Christina Dunham's Random Real Estate Musings

As expected, the Federal Reserve left short-term interest rates unchanged last week, keeping its target for the federal funds rate at 2 percent. The Fed’s policy statement did not contain any surprises.

The Fed remains concerned over both inflation and sub-par economic growth, citing that “tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help promote moderate economic growth.” Most analysts are growing more confident that the Fed will leave the Federal Funds Rate alone until after the elections.

The federal funds rate is the rate that banks pay to borrow from each other to fulfill reserve requirements. While a rate hike would help to fight inflation as well as help strengthen the dollar, it would also cause more slowing of an already sluggish economy because it increases the cost of borrowing for businesses and consumers.

A decrease in the Fed Funds Rate makes borrowing cheaper, stimulating business activity and economic growth. For consumers with credit card debt or adjustable home equity lines of credit (HELOCs), the Fed’s move is good news. Rates for consumer credit are primarily based on the Prime Rate, a rate pegged at 3% above the Federal Funds Rate. The Prime Rate remains at 5%, keeping the cost of borrowing low for the time being.

Long term interest rates remain in the balance, with the 30-Year Fixed rate teetering in the 6 ½ percent range since last week. If the Consumer Price Index (CPI) comes in lower that expected, we could see a slight trend downward for mortgage rates.

On July 30, 2008, President Bush signed into law H.R. 3221, the “Housing and Economic Recovery Act of 2008,” a sweeping $300 billion rescue plan to help struggling homeowners avoid foreclosure, and to boost confidence in the sluggish housing market. The new legislation also created changes to conforming loan limits, FHA guidelines, down payment assistance, and first time homebuyer programs.

Also known as the “Foreclosure Prevention Act of 2008,” the bill passed the House on July 23, 2008, by a vote of 272-152. On Saturday, July 26, 2008, the Senate passed the bill by a vote of 72-13. The bill will cost the American public about $4 over the 2008-2012 period. Below are some highlights of the bill.

• Federal Housing Finance Agency (FHFA) - newly established independent agency tasked to oversee Government Sponsored Entities (GSEs) Fannie Mae, Freddie Mac and the Federal Home Loan Banks, empowered with broad supervisory and regulatory powers over the operations, activities, corporate governance, safety and soundness, and mission of the GSE.
• Higher Conforming Loan Limits – permanently increases conforming loan limits in high-cost areas to $625,500 and establishes an affordable housing fund, commencing upon the expiration of the temporary Economic Stimulus limits of $729,750 on December 31, 2008. This enables homeowners in high-cost areas to avail of conforming loans with lower interest rates.
• Hope for Homeowners Program – enables at-risk borrowers to refinance their existing mortgages into FHA loans. Borrowers must certify that they have not intentionally defaulted on their mortgage or any other debt. Effective on October 1, 2008, qualified borrowers may be able to refinance into a new FHA 30-year fixed mortgage at 90% of the property’s appraised value, with all existing subordinate liens extinguished. Borrowers are prohibited from taking out new second mortgages for the first five years on the program and are expected to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide.
• Seller-funded down payment assistance – prohibits down payment contributions from (1) the seller or any other entity with a financial interest in the transaction and (2) any third party reimbursed by any of such parties beginning October 1, 2008. Other assistance programs provided by nonprofits or funded by other sources such as churches, employers, or family members will still be permitted.
• Loan Originator Requirements – sets minimum standards for loan originator licensing and establishes a nationwide mortgage registration system, thereby improving the oversight of mortgage brokers and bank loan officers, as well as strengthens mortgage disclosure requirements to ensure that borrowers understand the terms of their home loans.
• First-Time Homebuyer Tax Credit – first-time homebuyers will receive a $7500 tax credit for any qualified purchase of a principal residence between April 8, 2008 and June 30, 2009. A first-time homebuyer is defined as an individual who has not had ownership interest in a principal residence in the last three years. The credit is repayable over 15 years (making it, in effect, an interest free loan). Income restrictions apply.
• FHA Modernization – permanently raises FHA loan limits from $362,790 to $625,500, streamlines processing for FHA condos; expands opportunities for seniors who wish to access their equity through reverse mortgage programs, and reforms to the FHA manufactured housing program. The new legislation also calls for an increase on the down payment requirement on FHA loans from 3% to 3.5% of the appraised value of the property. The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008). Permanent
• Emergency Assistance for Redevelopment of Abandoned and Foreclosed Homes – allocates $30 million for the Neighborhood Reinvestment Corporation (NRC) to (1) make grants to HUD-approved counseling intermediaries; or (2) hire attorneys to assist homeowners who have legal issues directly related to foreclosure, delinquency or short sale.
• Tax-Related Provisions – allows the use of qualified mortgage bond proceeds to refinance subprime residential mortgages. Allows a one-time credit of up to $7,000 of the purchase price of a single-family residence in foreclosure.
• Clean Energy Incentives – extends through 2009 the tax credit for residential energy efficiency improvements and the production of electricity from renewable resources such as biomass, geothermal, landfill gas, marine, hydrokinetic and trash combustion. Tax credits for solar energy are extended through 2016.
• Mortgage Foreclosure Protection for VA loans – temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.

