UNLESS someone tells them. There is absolutely no precedent to query about a private road 99% of the time...why would I ask?  

For the record:  I did receive a comment from Leslie Ebersole that she has successfully closed a transaction without a PRMA.  In no way can I unilaterally profess that a PRMA is ALWAYS required.  I can only say that every time I have encountered a private road in the past twenty plus years a PRMA has been required.

Avoid the fire drill.  Address the potential challenge presents itself!  

Teaching an old dog some new tricks.  Okay, I am not willing to concede that I am an old dog,  However, I am willing and motivated to explore new revelations in the lending process.

In a typical mortgage/real estate transaction the consumer meets with the mortgage professional, who in turn takes an application and runs an automated underwriting (DU or LP) of the file.  The “approved” file is then sent to the processor...who will, in turn, do a “mini-underwrite” of the file and ask for more explanation or documentation.  Only after the processor is  satisfied will the file be forwarded to the REAL decision maker (underwriter) on the file.

The problem with the traditional mortgage process is two fold:

1).  Simply put:  Garbage in, garbage out!  In other words, an approval on automated underwriting means nothing if the data entered does not conform and comply with lending guidelines.  Much like a “pre-qual”, the AU (automated underwriting) is as good as the knowledge and education of the person rendering the decision.

2).  TBD (to be determined) properties have absolutely no clout in the underwriting process.  The vast majority of lenders have reeled in the underwriting process (in an effort to dave money and prevent risk) and, as a result, only thoroughly underwrite applications with a designated property and a executed contract.

THE SOLUTION:  Provide complete underwriting of the credit package of every potential home buyer.  

This is simply a “reverse” process (not to be confused with a reverse mortgage or HECM).  I (or my team member) meets with the client to evaluate the goals and guideline restrictions; the file is input and submitted directly to the underwriter; the approval is issued subject to conditions and the file is then forwarded to a processor for “processing”.

In my 20 plus years of finance I have never seen a company implement a process that was more consumer and agent “centric”.  As the saying goes:  “My jaw dropped”!  

Want to see the difference this process can make in your life?  Give me a call or send me an email.

Keeping abreast of the FHA Condo Approval Process is crucial in ensuring successful closing of your condo listing or purchase.  There are very lenders doing spot approvals these days, so clarifying the status of a specific condo project BEFORE a purchase contract is entered into will save all parties concerned a lot of anxiety and frustration. 

It is also strongly recommended that the HOA certification is ordered at the BEGINNING of the loan process.  There are many reasons the purchase of a condo can run into issues in the underwriting process.  The most prevalent is the ratio of owner occupied units versus rentals; however, adequate reserves are becoming a serious obstacle when the vacancy percentage is high due to foreclosure or bank owned property.

TO CLARIFY THE CURRENT FHA CONDO APPROVAL/RECERTIFICATION PROCESS PLEASE SEE BELOW:

FHA Condominium Project Approvals Expiration Dates Extended:

FHA announces extension of condominium project approvals with an expiration date of December 7, 2010. Provided below are the extension dates based on five-year time frames with the exception of those condominium projects with original approval dates from 1972 -1985.

Initial Project Approval Dates     Current Expiration Date        New Expiration Date

1972 - 1980                              December 7, 2010               December 31, 2010

1981 - 1985                              December 7, 2010               December 31, 2010

1986 - 1990                              December 7, 2010               May 31, 2011

1991 - 1995                              December 7, 2010               July 31, 2011

1996 - 2000                              December 7, 2010               August 31, 2011

2001 - 2005                              December 7, 2010               September 30, 2011

2006 - 2008 (Sept)                    December 7, 2010               March 31, 2011

The extensions were granted to reduce the impact of processing and reviewing the number of project approvals expiring at the same time while recognizing current housing market conditions.  Lenders and/or other interested parties are encouraged to begin the re-approval or recertification process as early as possible as it is not anticipated that any further extensions of project approvals will be issued.

The Condominium look-up page and the FHA Connection databases were updated on December 7, 2010 and now reflect the extended expiration dates.  The links to the sites are:

Condominium look-up page: https://entp.hud.gov/idapp/html/condlook.cfm

IN ADDITION, IF THE CONDO IS STILL ON THE APPROVED LIST THE UNDEWRITER IS RESPONSIBLE TO RECERTIFY THE CONDO AND WE STILL NEED THE FOLLOWING DOCUMENTS:

1-    Updated Completed Condo Questionnaire to make sure it still qualifies

2-    Current Budget

3-    Master Liability Insurance with a minimum of $1,000,000 coverage

4-    HO6 Policy

5-    UW to Complete Condo Recertification form

Belief in White Knight’s and “pixie dust” are not doing your clients any favors in the current market.  I guess I have always had a “bankers state of mind” in all aspects of life.

A good friend of mind (who happened to be a seasoned therapist) once told me a was a “Pragmatic Romantic”.  In other words, I love (and appreciate) romance; but not at the expense of practicality.  It would not be a wise move to buy me roses, then tell me we were short on the mortgage payment!

I posted an article the other day about High Balance Loan Limits....Going, Going, Gone wherein I brought up the FACT that Fannie Mae will be reducing their maximum high balance conforming loans by a substantial $104,000 effective October 1, 2011.

