What Is A Purchase Reverse Mortgage?

What Is A Purchase Reverse Mortgage?

By way of background, this blog presents the general facts about any reverse mortgage. Let’s talk specifically about the purchase reverse mortgage, which is otherwise known as the Home Equity Conversion Mortgage (HECM) for purchase. This product was created by the Housing and Economic Recovery Act of 2008 (HERA). The product is insured by the Federal Housing Administration (FHA) and guaranteed by the US Department of Housing and Urban Development (HUD). In short, the purchase reverse is a way to purchase a home with only a down payment ranging from about 42% at age 62 to about 33% at age 80. In addition to the down payment, the buyer is responsible for paying the homeowners insurance, property taxes and (if applicable) Home Owner Association (HOA) fees. There are no principal or interest payments required.

Who Is It Good For?

BORROWER: Age 62 and older based on the youngest titleholder. There is no credit required, nor a credit score requirement and only minimal income requirements. This is a minimum documentation loan. This loan may be funded one day after a Chapter 7 bankruptcy is discharged or upon court approval with a Chapter 13 bankruptcy.  A purchase reverse mortgage loan may be funded one day after the conclusion of a short sale or foreclosure, provided the subject property was not an FHA Insured loan. If the short sold or foreclosed property was an FHA insured mortgage, there is a three year waiting period for HECM eligibility.

PROPERTY: Single family homes as well as 2-4 unit residential properties and all FHA approved condos are eligible. Title may be held as fee simple, a living trust, and leasehold or life estate. The property must meet FHA appraisal requirements. If the property does not meet FHA requirements, a set aside account will be established for up to six months while health and safety requirements of the FHA appraisal are met. The property may be either an existing home or a new build home, so long as the property meets FHA standards.

Example 1: Purchase Price – $250,000.00 – Borrower Age 62 – Borrower Cash to Close $104,100.00 – HECM Proceeds $145,900.00.

Example 2: Purchase price – $250,000.00 – Borrower Age 68 – Borrower Cash to Close $95,800.00  – HECM Proceeds $154,200.00.

Example 3: Purchase Price – $250,000.00 – Borrower Age 74 – Borrower Cash to Close $86,400.00 – HECM Proceeds $246,800.00.

Example 4: Purchase Price – $250,000.00 – Borrower Age 80 – Borrower Cash to Close $79,465.00 – HECM Proceeds $170,465.00.

Example 5: Purchase Price – $625,000.00 – Borrower Age 62 – Borrower Cash to Close $255,387.00 – HECM Proceeds $370,113.00.

Example 6: Purchase Price – $625,000.00 – Borrower Age 68 – Borrower Cash to Close $234,746.00 – HECM Proceeds $390,754.00.

Example 7: Purchase Price – $625,000.00 – Borrower Age 74 – Borrower Cash to Close $211,600.00 – HECM Proceeds $413,900.00.

Example 8: Purchase Price – $625,000.00 – Borrower Age 80 – Borrower Cash to Close $193,500.00 – HECM Proceeds $432,000.00.

In all examples of HECM purchase mortgages, no mortgage payments are required. All that must be paid are real estate taxes, homeowners insurance and HOA fees (if applicable).

Who Likes Reverse Mortgages The Best?

The Borrowers Who Have One

•                 95%        Partially to fully meets my financial needs
•                 93%        Positive effect on my life
•                 89%        Would refer a friend
•                 94%        Report peace of mind
•                 89%        Report a more comfortable lifestyle
•                 87%        Report a better quality of life

Source: AARP 12/2007. Survey of 1500 HECM Borrowers

Financially Speaking – James Spray, CCMB, CNE – May 10, 2012

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give complete attribution to James Spray.

 

Rebuilding Your Credit While In A Chapter 13 Bankruptcy Payment Plan

Rebuilding credit is not an overnight process, but it can be done sooner than many think possible. And yes, this can be done while one is making monthly payments in a Chapter 13 Bankruptcy Plan. The credit rebuilding process takes several months, often more than a year, to establish decent credit. So take a breath, be patient and do it right.

Always keep in mind that just because you can begin rebuilding your credit while in Chapter 13, this does not mean you are outside the jurisdiction of the bankruptcy court. You will need to get authorization to incur new debt, such as for the purchase of a vehicle or a home or the refinance of a home mortgage.

Before you can begin rebuilding credit, your Chapter 13 Plan must be confirmed by the Court. Discuss the confirmation process with your bankruptcy attorney. You do not have a confirmed Plan just for having filed a Chapter 13 bankruptcy.