• Risk-based pricing – puts a moratorium on FHA implementing risk-based pricing through October, 2009.
• GSE Stabilization – includes language proposed by the Treasury Department to authorize Treasury to make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae could not fail.

Let’s hope that these changes provide a much needed boost to the continually sagging real estate and mortgage market. For more information about any of provisions above, drop me an email at contact@christinadunham.com.

Until next week, happy home loan shopping!

Christina Dunham is a Mortgage Advisor with Dunham Group Mortgage. She has originated over $107 million in loans since 2003. She may be reached at contact@christinadunham.com. For a complimentary credit or mortgage loan consultation, contact Christina Dunham at 866.7.DUNHAM.

After months of negotiations and revisions, H.R. 3221 was signed by the President into law on July 30, 2008, creating sweeping changes to conforming loan limits, FHA guidelines, down payment assistance, and first time homebuyer programs.

Also known as the “Foreclosure Prevention Act of 2008” and the “Housing and Economic Recovery Act of 2008,” the bill passed the House on July 23, 2008, by a vote of 272-152. On Saturday, July 26, 2008, the Senate passed the bill by a vote of 72-13. The bill, which will cost the American public about $4 over the 2008-2012 period, includes the following provisions:

• FHA Modernization – increases the down payment requirement on FHA loans from 3% to 3.5% of the appraised value of the property. The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008). Permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlined processing for FHA condos; reforms to the HECM program, and reforms to the FHA manufactured housing program.
  
  
• Seller-funded down payment assistance – effective October 1, 2008, down payment contributions from (1) the seller or any other entity with a financial interest in the transaction and (2) any third party reimbursed by any of such parties are prohibited. Other assistance programs provided by nonprofits or funded by other sources such as churches, employers, or family members will still be permitted.
  
  
• Higher Conforming Loan Limits – permanently increases conforming loan limits up to $625,500 for one-unit properties in high-cost areas, commencing upon the expiration of the temporary Economic Stimulus limits on December 31, 2008.
  
  
• First-Time Homebuyer Tax Credit – first-time homebuyers will receive a $7500 tax credit for any qualified purchase of a principal residence between April 8, 2008 and June 30, 2009. A first-time homebuyer is defined as an individual who has not had ownership interest in a principal residence in the last three years. The credit is repayable over 15 years (making it, in effect, an interest free loan). Income restrictions apply.
  
  
• Emergency Assistance for Redevelopment of Abandoned and Foreclosed Homes – allocates $30 million for the Neighborhood Reinvestment Corporation (NRC) to (1) make grants to HUD-approved counseling intermediaries; or (2) hire attorneys to assist homeowners who have legal issues directly related to foreclosure, delinquency or short sale.
  
  
• Tax-Related Provisions – allows the use of qualified mortgage bond proceeds to refinance subprime residential mortgages. Allows a one-time credit of up to $7,000 of the purchase price of a single-family residence in foreclosure.
  
• Clean Energy Incentives – extends through 2009 the tax credit for residential energy efficiency improvements and the production of electricity from renewable resources such as biomass, geothermal, landfill gas, marine, hydrokinetic and trash combustion. Tax credits for solar energy are extended through 2016.
  
  
• Mortgage Foreclosure Protection for VA loans – temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.
  
  
• Hope for Homeowners Program – provides relief for homeowners who are experiencing difficulty paying their mortgage. Borrowers must certify that they have not intentionally defaulted on their mortgage or any other debt. Effective on October 1, 2008, qualified borrowers may be able to refinance into a new FHA 30-year fixed mortgage at 90% of the property’s appraised value, with all existing subordinate liens extinguished. Borrowers are prohibited from taking out new second mortgages for the first five years on the program and are expected to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide.