I was grateful and humbled to see the post featured; more importantly, my intent was to get as much knowledge as possible out to agents so they can help their clients focus on their goals and opportunities over the coming months.

What really surprised me is the number of comments that were based entirely upon a wish or fantasy.  Of course, this is my opinion as I am talking about the FUTURE; however, my opins are based on past experience, current market and political trends and the direction of the mortgage and real estate industry.

“I'm sure the lenders will come up with something else”

My response: I respectively disagree.......you have to remember that "high balances" affect a relatively small amount of the mortgage market. Further, like the 8K tax credit, the government cannot continue to shore up the facts of the marketplace.

It is the very action or thought process that the government will save the day that keeps people on the fence. The American consumer, in large part, is choosing to pass on the best financing opportunity in over forty years (I am referring the housing affordability index). The facts are that the regulations are in place for reduction on the loan limits effective 10/01/11. The facts are also that the Feds have commited to buying MBS (mortgage backed securities) through the second quarter...but that could change as the economy improves.

The Republicans have regained much control of Congress and there is little interest at the governmental level for continuing the ride on the tax rolls. Not trying to be harsh or argumentative; however, I think we all (agents and MLO's alike) do consumers a disservice by fostering any belief that governmental "pixie dust" is going make everything alright. I have maintained for the past year that we will hear nothing but "wishin', shudda, coulda" in the next year or so as the housing market rebounds. JMHO

ADDITIONAL NOTE: I have to believe the market is going to rebound in the coming year or two.  If I didn’t, I could not in good conscious continue my career counseling consumers to buy real estate.

“In our area we don't worry too much about HIGH loan limits! Our average home sale is under $100K so we don't normally worry.”

My response:  Your situation resembles the majority of the country; which is exactly why I stand by my comment (above).  I do not anticipate this ruling will be changed.

“Hopefully the higher loan limits won't be allowed to expire as that's not going to help our market to recover.”

My response:  Well I applaud hope, I don't think there is rationale or desire to extend the limits (please understand, my thoughts and comments have nothing to do with my personal beliefs or desires of whether they should stay or go...I am totally detached in my observations).

“I wonder if they are doing this to decrease liability or if this is keeping in lockstep perhaps with lower property values.”

My response:  It is important to understand that the rulings are to return to "normal" market standards....it really has little to do with liability or lower property values.  Just like it was unrealistic for people to think the 8K tax credit was going to be repeatedly extended; it is also unrealistic to think the Fed is going to extend buying MBS indefinitely and/or continue to manipulate the housing market.  Again, my humble opin.

Please know that I have the utmost respect for the opinions and comments of those I have quoted...I just truly believe we (real estate agents and mortgage professionals) have a fiduciary responsibility to provide consumers the FACTS, not a version of our beliefs.  

As for me, I gave up believing in White Knights and “pixie dust” a long time ago.  Oh, expect for my friend, White Knight; whom I rescued from the most deplorable situation when I was in Indiana.  In fact, I did not choose him...he chose me.  Another post for another day.

Entering 2011 begins the inevitable (by current regulations) end of the Fannie Mae High Balance Loan Limits.  Fannie Mae has already announced the the 2010 High Balance Loan Limits will remain in effect only through September 30, 2011.

Currently, the maximum loan limit for a Fannie Mae loan is $729,500 in high cost area and this will remain in effect for loans originated on or before September 30, 2011.  Loans originated after September 30, 2011 will be reduced (at the maximum levels) to $625,500 one one unit properties in the continental United States as established under the Housing and Economic Recovery Act and have been designated by FNMA as “permanent”.

Currently Conforming Loan Limits are set as follower

Units Contiguous States,

District of Columbia,

and Puerto Rico

One $417,000

Two $533,850

Three $645,300

Four $801,950

To determine the maximum loan amount, please refer to the following link:

https://entp.hud.gov/idapp/html/hicostlook.cfm

Under Limit Type select Fannie/Freddie.  For the time being select 2010.  FNMA has commited to update the site in early 2011to reflect the new lower loan limits for your county/state.

My favorite mortgage word has to be “Portfolio”.  My next favorite mortgage word is “Jumbo”.  Both words in the same sentence can make my little heart go pitter patter....particularly in today’s market of “CYA” (cover your analysis) underwriting, investor over lays (FHA does that, but “I, the Investor Overlord” also want this) and documentation over load (approvals of loan are based on by the pound, not the content).

To clarify, “Portfolio” lenders are usually private equity funding sources.  Not to be confused with “equity lenders”, which are usually hard money, high risk investors with the pricing and point structure to make your heart stop....not go pitter patter!!!  Think in the range to 10% to 15% interest rate and 5 to 10 points....with a prepay!  GULP!!  Beyond getting a “equity loan”, it is almost always imperative to have an exit strategy to refinance or sell before a default occurs.  Many “equity lenders” calculate the viability of the exit plan into the decision of whether to approve or decline the loan request.

On the contrary, “Portfolio” lenders are generally common sense driven.  Their guidelines are not loosey goosey, but they are founded in the true “risk/reward” model.  The pricing is reasonable because the investors want the borrower to be successful in repayment AND keep the loan for the long haul.  “Portfolio” lenders are not tied to Fannie/Freddie/Ginnie/FHA/VA guidelines and the loans are not sold on the secondary market.  Because the investors are taking the full brunt of the risk and there are no industry or governmental overlays they can set their own lending criteria....that generally means “make sense”.