The Basics of Building Good Credit Scores

Given that you want to rebuild your credit, it is essential that the basics of credit scoring be understood. Key to this is the balance of your available credit against revolving credit (credit cards). As discussed in this blog, it is perfect to not have more than 10% of your available credit in use in any given month. It is ok to have up to 30% of your available credit in use, but advisable to pay the balance down to 10%. For example, if one has available credit of $1,000, for best results, one would have no more than $100 (10%) charged during any given month. One would never have more than $300 (30%) charged against the $1,000 available credit limit.

You Must Use Credit

Rebuilding and maintaining good credit require that you use credit. Yes, to have good credit you must show that you can use it wisely. On this, you will do very well in rebuilding your credit by maintaining a small balance on your credit card(s) and paying minimal payments. You are, in a sense, buying your credit back. Keep in mind, you need to keep a small balance on your credit cards and not pay off the entire amount monthly. Pay on time or pay early, never late. Once you have scores above 760, it is fine to pay off the balance monthly.

Rather than spending your money when you charge something, take a cash advance and put it into your credit union savings account. Read on for more about how and why to use a credit union to help you rebuild your credit and raise your credit scores.

Beware of Ignorance and Prejudice

Unfortunately, there are many folks who have a prejudice against those who have had to file for bankruptcy protection. This includes the folks working in credit unions today. Most credit unions allow one who is in a Chapter 13 bankruptcy repayment plan to obtain a secured credit card. Many, but not all, credit union employees understand this. For example, I called a nearby credit union today and was told by the person responsible for establishing a secured credit card that my client must have been Discharged from Chapter 13 for two years before she could be eligible for a secured credit card. Next I called a nearby branch of this same credit union and spoke with the person responsible for establishing a secured card. He stated that all my client must do is to become a member and make the appropriate deposit. He further explained that since this was to be a secured credit card, that a credit report would not be needed. The fact is whether you think you can or can’t you’re right.

Patience is Key and Being Polite has Rewards

Your success in setting up the secured card with the credit union depends upon which clerk, which location, and what mood they are in. Patience is an integral key to accomplishing your goal. First, open your savings account. In a credit union this is called a Shares Account. Be smart, take time and build a new ‘banking’ relationship while you are building your Shares account. Save at least $1,000 before asking to open a secured credit card. I urge you read this blog on credit unions, you will see that they are different from banks. You become a member. This is different from just being a customer. You may also search for a nearby credit union that you can join. This information is good throughout the U.S.

There are also other secured credit cards available as referenced in this blog. However, very few have zero fee cards with minimal interest such as credit unions. Several of the dry goods stores such as Kohl’s and Victoria’s Secret also offer credit cards to those wishing to rebuild their credit. These, too, have the same rules regarding the usage of credit against the credit limit (10% best – 30% max).

Home Loan Refinance While in Chapter 13

Providing you have only a first mortgage, you can, in many circumstances, refinance your mortgage to a lower rate and payment while in Chapter 13. For information on how to do this, start with this blog on the subject. One of the conditions is that a second mortgage is not being stripped in the Chapter 13 Plan. In this case, the Plan must be completed prior to a refinance.

Financially Speaking – James Spray, CCMB, CNE – April 15, 2012

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give complete attribution to James Spray.

National Mortgage Settlement

In March 2012, the National Mortgage Settlement with the Attorneys General of all 50 States was agreed in the amount of Twenty Five Billion Dollars.

The following information was just emailed to me by Colorado State Representative Beth McCann. Representative McCann is a wonderful person as well as one of the most tireless advocates for consumer rights I’ve ever had the pleasure to meet. I herein paraphrase her email as follows:

“For those homeowners still in their homes and who continue to get the run around from the mortgage servicing companies please have them file a complaint with the Colorado Attorney General’s (CO AG’s) office. They have an escalation process under which they can escalate these types of complaints to an executive level contact person within the companies.  Click here for the link to file such a complaint.

For those homeowners who have lost their home to foreclosure, per the referenced settlement, they will be contacted to receive payment from the settlement.  The CO AG’s office is in the process of hiring a claims administrator who will issue notice to these borrowers. These foreclosed former homeowners will need to fill out and file a claim form. The individual recovery is expected to range from $1,500 – $2,000.  However, this will depend on the number of eligible claims the states receive.  If a homeowner who has lost their home to foreclosure would like to make sure that they receive this notice, they may file a complaint with the AG’s office using the same form as set forth above.