• Risk-based pricing – puts a moratorium on FHA implementing risk-based pricing through October, 2009.
  
  
• GSE Stabilization – includes language proposed by the Treasury Department to authorize Treasury to make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae could not fail.

• Loan Originator Requirements – establishes minimum standards for loan originator licensing and institutes a nationwide mortgage registration system, thereby improving the oversight of all originators, strengthening fraud prevention, and increasing the educational requirement. The bill exempts those who work for Federally-chartered institutions.

Let’s hope that these changes provide a much needed boost to the continually sagging real estate and mortgage market. For more information about any of provisions above, drop me an email at contact@christinadunham.com.

Until next week, happy home loan shopping!

Christina Dunham is a Mortgage Advisor with the Dunham Group at Sierra Pacific Mortgage, a nationwide mortgage banker funding over $8 billion in loans annually since 1986. She may be reached at contact@christinadunham.com. For a complimentary credit or mortgage loan consultation, contact Christina Dunham at 866.7.DUNHAM.

U.S. Treasury Secretary Henry Paulson continues to campaign for government support in stabilizing Government Sponsored Entities (GSE) Fannie Mae and Freddie Mac, including providing an unlimited line of credit available for these GSEs, having the temporary ability to gain an equity stake in these organizations, and providing billions of federal dollars in emergency loans if necessary. The proposal aims to increase confidence in the GSEs and address short-term issues in the real estate and mortgage markets.

This is the second time in four months that the housing crisis has prompted the U.S. government to step in, with the Treasury Department engineering the sale of Bear Sterns last March to prevent it from going bankrupt. Paulson noted that in this rescue package, the Fed should have a regulatory role, while the treasury will maintain a consultative role in the process.

In a Q&A session last week, Paulson said that the unlimited credit line would provide flexibility to the GSEs, and that he hopes the authority would not have to be used. And while he proposed that the treasury have the ability to buy into the GSEs, he said that “The treasury has no plans to currently invest in Fannie Mae and Freddie Mac.”

The Federal Home Loan Mortgage Corporation (aka Freddie Mac) and the Federal National Mortgage Association (aka Fannie Mae) buy mortgages from banks (thus providing banks with new money to loan) and oftentimes resell the purchased loans to investors, providing a guarantee of repayment to the new owners of the mortgages. Freddie Mac and Fannie Mae own or back $5.2 trillion of mortgages, equal to 49% of the nation’s $10.6 trillion mortgage market. They could potentially face huge losses this year as foreclosures continue to scourge the market.

"Market stability and support for housing finance are among my highest priorities during this time of stress in our markets. Therefore, after consultations with the Federal Reserve, the Office of Federal Housing Enterprise Oversight (OFHEO), the Securities and Exchange Commission (SEC) and Congressional leaders, we are asking Congress, as it completes its work on a stronger GSE regulatory structure, to also enact a three-part plan to address the current situation," Paulson said.

“GSE debt is held by financial institutions around the world. Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore, we must take steps to address the current situation as we move to a stronger regulatory structure. We’re going through a challenging time with our economy. This is a tough time. The three big issues we’re facing right now are, first; the housing correction which is at the heart of the slowdown; secondly, turmoil of the capital markets; and thirdly, the high oil prices, which are going to prolong the slowdown,” he added.

Last week, stock price for both GSEs plummeted over 45% as speculation of a government bailout circulated.

Until next week, happy home loan shopping!

Christina Dunham is a Mortgage Advisor with the Dunham Group at Sierra Pacific Mortgage, a nationwide mortgage banker funding over $8 billion in loans annually since 1986. She may be reached at contact@christinadunham.com. For a complimentary credit or mortgage loan consultation, contact Christina Dunham at 866.7.DUNHAM.

For the first time in history, FICO scores will now be utilized in FHA lending effective July 14, 2008. Risk-based premiums will be added-on to the base mortgage insurance charges for FHA’s single family programs (see Table A).