Setting the lending standards and guidelines allows for specific flexibility, but does not mean the lender is exempt from State and Federal finance and fair credit laws.  The best, and most well-known portfolio lender, was World Savings(formerly Golden West).  Golden West/World operated successfully and was very profitable for 25 years before it was sold to Washington Mutual.  In fact, World Savings was the lender of choice for the good credit, great equity self-employed borrower.   Yes, World was one of the first to offer the “pick a pay” option arms (the loan now ludicrously referred to as “toxic”).   The loan product was perfect for the self employed/commissioned person who was financially savvy, had a lot of equity and was property educated about the terms of the loan product.  Alas, the product was “released” to anyone and given to everyone in the heat of the market in the early 2000’s.

To be sure I do not see the pick a pay, option ARM coming back into the marketplace.  However, what I do see is private equity lenders/investors recognizing the tremendous opportunity of developing their own product line(s) and underwriting standards that are based entirely on a “risk/reward” model that meets each entities specific business model.  No government or secondary market overlays will influence or impact the pricing or the approval of the loan package.

When working with “Portfolio” lending every loan package is a stand alone, independent business transaction between the borrower and the lender/investor.  The “art of packaging a loan” is paramount because the mortgage advisor is putting his/her “best foot forward” in representing the borrower.  Whether or not the loan package is approved very literally depends on how well the mortgage professional compiles and presents the loan package.

I am delighted to find that the emergence of “Portfolio Jumbo” lenders is making a come back.  The guidelines are reasonable and the pricing is very close to conforming product.  More over, “Portfolio” lenders make their own rules and exceptions to specific guidelines are as much the norm as not.  The product lines are extensive enough to satisfy most borrowers needs and, well not available in every state, the desire to lend “Portfolio” is unprecedented as compared to the past couple years.

It’s called loan processing for a reason....financing real estate with a mortgage loan is a process, not a one step event.

We have all heard a consumer or real estate agent bemoaning the fact that their loan officer is asking for another piece of documentation, another letter of explanation, the updated statement of their checking account or their latest pay stubs.  Or, the underwriter wants further clarification on their employment or credit history and another comparable on the appraisal.

Getting a mortgage in today’s market involves everyone in the process dotting each and every “i” and crossing each and every “t” (yes, some are calling it “CYA...cover your you know what...lending).  It can be a challenging and, in some instance, test the patience of Job.  I get that......

I have always operated my business with the approach to be as absolutely thorough at the onset of originating a mortgage as possible.  What that means is that I do not ask for the bare minimum of documentation to get a preapproval, but for the whole enchilada.

In other words, I evaluate the consumers needs and discover as much as possilbe about their specific situation....then I put on my underwriters hat  and attempt to determine EVERY piece of documentation the underwriter may request.  The rationale is (and I have found to be true) that consumers are happy to comply on the front side of beginning the loan process, but completely resent being “nickle and dimed” for piecemeal documentation.

Getting a mortgage is intrusive and invasive...only a true masochist would enjoy the process!  But, playing a game of documentation “strip poker” by forcing a consumer to strip away his/her privacy one piece of paper at a time is just plain rude.....and, extremely frustrating.   Much better to strip immediately and get the embarrassment behind you then to sit there in your skivies waiting for the next roll of the dice!!!

Having clarified that I believe it is imperative for a mortgage professional to be absolutly thorough from the very onset of a introduction to a potential client, it is equally imperative that consumers and real estate agents understand to getting (funding) a mortgage loan is a PROCESS that is much like legal discovery in the legal system.

There are simply things no one in the transaction know at the beginning of the loan process.  This becomes glaringly clear as the process continues.  Usually, the request of additional documentation can be justified and explained to the consumer (and, if necessary, the buying and selling agents involved) to ensure the transaction moves along smoothly.

However, there are at least two instances that create havoc for all parties involved in the loan process.....and, both of them stem from the desk of the loan officer:

1).  And, in my opinion, the worst of the worst...Number one, is the loan officer that skims the surface of the interview process, asks very little of the consumer, but does a masterful job of “selling” his/her service.  The consumer has bought the “sizzle” of the steak, but will be dining on shoe leather in this transaction.

2).  Inexperience or lack of knowledge of the COMPLETE lending process.  I am not being simplistic to state that a fifth grader could fill out a 1003 (loan application).  For goodness sake, the “blocks” tell you what to put in every space.   Name here, social there, date of birth...it is very much like a “paint by number” kit.  Fill it out according to the directions and all should be good, right?

NOT!!!!  Between the “blocks” of the 1003 are all the cracks in the mortgage process (like banking compliance, investor guidelines, real estate law, escrow or attorney requirements...the list goes on and on).

OH, and you want to know the NUMBER ONE complaint about loan officers from underwriter?????  “WHY CAN’T THEY FILL OUT A COMPLETE APPLICATION?”  (It’s true, folks, at the wholesale level it is very realistic to state that 1 in 10 (if that) applications are completed with enough information for the underwriter to make an informed decision on the file.

The “discovery” period of the finance process can be less painful and intrusive IF the loan officer is thorough at the point of origination AND can adequately and completely explain the “WHY” of the request from the underwriter/closer/funder...or anyone associated with the loan.

