Curing Loan-A-Phobia Blog

This week I want to share with you some challenges I'm hearing from my agents. Hopefully, by sharing, I can keep the same thing(s) from happening to you. If you have ANY questions or need more in-depth information about these topics, please don't hesitate to call or email me.

• All borrowers must have tax returns for the last two years. The two years is determined by whether all extension periods have passed.
• The majority of lenders are requiring that the 4506T be executed prior to loan approval. The 4506T is the form used to request copies of the borrower's tax transcripts from the IRS. In the old days, this form was only executed during random audits of files.
• Self-employed borrowers that will be in the market for a new mortgage this year should NOT file an extension for their 2009 taxes if they want to use their 2009 income to qualify. They cannot file their taxes and expect to close on a loan quickly either because the IRS is taking anywhere from 3 - 8 weeks to process returns and have transcripts ready for the executed 4506Ts.
• Another note about self employed borrowers. Ideally, they would have 2 years of self employed history ON TAX RETURNS. Some exceptions can be made for less than 2 years, but they better have a very strong profile in every other way and a MINIMUM of 6 months income and write offs on their most recent tax return.
• Any borrower whose income includes more than 25% commission, bonuses, or overtime, must have two years of history of such income in order to use it for qualification. And if they have 25% or more of their income from commission, they are treated as self employed because of the write offs they can take.
• "Customer Dispute" statements on credit reports MUST be removed for loan approval. The automated underwriting system does not take disputed accounts into consideration. The guidelines allow underwriters to manual override the findings, but you'll be hard pressed to find anyone that will be willing to take that risk in this current climate. So, if you have a client that says they've been working on their credit, this should be a red-flag to find out if they have any accounts that have "customer disputes" statements showing up on the credit report.
• Legislation CAN NOT dictate loan guidelines. That's like the government telling the stock market what to do. All loans are sold on what's called the "secondary market." The Secondary Market is made up of investors - some big names, some small. No matter what you hear in the media about government refinance programs or 1st time buyer programs, etc., check with your favorite Mortgage Professional to find out if the secondary market is going along with those programs and buying these loans. If the loan cannot be sold, it cannot be made. It's as simple as that.
• Condo challenges: Whether you have a buyer looking at condos or are considering taking a listing for a condo, you need to be aware of the challenges regarding financing right now on condos. Condo Project Eligibility Chart
• FEMA Flood Insurance. If there is a chance that a property is in a flood zone, you need to be aware that the National Flood Insurance Program is in a state of limbo right now. Their authority to issue flood insurance policies expired at midnight on March 28. This is the result of a bill that passed the House but got held up in the Senate because of other federal programs that are in the same bill. Many lenders are not allowing the files to close because the flood insurance coverage isn't currently available.
• USDA has announced that they will run out of funds by the end of April. If you are marketing a listing as available for USDA funds or have a buyer that intends to use this program, you need to make sure your Mortgage Professional is on top of this topic. They are not sure and have no way of knowing when those funds will be replenished.
• QC Purgatory - Fannie Mae introduced the Lender Quality Initiative in February and it goes into effect July 1, 2010. Short story: quality control measures will be taking place BEFORE the loan can close. This WILL cause delays, especially if the loan officer and processor have not put a complete file together.

Rules for Dropping Mortgage Insurance 

What you and your clients should know!

Yep, there's a disclosure for that!
But what do the PMI termination rules really mean to the average person?

Dropping Conventional Mortgage Insurance Rules

• Automatic Termination
  • Fixed Rate & Adjustable - Removed when reduced to 78% LTV
    • LTB based upon ORIGINAL VALUE
    • Based SOLEY on regular amortization (not prepayment of principal)

• Mortgage payment must be current
• Borrower Requests Termination
  • Fixed & Adjustable - Removed when reduced to 78% LTV

• Submit cancellation request in writing
• Good payment history
• Current on mortgage payments
• Appraisal or Certification that property value has not decreased BELOW the original value
• No 2nd liens or subordinated loans

• More than 15-yr term
  • Must pay for 5 years AND
  • 78% LTV based on original LTV
• 15-yr Term or Less
  • If original loan amount is 90.01% or more, of the original appraisal value, MIP will be terminated at 78%
  • 5-year minimum payment waived
  • If original loan amount is 90% or less, of the original appraisal value, NO monthly MIP will be charged.

Click here to see what the "new and improved Good Faith Estimate" looks like. Should make for some enjoyable reading. :-)

As of January 1, 2010, all loan applicants will be receiving this version of the Good Faith Estimate. This also means that any loans we have in process will have to use the new form too.

Be prepared for this to cause a backlog in your files.

If there are inaccuracies on your credit report, request the accounts to be updated, don't dispute the account. These are two very different functions. A "dispute" is you saying you don't think the entry is yours and it needs to be verified.

Many so called "credit repair experts" have made big business out of disputing valid credit records to "clean" up someone's credit. I can tell you countless stories of my client's coming back to me after trying one of these companies, even after I told them NOT to, and then crying to me because it made their scores worse.

If there is something on your credit report that absolutely is not yours, then yes - you should dispute it. But if it is a case of an account that IS yours being misreported (balance, payment history, credit limit incorrect, etc.) then you need to submit the appropriate documentation to the credit bureau that is misreporting the item and request the account be updated.

Here's why. The Fannie Mae and Freddie Mac automated underwriting systems are trying to battle fraudulent disputes. The only way they've come up with to do this is to deny any loans where the borrowers have disputed any tradelines on the credit report until someone can verify the account. Sounds like a simple fix, right? We'll just call the creditor and verify the account. ...  No way man. Let me tell you a little story.

About 4 months ago a previous client came to me to refinance his house. This borrower had excellent credit scores and excellent income to debt ratios. This should have been a slam dunk file. However, last year his HR department had offered a FREE credit monitoring service (not mentioning any names EXPERIAN). He did have one account that was being misreported twice so he used the online system to dispute the incorrect tradeline entry. While he was in the system, he viewed several other accounts/tradelines just to check on them. What he didn't realize is that every time he clicked on a tradeline, the system threw it into the list of disputed items.

Now, a full year later, his loan gets stuck in underwriting because 5 of his accounts are showing up as disputed. The underwriter says we have to get the dispute comments removed and rerun. Sounds simple right? Wrong!

After 2 months of trying to convince first the creditors to remove the comments because he never really disputed the accounts (the representatives couldn't seem to understand that there were no disputes to settle because there were no fricken disputes to begin with!), then the bureaus, then our underwriters, ... basically he had to dispute the dispute... crazy. Finally, two months later I was able to convince my underwriter to manually override the system.

If this had been a purchase instead of a refinance, the borrower would have lost the house.

After years of searching, I've finally found a company that I feel comfortable referring my credit challenged clients to. Some things are relative simple to fix - I can help you with those at no charge. And some items take more strategic in-depth work. That's where I can refer you to someone you can trust.

If you or someone you care about has questions about this topic, please email me or call me.

Denese

The 4506T is a form that allows us to request tax transcripts from the IRS to match up to the tax returns the loan applicant has provided.

Here's the problem:

Traditionally, the 4506T form was only put to use if the file got pulled for an audit somewhere down the line. NOW, however, all the lenders in the secondary market are requiring the 4506T be executed with the IRS and the tax transcripts submitted with the file.

As you can well imagine, knowing what a well oiled and efficient machine the IRS is (NOT) - this new requirement is creating a cluster-you-know-what.

We cannot fund the loan until this information is returned from the IRS.

Just thought you should know.