Let's take a closer look at the ten primary changes to the FHA guidelines:

1. Upfront Mortgage Insurance Premiums (UFMIP) will range from 1.25% to 2.25% of the loan amount, depending on score and risk factor.
2. The Monthly Mortgage Insurance Premium will range from 0.50% to 0.55% depending on score.
3. Borrowers with either no score or at least 500 may get an LTV (loan-to-value) >90%.
4. Borrowers with a credit score less than 500 get a maximum LTV of 90%.
5. Borrowers without credit scores will require manual underwriting.
6. The premium is based on the borrower with the lowest score.
7. If one of the borrowers has no score, then the Non-Traditional credit grade is used.
8. Credit rescoring is allowed to improve a borrower's credit grade.
9. All FHA Secure refinances >95% LTV with delinquencies have a 2.25% UFMIP and 0.55% MMI.
10. These changes apply to cash-out, rate & term, and non-delinquent FHA Secure refinances.

FHA Single Family Mortgage Insurance Upfront and Annual Mortgage Insurance Premiums (Loan Terms > 15 years) Effective as of July 14, 2008
All premiums are specified in percentages (1.00%)
Decision Credit Score (FICO)
LTV	850-680	679-640	639-600	599-560	559-500	499-300	NON-TRADITIONAL
≤ 90.00	1.25/0.5	1.25/0.5	1.25/0.5	1.50/0.5	1.75/0.5	1.75/0.5	1.50/0.50
90.01-95.00	1.25/0.5	1.25/0.50	1.50/0.50	1.75/0.50	2.00/0.50	n/a	1.75/0.50
> 95	1.25/0.55	1.50/0.55	1.75/0.55	2.00/0.55	2.25a/0.55	n/a	2.00/0.55
A first-time homebuyer, with HUD-approved counseling, will pay only 2.0% for the upfront mortgage insurance premiums.

U.S. Treasury Secretary Henry Paulson announced over the weekend that the government would aid in stabilizing Government Sponsored Entities (GSE) Fannie Mae and Freddie Mac. This includes increasing the line of credit available for these GSEs, having the temporary ability to gain an equity stake in these organizations, and providing emergency loans if necessary.

Paulson says, “GSE debt is held by financial institutions around the world. Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore, we must take steps to address the current situation as we move to a stronger regulatory structure.”

Last week, stock price for both GSEs plummeted over 45% as speculation of a government bailout circulated. At present, the two companies own or guarantee $5 Trillion (with a T) of mortgage debt, encompassing nearly half of all U.S. residential home loans.

No doubt about it, the mortgage and real estate market is in a real rut. According to the Mortgage Lender “Implode-O-Meter” website, the number of lenders that have imploded – shut down completely, filed for bankruptcy, or ceased major operations “temporarily” – almost doubled from this time last year, up from 136 to 266 (as of 7/8/08).

The latest casualty is giant IndyMac Bank, who ceased accepting new loan submissions or rate lock requests as of Monday, July 7^th. They are shutting down operations of both wholesale and retail mortgage banking divisions, but will continue to operate the retail consumer banking divisions as well as a limited number of servicing retention operations. In addition, they are laying off more than half its workforce, reducing total manpower from 7,400 to around 3,200. IndyMac Bankcorp, Inc is the holding company for IndyMac Bank, the 7th largest savings and loan and the 2nd largest independent mortgage lender in the nation.

In a Stakeholder Letter published on IndyMac’s website, they state:

Given the continued downward trend in home prices and a resulting increase in our forecasted credit losses and the related downward trend in the pricing of all mortgage related assets in the capital markets, especially mortgage-backed securities where we have experienced significant rating agency downgrades this quarter, we expect our loss for the second quarter to be larger than Q108, but it is difficult at this time to be more precise given the significant uncertainty surrounding accounting estimates, fair value accounting and other accounting matters.

In light of the current environment and related deterioration of our financial position since last quarter, we have been working closely with our federal banking regulators with respect to the actions that they and we must take to meet our mutual goal of keeping Indymac safe and sound through this crisis period. In that respect, based on information we have provided to our regulators, they have advised us that we are no longer “well capitalized”, which we stated on May 12 was a possible scenario.… As a result, the most realistic and cost-effective way to shrink both our balance sheet and our servicing rights asset (which, as discussed in previous communications, is up against the regulatory cap limit), is to curtail most new loan production.

… As a result of the above, we have made the difficult decision, effective July 7, 2008, that we will no longer accept any new loan submissions or rate locks in our retail and wholesale forward mortgage lending channels, except for our servicing retention channel. We plan to honor all of our existing rate-locked loans and will continue to fund these loans in the coming weeks. While the managers and employees in these units have worked incredibly hard, these units are not currently profitable due to the continuing erosion of the housing and mortgage markets. At the same time, these operations take up significant balance sheet capacity and “feed” growth in the servicing asset, an asset we need to shrink given its size relative to our existing capital.