As a loan officer, knowing the “WHY” is just as important as knowing the “WHAT” in the documentation of a loan file.  Knowing “WHY” enables me to HELP the underwriter come up with the “HOW” to make the exception or to make a substitution of specific documentation.

Casting your line for a recast of your mortgage?  Better plan on dining out for dinner.

William Johnson wrote a post explaining the theory/process of re-casting your mortgage and the possibility of contacting your lender to consider a “re-cast” of your mortgage.  Technically, much of William’s post is accurate and I will not attempt to further explain the re-cast process in this post (follow the link to William’s well written post).  

However, I must respectively disagree with the likelihood of many (any?) consumers being able to accomplish this suggestion. There are a few instances that MAY help a consumer facilitate a re-cast of the mortgate:

1).  A re-cast clause is written into the note of the originating mortgage

2).  The consumer has an adjustable rate mortgage

3).  The consumer is making a substantial principal reduction at the time of the request.

On, the other hand there are cases where a re-cast is very probably completely out of the realm of possibility:

1).  Most fixed rate products (30, 20, 15, 10)

2).  Loans sold on the secondary market (investor approval highly unlikely)

It may help to understand that virtually ALL negative amortization loans have a “re-cast clause” hard coded into the mortgage note.  The parameters of the product allow for a “re-cast” of the principal balance if (when) the outstanding balance reaches 110%, 115% or 125% (this was determined by the lender/investor at the onset and varies across the board).

In other words, if a consumer has a $100,000 mortgage and they continue to make the negative amortization payment (less than interest owed) amount, the mortgage balance will increase monthly until the maximum outstanding balance of $110,000, $115,000 or $125,000 (respectively).

In the case of these loans, the looming threat of a “re-cast” is the proverbial shoe that is still going to drop in the continuance of the mortgage mess.  This is simply because the loan will automatically be amortized at the full allowable interest rate (per the note) at the time of “re-cast”.  The increase in payment WILL be significant (increasing the likelihood of eminent default).

In fact, I believe a great strategy for any real estate agent marketing short sales would be to monitor negative amortization loans, educate yourself thoroughly on the product and understanding the actual loan documents so you can show and explain to a consumer the looming situation when the mortgage will “re-cast”.

Now, in the case of a adjustable rate or balloon (also 5/25 or 7/23) mortgage, there is a better likelihood of convincing a lender/servicer to “re-cast” and/or reamoratize a mortgage at 1). the date on which the balloon (also 5/25 or 7/23) is due or the adjustment date of an adjustable rate loan AND 2). the concumer is making a substantative principal reduction of the outstanding mortgage balance.

I think the real value of William’s article is in the education provided to the consumer of exactly what “re-casting” is and in providing the homeowner the “how” to make one more “try” with a lender prior to acknowledging the need to shortsale their home.  And, unlike the approval of a short sale or attempt at a loan modification, I suspect it will take only one or two phone calls to a lender to determine IF a “re-cast” is possible or not.  It really is a “YES or NO” question.

William deserves much appreciation and kudos for helping the struggling homeowner to understand each and every option available to them, I believe William provides a valuable service in this education and an approach that crystalizes he puts the needs of his potential clients above his own interests and motivations.

That’s right:  It couldn’t happen to a “nicer” guy....Mozillo finally gets some comeuppance. 

Just reported:  Anthony Mozillo, former CEO of Countrywide Mortgage (now part and parcel of Bank of America) has settled with the SEC for violations of defrauding investors of the looming certainty of the mortgage meltdow.  The fine:  67.5 Million.  And, one of the largest ever given to a corporate executive.

The fact that Mr. Mozillo agreed to pay this fine through negotiations with the SEC should be very obvious to the American public.  Mr. Mozillo and his attorneys (as well as Bank of America and the SEC) know that bringing him to trial would have absolutely opened up the opportunity for more criminal charges (from investors, consumers and nearly every other entity attached to purchase of Countrywide loans).

Without a doubt, Mr. Mozillo is widely regarded as evil incarnate by people within and outside of the mortgage industry.  Except possibly Senators  Dodd (Chairman of the Banking Committee) and Senator Conrad (Chairman of the Budget Committee and a member of the Finance Committee) who both received preferential (and illegal, per then guidelines of FNMA) Fannie Mae loans through their direct connection to Anthony Mozillo.

Both Senators refinanced properties through Mozillo’s (and Countrywide’s) V.I.P. program in 2003 and 2004.  The loans in question allowed for significant reduction in costs to outright waiving of fees for the elite V.I.P. member.  And, in some cases, loans that were outside the allowable loan limits for FNMA were closed (and sold) to the mortgage giant.

The SEC and Congress decided our illustrious Senators and Mr. Mozillo did nothing wrong in these related transactions (of which I am still left scratching my head) so there were never any consequences for any people  involved in Countrywide’s V.I.P. program).

Besides lying to the SEC and Countrywide investors about the looming meltdown of the mortgage industry it is also important for the American consumer (both in and out of the real estate industry) to understand how Mr. Mozillo fleeced the American Homeowner through Countrywide’s loan product offering and loan officer compensation program.

