Posts Tagged Salt Lake City UT

HVCC could be phased-out by year-end

Although H.R. 3044 which would put an 18-month moretorium on HVCC seems to have gotten stalled, but some members of the House Financial Services Committee were able to tack a repeal of HVCC onto H.R. 3126, the Consumer Financial Protection Act (CFPA) as an amendment. H.R. 3126 passed committee 39 t0 29 with most Committee Republicans voting against it.

H.R. 3126 has been fought furiously by banks and credit card companies because is severely limits how they can put the screws to you and I when getting or servicing loan or credit card.

If passed by the House of Representatives it will go on to the Senate. President Obama has requested that CFPA be on his desk for signing into law before the new year.

As a brief review, HVCC is the Housing Valuation Code of Conduct, which was the brainchild of New York State Attorney Andrew Cuomo. He was wrongfully assuming that A) appraisers are all pansies, and B) because they are pansies they could be easily bullied by mortgage loan officers and real estate agents into artificially inflating the value of a home.

Well, for the most part appraisers are a pretty honest bunch and housing bubble was much more than just inflated appraisals due to some unscrupulous loan officers, real estate agents and appraisers. All HVCC did was add an additional layer of cost and time to the process: Appraisal Management Companies, or AMC’s.

AMC’s are the go-between for loan officers, Realtors and the appraiser. A buffer if you will. The AMC’s run interference and isolate the appraiser from talking to the loan officer or Realtor, the idea being that if a loan officer or Realtor can’t talk to the appraiser they can’t pressure them into “hitting a target value” to make the deal work.

Well, the market decides the value, all the appraiser does is compare the subject property to comparable properties that sold within a given period and a given distance from the subject property. In short: it is what it is.

There are a number of problems with AMC’s though:

  1. AMC’s increased the price the consumer pays for an appraisal because it added a middleman into the process.
  2. Appraisals have to be paid by the borrower before the appraisal is done, it can no longer be rolled-up into the loan like before.
  3. AMC’s take up to 60% of the amount collected from the borrower as “administrative costs” and appraisers are making only 40% of what they did just last April.
  4. Because of this the good appraisers have exited the business, leaving green appraisers who will work for pennies on the dollar, and thus;
  5. We are getting shoddy appraisals using comparatives that are not comparable properties. And, because we can’t talk with the appraiser we can’t go to bat for our borrower by questioning why the appraiser used a short-sale or a bank foreclosure as a comparable as compared to a genuine sales transaction, which represents the true market value of a home.

All HVCC has done is add another layer of bureaucracy, increased costs to the borrower, and hindered refinances that can help a borrower by reducing their interest rate and putting more cash in their pocket each month, thus reducing the chance of defaulting on their mortgage.

You’d think this would be a good thing, huh?

So let’s hope H.R. 3126 passes the House and the Senate and we can start moving forward with real economic recovery and your home will start increasing in value again as real, honest and competent appraisers get back to work doing what they love to do.

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HUD approves $8,000 tax credit to be used for down payment or closing costs

Today HUD approved the $8,000 first-time home buyer tax credit for buying a new home to be used for down payment or closing costs with FHA loans.  The catch: Finding someone to loan the money up-front against the forthcoming tax credit since no government agency wants to touch it.  We’ll see how this pans-out.  It could be a huge help for may first-time home buyers and those that haven’t owned a home in three years.

News Story

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Today’s ramblings of a lunatic mortgage broker

According to the Salt Lake Board of Realtors home sales in Salt Lake County were down 25% from last year, but the median home price fell less than expected, only 1.3% across the board.  So there’s some good with the bad.

According to this article in the Salt Lake Tribune today, homes in the under $300,000 category are moving well, but those above are spending much more time on the MLS, and sales above $600,000 are almost non-existent.

I feel that home prices are coming down, and sales are slowing down because of several factors:

One major influence on the decline of home prices is that homes are settling into the price range that the average Utah household can afford.  The median income of a W2’d household in Salt Lake City is just a bit more than $60,000 a year, which qualifies them to buy about a $210,000 home.  Those that sign the front of the paycheck, the entrepreneur and business owners that employ W2’d employees and personally make more than $60,000 a year, usually don’t W2 themselves and instead file a Schedule C or K with their 1040’s.

The elimination of stated-income loans leaves the self-employed or business owner borrower at a huge disadvantage when seeking financing.  Self-employed people usually pay themselves a “reasonable” salary for running their business to minimize the income taxes they pay (self-employed people pay an additional 15% self-employment tax on top of everything else that their W2’d employees pay).  Stuff W2’d employees pay for out of their personal income, like their cell phones, car payments, auto insurance, gasoline, etc., a self-employed person pays for out of the business to minimize both the business taxes and minimizing the salary the owner draws from the business, thus decreasing their personal income tax, too.  Business owners still pay for the same things their W2’d employees do, but where the money comes from is shifted around to minimize taxation, to the detriment of documentable personal income.  The self-employed person or business owner may legitimately have made $300,000 last year and can honestly afford a $900,000 home, but on paper they only made a “reasonable” salary of $50,000 and thus that was their taxable income that will be used under the current underwriting guidelines to qualify them for a loan.  So the self-employed borrower will only qualify for a $165,000 loan (hence the reason homes over $300,000 are not selling so well).

This is very evident right now with the current refi boom, where these self-employed borrowers with excellent credit scores can’t qualify to refinance the home they bought five years ago, even though they obviously are good for it.

To make a huge difference in the economy right now either Fannie Mae, Freddie Mac and FHA will have to develop new underwriting guidelines for self-employed borrowers so that they can buy new homes, right now, or self-employed people will have to go back and amend their last two years of tax returns and pay income taxes on the amended amount, or wait two more years for self-employed borrowers to file returns that more accurately disclose actual personal income and the higher taxes that go along with it.  The latter solution won’t help the economy any time in the near future.

My solution: Allow the self-employed to use alternate forms of proof of income, like bank statements, or allow a self-employed borrower to use a percentage (say 75%) of their Schedule C income to qualify.  After all, the current guidelines allow a W2’d borrower to use their gross income with no regard for what they spend their money on other than debts that show on a credit report, shouldn’t the self-employed be given the same consideration?

Another reason is one I’ve been harping on all week, stricter appraisal guidelines that lenders will accept, which is making it difficult to accurately value your home.

In Salt Lake City the cause of lower home values that is currently carrying the least weight is foreclosures since our unemployment rate is half of the national average.  But we are seeing more short sales, which is when a homeowner sales their home for just what they owe on it or less if the bank agrees on it.  Some homeowners are having to do this just to sell their house because borrowers can’t qualify for the higher price under current underwriting guidelines.

The plus side to all this is if you are a W2’d wage earner and can provide documented proof of your income and have a 620 FICO score or better, you are pretty much golden to buy a home right now, and some at really good deals.

All that said, here’s today’s rates:

For Salt Lake City, UT today’s average mortgage rates are as follows:

30-year fixed: 5.25%

15-year fixed: 5.125%

Conforming Jumbo 30-year fixed: 5.75%

FHA 30-year fixed: 5.50%

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