There is still some good news amidst all this. As fears of a weakening economy outweighed fears of inflation, mortgage rates moved downwards last week, with the nationwide average rate for the Conforming 30-year Fixed dipping 10 basis points from 6.45% to 6.35%. Rates are expected to hold steady this week, providing a breather for those with a transaction currently in progress.

With the mortgage industry in a state of continuous flux, now is best time to have a professional Mortgage Advisor or Financial Strategist on your side to guide you through all the confusion.

Until next week, happy home loan shopping!

Christina Dunham is a Mortgage Advisor with the Dunham Group at Sierra Pacific Mortgage, a nationwide mortgage banker funding over $8 billion in loans annually since 1986. She may be reached at contact@christinadunham.com. For a complimentary credit or mortgage loan consultation, contact Christina Dunham at 866.7.DUNHAM.

To date, the sub-prime crisis has cost banks and insurers $150 billion, due in large part to mortgage fraud. In 2007, the FBI estimates that mortgage fraud increased 31 percent from the year before, although the full extent is unknown since these figures only include crimes reported through Suspicious Activity Reports (SARs). SARs are reports filed with the IRS by financial institutions that suspect money laundering and other financial crimes.

Mortgage fraud is defined as “the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan.” It is divided into two categories:

Fraud for Property/Housing - Entails misrepresentation of income/assets or concealment of debt by the applicant for the purpose of obtaining a single loan in order to purchase a property as primary residence.

Fraud for Profit – Often involves multiple loans and elaborate schemes to gain illicit proceeds from property sales, including misrepresentations of appraisals and loan documents. Properties involved in mortgage fraud are often sold at artificially inflated prices.

Besides the FBI, the Department of Housing and Urban Development-Office of Inspector General (HUD-OIG), Internal Revenue Service, Postal Inspection Service, along with state and local agencies, investigate this type of financial crime.

The Top 10 Mortgage fraud hotspots in 2007 were identified as:

1. Florida
2. Georgia
3. Michigan
4. California
5. Illinois
6. Ohio
7. Texas
8. New York
9. Colorado
10. Minnesota

Other states significantly affected by mortgage fraud include Arizona, Nevada and Maryland. These same states are currently experiencing record foreclosures and bank repossessions.

BasePoint Analytics, a fraud analysis and consulting service, evaluated more than 3 million loans and discovered that between 30 to 70 percent of early payment defaults (EPDs) were linked to significant misrepresentations in the original loan applications, including social security numbers, credit, income, assets and occupancy.

Chris Swecker, former FBI Assistant Director, says “The potential impact of mortgage fraud on financial institutions and the stock market is clear. If fraudulent practices become systemic within the mortgage industry and mortgage fraud is allowed to become unrestrained, it will ultimately place financial institutions at risk and have adverse effects on the stock market.”

Just recently, the FBI has ordered more than two dozen of its field offices to shift their focus from financial crimes such as price fixing, mass marketing, and wire fraud to mortgage fraud in order to address the subprime crisis. Bill Carter, an FBI spokesman in Washington, cited that mortgage fraud is currently a top priority in the bureau’s criminal investigative division.

Mortgage professionals beware. Reports from various brokerage firms indicate that they have been visited by walk-in clients (whom they suspect to be undercover FBI agents) inquiring about “no income or no asset” loans, claiming that they were currently unemployed and could not produce a paystub or that they were expecting an insurance settlement check in the near future to cover the cash reserve requirement.

The FBI also warns that the downward trend in the housing market in conjunction with tighter lending guidelines increases the risk for identity theft and mortgage fraud schemes for individuals with good credit. Now would be a good time to check your credit report for suspicious activity and guard against identity theft by properly disposing of sensitive documents.

Until next week, Happy home loan shopping!

Christina Dunham is a Mortgage Advisor with the Dunham Group at Sierra Pacific Mortgage, a nationwide mortgage banker funding over $8 billion in loans annually since 1986. For questions on your current mortgage loan or for a complimentary credit consultation, she may be reached via email at contact@christinadunham.com.

Summer is just around the corner, and many of us are starting to have visions of backyard barbecues or sunset deck parties. Time to get the house in order!

If you’re thinking about taking out a home improvement loan, there are several options to consider. First and foremost, your mortgage consultant needs to know why you want a home improvement loan. Here are some factors to take into consideration.