In the mortgage industry it is widely known (required and legislated) that a mortgage professional has a fiduciary responsibility to their client to provide the best financial advice for the client (not the loan officer).  This is not simply a “PollyAnna” viewpoint, but evidenced by the fact that (in ethical organizations) a consumer is going to pay a loan officer compensation based upon doing a loan with the loan officer.....ANY loan.

But, at Countrywide the loan officers were encouraged and enticed to steer consumers to the “1%, negative amortization loans” by dramatically increasing their commissions and their performance ratings within the corporation.  Simply put, a loan officer’s standard of living and continuation with Countrywide was based upon his/her ability to “sell” the consumer on this specific product (without consideration for benefit to the consumer).

While I am pleased to know Mr. Mozillo will be deprived 67.5 Million of his “hard earned” (give me a break!!!!!) spoils from the meltdown of the mortgage industry, I certainly take no solace in this settlement.  Rest assured, the millions (billions?) Mr. Mozillo “earned” through the boom years ensures that the fine is a mere pittance and his lifestyle will not be remotely affected.

In my humble opinion Mr. Mozillo should be playing checkers with Mr. Madoff.  As yet, he has not paid his debt to the American public.  Perhaps the further investigations into the foreclosure crisis will continue to reveal how Mr. Mozillo (and other Banksters, to be sure) helped fraud American consumers all the way to the bank.

As a mortgage banker, my pipeline is just that:  "MINE".  And, my clients are "MINE".  My agents are "MINE".  My title and escrow company's are "MINE".  My underwriter is "MINE".  My processor is "MINE".  And, my doc drawer and funder are "MINE".  In fact, the other person involved on a MY files who is not "MINE" is the appraiser (no thanks to HVCC!!! LOL).  The fact that every aspect, process and procedure of the lending process is "MINE" is why transactions close how and when they are supposed to.  Purchase contract designated title and escrow companies become "MINE" through the initiation of the contract and are equally represented.

I read Kim Boekholder's post My Buyer's Loan Officer was Fired! and immediately felt a great deal of empathy for both Kim and her clients.  I am sending my best thoughts out to the Universe that all comes together for all concerned; however, there is also a "behind the scenes" aspect to Kim's situation that is glaringly obvious to me and prompted this post.

Two things immediately come to mind when I read Kim's post.  One, conjured up by the Loan Officer + Credit Union situation.  The other, is that I am quite certain that said loan officer had no clue or control of the file.  The 'terminated" loan officer may have truly been a very mediocre loan officer.......on the other hand, maybe not.  Let's examine the role of process and procedure in the lending process.

Does your loan officer have to get some P.P.?  I promise, without it, every aspect of the finance side of your real estate transaction will be the equivalent to riding Space Mountain at Disneyland.  Two of the most important words (should be) in securing financing are "Process and Procedure".  If your loan officer doesn't have P.P. - both established process and procedures AND control over process and procedures - it is anyone's guess whether or not your transaction will close.

It is incumbent upon both real estate agents and consumers to understand that most large retail banks, credit unions and internet banks work with a centralized processing business model.  The loan officer's role in the transaction is to originate or "close" the sale.  Once the file is "closed" it is forwarded to the processing pool.  The unknown "processor" prepares the file and submits to underwriting (most of the time, the loan officer is not allowed interaction with the underwriter).  Once approved, suspended or declined, the processor will email or leave a voice message telling the loan officer what to "say" or "get" from the various parties.

As a "closer", the loan officer will have limited or not contact with title, escrow, agents and only cursory contact with the borrowers.  His/her job is to close more...not service existing files.  The net result is that any communication coming from the loan officer is really just a forwarded message from someone else who really knows what is going on with the file.  Think of centralized processing as the mortgage version of the game "Telephone"...by the time the message gets to the end recipient it (the message) may have little similarity to the originating communication.

Conversely, a professional mortgage banker/broker is the primary contact and communicator for every aspect of the lending process.  Essentially, the "buck stops here"and the "surprises' on a file on kept to a minimum.  In a properly executed file, the process and procedures are in place to properly navigate the file through the contract period for a successful and timely closing.  The loan officer is the playwriter, director and film critic of the file.....and maintains control of both the creative and the technical aspects of the file.

My second observation has to do with the knowledge and professionalism of the loan officer at your local bank or credit union or internet lender.  Please understand, I am not "bashing" all bank sponsored loan officers...I cut my teeth as a personal banker for Security Pacific Bank.  The point is:  I cut my teeth...I was a baby loan officer and I had much to learn.

The new National Mortgage Licensing System takes effect January 1, 2011.  The testing and background checks and paper work was a grueling process...note, I saw grueling....not hard.  I completed the twenty hours of compulsory S.A.F.E. coursework through an online provider.  It required me to single click through countless pages and chapters to get to the test......which I did, without reading one page.  Passed the course with a 96%...I presume that means I know something about mortgage financing.

The point of the subject of NMLS testing is that current statistics indicate 30% to 40% of existing examinees are failingthe required tests.  But, hey, they don't have anything to worry about...they can just go work at a depository bank, credit union or F.D.I.C. sponsored mortgage bank.  No tests, no background check and no credit check required.  A review of your local Craigslist will provide all the evidence you need by the ads for "Loan Officers Wanted...No licensing required".

Want to place any odds on where Kim's clients loan officer will land? 