· How long have you been in the home?

· Will the improvements increase the property value?

· Are you making improvements to increase energy efficiency?

· Will improvements be made in one fell swoop, or in stages?

· What is the current outstanding balance on your mortgage?

· What is the appraised value of the home?

· How much will the improvements cost?

· What improvements will be tax deductible?

· Do you have other revolving debt that you would like to pay off at the same time?

· Are you making improvements because you plan to sell the property?

The New Tract Home Blues

Buyers of newly-built homes are often tapped out after making the initial down payment and closing costs, including upgrades to amenities and the inevitable need for new furniture. Shortly thereafter, they realize they’d like to make additional improvements to really have the home of their dreams.

If you’re planning on putting down roots (pardon the pun), landscaping may be in order. The developer may have been kind enough to make the front yard a perky green, but if the back yard is a disturbing brown color sparse with weeds, you may be entertaining the vision of an herb garden, lawn or even a deck.

Look into the option of a Line of Credit with your local home improvement center, and if you are the handy type, you can make the improvements yourself.

The Major Overhaul

If you have built up equity in your home and are geared up for some major renovation, the Home Equity Line of Credit (HELOC) is probably your best bet. This adjustable loan allows you to use your equity as a line of credit, so if you have improvements that are phased in over time you can simply write a check when you need to pay a bill.

It’s like a having a credit card with a much lower financing rate. In fact, the HELOC can be used for any reason at all – even paying off that credit card debt. In most cases, this action turns that revolving debt payment into a tax deductible payment with a lower interest rate. The HELOC is generally a 2^nd Trust Deed, unless it is used to pay off and replace the 1^st Trust Deed.

A construction loan is an alternative to the HELOC for borrowers who don’t want to use or don’t have equity, and this type of financing can be used for construction on an existing dwelling. The lender will ask a lot more questions about what the borrower wants to do with the money, and the home owner will need architectural designs, permits and a licensed general contractor on board.

Construction loans are short-term loans that usually require interest-only payments until completion of construction, but the balance is due when construction is done. Most often, that is managed up front by setting up construction-to-perm financing. In this scenario, the loan is automatically rolled over into permanent financing at a fixed rate when construction is complete, and a rate-lock agreement can be purchased to carry the borrower through that period of construction.

Another option – depending on the value of your home and local loan amount limitations – is the FHA 203(k) Program. This financing is designed for the purchase or refinance and rehabilitation of properties that meet FHA guidelines. This is worth looking into if you need to bring a property up to compliance standards, finance eligible energy efficient improvements, or turn a single-family owner occupied dwelling into a duplex to accommodate Mom or Dad!

Just a Facelift, Please!

If you want to sell your home and you simply want to improve the curb appeal, it makes sense to go with a HELOC. Make sure you are aware of the current market value of homes in your area to make sure you’re not going over the limit on the fair market value of your home. You’ll want to get a return on your investment!

If you’ve had your home on the market too long and have not been able to sell, you might want to make some changes to give it a fresh new look and bring back the passion you once had for your home. Your mortgage consultant will help you weigh out your options for financing based on your outstanding mortgage balance, income and credit score.

Regardless of your reason for home improvement, make sure you share your goals with your mortgage consultant. He or she can walk you through the various loan options and confer with your tax advisor to make sure you’re getting the best deal possible.

Until next week, Happy Home Loan Shopping!

Bankruptcy is an uncomfortable subject for a variety of reasons. The most obvious is the potential havoc it can wreak on your finances. Running a close second is the negative stigma which is often attached to the process. This negativity is important to mention because strong emotions can sometimes lead to unsound financial decisions with devastating results.

According to the Administrative Office of the U.S. Courts, bankruptcy filings in the federal courts started a slow trend upwards from 1980 to 2005, when over 2 million bankruptcies were filed. Then between December 2005 to December 2006, bankruptcy filings steeply declined by 70%. By the end of 2007, bankruptcy filings rose again by 38%, with 850,912 total filings. Of this, a huge chunk (97%) were personal bankruptcies.

Bankruptcy becomes a viable option for someone who is “upside down” in terms of cash flow. In other words, when a person has more money going out each month than coming in, bankruptcy should be considered if no reversal of this negative cash flow is within sight. The longer someone waits to explore the various options available, the more serious his or her situation may become.

The leading cause of bankruptcy filing is job loss (about 67%) and 44% of those who file are couples. The average age of a filer is 38 years old. There are three types of bankruptcy proceedings:

• Chapter 7 – Involves liquidation of assets. This is the most familiar type of bankruptcy, in which many or all of the individual’s debts are wiped out completely in exchange for proceeds from the sale of non-exempt property (includes valuable clothing, electronic equipment, expensive car that’s been paid off and most of the equity in your house). The sale is called a liquidation proceeding and is handled by a trustee. The process takes anywhere from three to six months and commonly requires only one trip to the courthouse.
• Chapter 11 – Involves business reorganization. When a troubled business is no longer able to pay its creditors, it can “reorganize” in an attempt to stay in business. A bankruptcy court supervises the “reorganization” of the company’s contractual and debt obligations. The court can grant full or partial relief from most of these debts and contracts, so the company can start fresh. Often, if the company’s debts exceed its assets, the creditors end up with ownership of the newly organized business.
• Chapter 13 – Involves a reorganization of debt and a repayment plan. In this type of bankruptcy, debtors establish a payment plan to creditors from their future earnings for the next three to five years, giving them time to catch up and keep their property. Under this type of bankruptcy, certain debts may be discharged that would not otherwise be discharged under a Chapter 7. Only individuals with a regular source of income and owes less than $307,675 in unsecured debt and $922,975 in secured debt may file for Chapter 13 bankruptcy.

In the case of both Chapter 11 and Chapter 13 bankruptcies, the borrower needs to demonstrate a good faith effort to repay the debts. The lender needs to know if the cause of the bankruptcy was an isolated case due to illness, divorce or job loss or an indication of chronically poor financial management.

It is important to note that lenders make a distinction between the two causes – extenuating circumstances and poor financial management. Extenuating circumstances are non-recurring, isolated situations beyond the borrower’s control that resulted in a sudden and significant financial hardship. Poor financial management is simply that – an inability to maintain on-time payments due to irresponsibility, indifference, or habitual over-spending.

If bankruptcy is the only option, seek out a reputable bankruptcy attorney and credit counselor. A qualified mortgage specialist can provide references for you as well, as he or she works with these professionals on a regular basis. Reliable references are essential in this case because experienced professionals greatly increase the odds of a successful bankruptcy experience. It’s that simple.

When filing for bankruptcy, be completely honest and accurate regarding every aspect of your financial situation. This includes any changes to your income which may occur throughout the process. Bankruptcy is a federal procedure, adjudicated by real judges, and scrutinized by representatives who coordinate with the Department of Justice, the FBI, and the IRS.

Here are some additional steps you can take to make the bankruptcy process as painless as possible:

• Save all paperwork regarding your bankruptcy, and keep it organized. This will prove beneficial after your bankruptcy as you now have all of the pertinent information in one place. Also, be sure to write down your discharge date. It’s surprising how many people forget to do this.
• Establish a household budget. This can be accomplished in many ways, but there are several inexpensive computer programs available which do an excellent job.
• Throughout the bankruptcy, do your best to not only live below your means, but to save as much cash as possible. You never know what you may need it for once the process is completed.
• Be prepared for a barrage of junk mail. There will be sharks on the loose who are hoping to capitalize on your need for credit.

Tips for Rebuilding Credit:

• If you must buy a car, focus on transportation as opposed to style. Buy an inexpensive, used car, and try to get a loan for it. It’s a good idea to figure out what your budget allows in terms of a dollar amount first. This means obtaining financing prior to looking for a car.
• Get a secured credit card. Secured credit cards allow for the cardholder to deposit a said amount of money into an account, thus establishing the spending limit of the card. Missed payments result in deductions from the account. Some of these cards will reward responsible borrowers by upping the limit without an additional deposit. Some will even convert the account into a traditional credit card. (Be wary of offers of “easy credit” or any card which asks you to call a 900 number. You will be charged for the call.)
• Meet with a credit repair specialist. Not only can they help you clean up the damage to your credit report, they can advise you on specific ways to rebuild the credit you lost as well.

While it does take time, there is definitely life (and credit) after bankruptcy. Some mortgage lenders will even lend to you within a year or so after a bankruptcy. If you’re in serious financial trouble, the trick is to get the help and advice you need from professionals you trust.

For more tips on dealing with bankruptcies, visit click here. If you need a referral to a bankruptcy lawyer or credit counselor, please drop me an email

Until next week, happy home loan shopping!