When interviewing a potential loan officer ask them two things:  1).  Are you licensed (implying they are educated, ethical and bonded)?  and 2).  Can you please explain your personal and internal processes and procedures?

I love to dine...what that means is I am pretty darn picky about the food I partake of and I enjoy sharing the dining experience with friends and family through a leisurely and satiating experience.  I am quite certain in one of my former lives I must have been French, Italian, Greek, Russian, Indian.......anything but tried and true born in the U.S.A.  Don't misunderstand, I am a very loyal American...except when it comes to food.  I don't "do" fast food.....left to me there would be no Golden Arches, no Whoppers and no deep fried "what ever that thing is".......they wouldn't exist because they would be bankrupt for the lack of my money.

Give me quality....or give me nothing.  Send me to bed without my supper......that's okay by me.  And, I am not talking high brow, five star dining experiences.....a local diner who produces the best corned beef hash in history is fine by me.  I just don't want "canned", "processed" and poorly cooked food....and avoid it at all costs.

Now, lest you think I have gone off the deep end into some fixation with food...let me explain that my current fascination with the topic of food was brought on by Karen Fiddler's post on saving her transaction.  It is a great post and Karen's intuition kicked into high gear to inspire her to sit down with her clients and get to the bottom of what they "weren't" saying......and what they weren't saying is that they were confused and frightened by the repeated questions and additional documentation required from their loan officer.

So confused and frightened, in fact, that they were ready to withdraw their offer.  Karen soothed their fears and assured them all was okay, talked with the loan officer and established the communication and flow of information to alleviate her clients fears and save the transaction from almost certain failure.  Kudos to Karen for listening to that still small voice...all to often we humans think our own loud voice is more intelligent than that little small glimmer Providence has given us.

Now, the point of my love of good food and the intimate and romantic nature of exquisite dining is this (yes, she is finally going to draw a connection between food and finance...thanks for hanging in there):  I question what the loan officer is question is "bringing to the table"....clearly, the borrowers are being fed only when the loan officer feels like feeding them and only what this loan officer thinks they should be allowed to eat.  The quality of the ingredients, the preparation and the presentation are of no consequence to this "drive through" fast food junkie.

As consumers and as agents, I think it is your right to have your financing served "your way" (okay, I just could not resist)......and, there is absolutely no excuse for the uncertainty and insecurity Karen's clients experienced because their loan officer could not find the time, or presence of mind, to serve them (and their agents, for that matter) quality "food", prepared with thoughtfulness and compassion and served with humility for the opportunity to represent them with the purchase of their home.

Now, I have to rush off to make steamed mussels and clams in a white wine reduction infused with shallots, fennel, garlic and fresh herbs from the garden, finished off with a splash of cream and fresh tomatoes....and freshly made bruschetta!  Bon appetit!!!!

Understanding FHA 203(k) Program:  Part Two

Process, Procedures and Best Practices

Second in my series to help real estate agents and consumers understand the opportunities that are available in considering renovation or customization of a home at the time of purchase or as an alternative to selling in the first place.  Many, many people think that custom construction is a arena of real estate that is only available to the very wealthy.....the FHA 203(k) program is available to anyone from the first time home buyer to the CEO of a major corporation.  The program is open to anyone who qualifies for a traditional FHA loan and provides many more options above either finding the "perfect" home or "settling" for the "almost perfect" home.

The very first step in determining the advantages or disadvantages of working with the FHA 203(k) program should be a honest evaluation of whether you, as a real estate agent or a consumer, are a good "candidate" for the experience.  This evaluation has absolutely nothing to do with the financing requirements, the property or the renovation process.  It does, however, have very much to do with personality and adaptability to change and flexibility in temperament. 

Explaining and counseling real estate agents and consumers through the process is not difficult as long as all parties understand, from the very onset, the importance of attention to detail and complete and through communication between all parties involved in the transaction.  That said, I would suggest a meeting of the minds PRIOR to even considering using a FHA 203(k) program.  There are simply people who are not psychologically equipped (whether agent or consumer) to deal with the process of renovation and construction.  Word to the wise:  "Know thyself".

Having issued my "caveat" let the fun begin!  I am, and always have been, a certified "Project Freak"...I love the process of creating a masterpiece from the ashes.  Move a wall, add a room, raise a roof or update a kitchen.....these are all enjoyable past times for me and I offer my experience and passion for the process to help agent and consumer alike in uncovering the possibilities within the walls of a structure.

Process, Procedure and Best Practices

Financing a FHA 203(k) loan, on average, will take 45 days from the time of initial application to the successful closing of escrow.  It is important to understand that the closing of escrow marks the start of the renovation.  Again, setting proper expectation is crucial.  The program allows for up to six months of escrowed (impounded) loan payments to ensure enough time to complete the renovation and improvement of the home.

Step one:  Application for financing.

Time Frame:  One to three hours

The application process is very similar to traditional FHA financing, with the exception of the counseling process and instruction/implementation of the "next steps" of looking for and consulting with licensed contractors.  Expect to provide all income and asset verifications at the time of initial consultation.  Like traditional FHA financing, the consumer will need a minimum of 3.5% down payment (gifts acceptable) and assets must be verified at application.

Step two:  Meeting with the FHA counselor.

Time Frame:  One to four hours, scheduled at the time of application and conducted within 48 hours of application.  Report due within 5 to 7 days.

The role of the FHA counselor is crucial to the process and lays the foundation for the success of the renovation.   The counselor (inspector) is usually a licensed home inspector or appraiser and his/her role is to meet with borrowers at the property to determine 1). Condition of subject property,   2). Necessary health, safety or system improvements and 3).   Determine the goals and ambitions of the borrowers.

Following the initial meeting, the FHA counselor will prepare a specific work order and cost analysis of the necessary and proposed improvements to be included in the loan package.  The report is very detailed and will give a line by line explanation of the complete renovation project.

The cost of the FHA counselor varies between $400 and $1000, depending upon renovation/remodeling costs (< $7,500 and > $100,000, respectively).  This cost is generally paid upfront, but can be reimbursed through the close of escrow.

BEST PRACTICE:   Providing prospective and bidding general contractors with a copy of the FHA counselor's report (MINUS estimated figures) will expedite the bidding process greatly.  FHA standards require the bidding process to "mirror" the counselors report.  General contractors are likely to prepare a bid of "Remodel Kitchen:  XX dollars"...providing them a copy of the line by line itemization of the FHA counselors report streamlines the process considerably.  It also goes a long way in identifying price gorging or unrealistic under bidding by the contractor.

NOTE:  The choice and selection of the General Contractor cannot be diminished in the successful implementation of the 203(k) program.  This is the one area of the program that necessitates complete control of process and flow throughout the close of escrow and after wards, through the renovation draws.

Step Three:  Interviewing and selecting licensed General Contractor and procuring bids

Time Frame:  Entirely dependent upon borrower and contractor motivation and time constraints.

CAUTION:  This is the one area that can completely blow the process and time frames for the proper execution of a specified close of escrow.  Consumers need to "OWN" this as the lender and investor (or agent or loan officer) are not going to "direct" them to one contractor or another.  The program requires the contractor to be licensed, insured and bonded...outside of that the consumer MUST do their due diligence to ensure they are working with a reputable and efficient contractor.

The completeness of the plans and specifications of the remodel/renovation are required for submission to underwriting (and they must conform to local, state and federal building codes to ensure building permits for the project).

BEST PRACTICE:  There are a number of things an agent and loan officer can do to provide the home buying public on how to shop for and interview a general contractor.  This is part of the consultative nature of this product, but crucial to the project is the consumers understanding that they are very much in control (or, for that matter, out of control) of this aspect of the loan process.

NOTE:  The 203(k) program provides for up to five "draws" throughout the construction process.  With the exception of special order item deposits, the program does not permit any prepayment for services to be rendered by either General Contractor or his/her sub-contractors.  While many contractors prefer to be paid as much as one-third "up front", this issue can usually be worked through once the contractor completely understands that ALL construction funds are fully escrowed and there is NO chance they will not be paid for their services.

The 203(k) program mandates that an escrow contingency fund between 10% and 20% be held in reserve throughout the process to ensure coverage of unexpected or chosen changes to the project.

Step Four:  The Appraisal Process 

Time Frame:  Five to seven days

The most unique aspect of the FHA 203K program is the fact that there are essentially two appraisals on the subject property.  First the appraiser will determine "initial value" to determine a base line of the value as the property is at the time of contract.  Secondly, the appraiser is provided a copy of the FHA counselor's report and the accepted General Contractor's bid to work up an analysis of the "future value" of the property.

The final figures on the "future value" of the home will set the actual loan amount for submission to underwriting.  Of course, it is imperative that the loan officer has pre-approved the borrower for a loan amount at, or above, the "future value" in the first place.

The cost of the appraisal process is generally going to be around 50% higher than a traditional appraisal, and this fee is also paid on an upfront basis.

NOTE:  To be discussed further in the Part Three:  Marketing the 203K, however, it bears noting here that this is also where the opportunity lies for consumers who are slightly underwater on a under improved property to refinance and remodel to bring the property value up to a marketable and profitable condition.

Step Five:  Processing, Underwriting and Conditions

The processing, underwriting and conditional process of this program is no different than any other FHA product (at least at my company.   There is no need to send the loan package to the investor for additional approval and sign off........NOTE: I would not recommend working with any company that needed secondary sign off).

The borrowers' loan file is very similar to a traditional FHA loan, the importance is in the detail of the FHA counselor report, the contractor bids and the appraisal process.  It is imperative that these steps and processes mirror each other in detail and cost analysis/value. 

Step Six:  Close of Escrow, and the Beginning of Renovation

Once conditions are cleared, docs are ordered and buyers/sellers (or homeowners) have signed loan documents are signed funds are disbursed to the sellers and/or their lender per normal and traditional procedures.  In the case of a refinance, the underlying lender(s) will be paid in through escrow. 

Following the actual closing, the process of the implementation of the FHA 203(k) will actually "begin".

Step Seven:  The Construction/Renovation Process

There are several points throughout the process that agents/consumers/contractors/loan officers need to be monitoring the "behind the scenes" activities.  For example, the selection of a General Contractor and getting bids for the project are "behind the scenes" of the actual loan process, however, can severely impact the process flow of the loan. 

All permits must be pulled to begin the construction process and all "draws" of funds are based upon completion of certain aspects of the project (depending upon the scope of the work).  The FHA consultant, as well as local building inspectors, will provide as the stop gap, or quality control agent, for the project.  Funds will not be released until sign off by both the FHA counselor and local building inspector.

Step Eight:  Changes and contingencies

As noted previously, the 203(k) program requires a specified amount of monies set aside for any unexpected events or changes in the project costs.  As anyone who has ever embarked on a home improvement project will attest, things rarely progress exactly as planned.  There are unexpected events (like issues with wiring behind the sheetrock that the FHA counselor could not see at the time of inspection) and there are "Oh, I changed my mind" events when one realizes that the initial plan is not exactly what they want.

The "draw period" of the 203(k) program allows for changes and contingencies (whether unexpected or planned) by allowing submission of a work order addendum throughout the process.  Generally,  here is a 24 hour approval process to the work order change, but the process is fairly simple and should not impede completion of the project.

Additionally, the borrower has the option of rolling any unused funds in the 10% to 20% contingency fund into the loan to reduce the principle balance at the time of the final draw on the project and/or submitting a final work change order to add further improvement to the property (landscaping, for instance).

The flexibility of the 203(k) program provides an opportunity for consumers to customize their home to their specifications without the high cost of custom construction and is a product that can help many agents and consumers in today's market.

FHA 203(k) Renovation Loan....Easily the Most Underused and Least Understood Mortgage Product Available

The opportunities for utilizing the FHA 203(k) program abound in the current market; however, there are very few consumers or agents taking advantage of the opportunity.  The reasons for the under utilization of the program expose a couple areas of misunderstanding:

1).   The 203(k) program has been in existence and available for consumers for well over twenty years.  However, there are very few lenders who offer the product and there are even fewer lenders and loan officers who know how to originate and process the program.

2).   Listing and selling agents are not familiar with the 203(k) program and, as in all of human nature, there is a tendency to avoid that which we do not know.  In preparation for this article I sent emails to as several real estate agents with the following questions:

A.     Have you ever worked with a buyer or seller utilizing the 203(k) program?

B.     As a listing agent, would you be inclined to accept an offer from a 203(k) borrower?

C.     As a selling agent, would you be comfortable with working with a consumer through the process of a 203(k) program?

Contrary to what I had heard from other loan officers, not one real estate agent objected to the use of the 203(k) program when representing either the seller or the buyer.  However, almost all of the agents questioned did not understand the program and readily admitted that they would have to be educated in the process prior to encouraging their sellers to accept an offer or working with buyers looking for a renovation project.

(Note:  Karen Fiddlerin Mission Viejo, CA is the only real estate agent I corresponded with who has first hand knowledge of the product and she specifically said the biggest challenge was in educating the listing agent about the product).

3).   Consumers are not aware of the program and options available to them because their loan officer and/or their agent have not provided them with thorough knowledge of the program.

The current market of undervalued homes, foreclosures and short sales provide a great opportunity for agents and consumers to create opportunities that would not exist with any other mortgage product.  The purpose of this series provide both agents and consumers with a overview of the 203(k) program, implementation and process of the obtaining a 203(k) loan, marketing the loan to sellers, buyers and refinancing consumers and creating a vision for showing all consumers how the 203(k) program could create instant equity in a purchase or refinance of a currently underwater home.

Part One:  Overview of the FHA 203(k) program

The 203(k) program is a renovation loan, available for either purchase or no cash out refinance of an existing home within the same loan amounts limits of traditional FHA loans.  The program allows for minimal (as low as $5,000.00) cosmetic work, including replacement of appliances as well as a complete rebuild or renovation of an existing property (limited to using at least a portion of the existing foundation).

The loan amount is based upon an appraisal of the specified work to be completed (future value of the home) and allows for an escrow/impound account of up to six months complete housing payment if the house is uninhabitable during the renovation.  Final loan amount may be up to 103% of the future value as provided by the appraisal. (NOTE:  Actual FHA guidelines allow for loan to values up to 110%, however, lender overlays have reduced this amount to 103%).

There are two versions of the 203(k) program:  A streamlined (up to 35K) and a full 203(k).  Currently, investors have balked at the advance deposit on the streamline process and have pulled back from offering this version; therefore, only information of the full 203(k) will be presented in this series.

Underwriting Guidelines Summarized

•      Owner occupied, 1 to 4 unit properties, SFR, condo and PUD
•      HUD/Bank Repos
•      Existing homes complete for one year
•      New construction on part of original foundation
•      Existing home moved to new foundation
•      Structural alterations and additions
•      Remodeling kitchens and bathrooms
•      Changes to eliminate obsolescence and reduce maintenance
•      Modernize plumbing, heating, AC and electrical systems
•      Energy efficient improvements
•      Install or repair well or septic systems
•      Roofs, gutters and downspouts
•      New free standing appliances
•      Interior and exterior painting
•      Flooring, carpeting and tile
•      Swimming pool repairs (NO new pools, spas or luxury items)
•      Other improvements that are a regular part of real estate

Rates competitive to traditional FHA loans

Fully assumable thirty year fixed rates

29/41 Ratios

Traditional FHA credit and income qualifying guidelines

30 day closingss possible

660 credit score required

General Contractor required (home owner may work as sub for GC)

Up to 6 months PITI and monthly MIP rolled into the loan

Next installment will list the process flow for agents and consumers through the underwriting and renovation process.