For homeowners that have not been successful in negotiation for a mortgage modification with their mortgage servicer, contact the Colorado Foreclosure Hotline at 1-877-601-HOPE (4673).  They can also contact the banks directly at their new 1-800 numbers.  All of this information can be found on the CO AG’s website:

For updates to the National Mortgage Settlement be sure to check the comments section, below.

Feel free to pass along to clients and others dealing with this issue!”

Thank you Representative McCann!

As always do not hesitate to write back with comments or questions. I always reply, even though I don’t always get a chance to respond as quickly as I would like.

Financially Speaking – James Spray, CCMB, CNE – April 31, 2012

Legal Notice: The content of this blog are copyright 2011 by First Place Development Corporation. All rights reserved – Reproducing any of this document is prohibited without express written consent from James Spray. Protected by U.S. Copyright Law – Title 17 U.S.C. Section 101 et seq., Title 18 U.S.C. Section 2319 – Violations can be punishable by up to 5 years in prison and $250,000.

Credit Repair Basics

First, let’s begin with the official word on Credit Repair. As stated by the Federal Trade Commission (FTC), which I will summarize: only time and the proper use of credit will improve your credit rating.  While there is merit to this statement, the logic behind the statement assumes a perfect system. Let me assure you, the credit reporting system is far from perfect. In fact, CBS News found that nearly 80% of all credit reports contain errors.

The good folks at the FTC may be unaware of how difficult it is for most consumers to get the three credit reporting agencies (CRAs): TransUnion, Experian and Equifax to correct errors. In my experience, a consumer must engage in the challenge of correcting credit errors with great persistence in order for the correction and/or deletion to be made. This can take months of continuing to send the same challenge(s) with the same properly written very brief letter.

It has been said that insanity is doing the same thing over and over again and expecting different results. However, in the case of getting corrections and/or deletions made on your credit report, you must do the same thing over and over in order to get the desired results. This is a situation where, in many cases, one must make continual identical challenges to achieve the desired results.

Beware – The on-line links to the credit bureaus’ auto dispute systems will lead you to signing up for an expensive subscription service. Be very wary of their systems of gotchas. In our experience, these subscription services are a waste of both time and money. As discussed in this blog, these links lead only to what we call FAKO scores. These are not the real deal! Frankly, we can find no good reason to improve the profits of any of the multi-national corporations also known as the CRAs.

Step one, get a copy of your free credit report. For clarity, there are no free FICO™ Scores.

TransUnion Consumer Relations

P.O. Box 2000

Chester, PA 19022

Experian/National Consumer Assistance Center (NCAC)

P.O. Box 9556

Atlanta, GA 30374

Equifax Credit Information Services, Inc.

P.O. Box 740241

Allen TX 75013

Sample Dispute Letter

Date

Your Name

Your Address,

City, State, Zip Code

Name of CRA

Dispute Department

Address

City, State, Zip Code

Dear Sir or Madam:

I am writing to dispute the following information in my file. The items I dispute also are encircled on the attached copy of the report I received.

This item (identify item(s) disputed by name of source, such as creditor name, and account number, judgment, and case number, etc.) is (inaccurate) because (describe what is inaccurate). I am requesting that the item be deleted to correct the information.

Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please investigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.

Sincerely,

Your name

Enclosures: (List what you are enclosing if anything.)

Before you send your dispute letter, reread it to make sure you are not admitting that the fault is yours, and not that of the credit reporting company. If this is your admission, all you are doing is providing evidence against yourself. Think of the Miranda Warning as you write your letter. Everything you write can and will be used against you. So be careful with how you write. The fewer words written, the better.

Resend your dispute letter every 30 days until you achieve the results you want. You need to understand that you will get the standard reply letters and occasionally a letter saying the dispute is not correct. You don’t want to become discouraged.  Ultimately, persistence will help the system work for you.

Avoid credit report scams by heeding this FTC information for credit consumers. Legitimate credit repair firms operate in compliance with the Credit Repair Organizations Act and do not charge fees for work not yet done.

In this blog, I recommend the use of a professional credit repair law firm. You may wish to hire them as opposed to dealing with the mechanics and secrets of credit repair without professional help.

Final Caution – For so long as there are unresolved disputes reported on your credit, you will be locked out of getting a home loan approval. On this, also see the comments section of this blog as well as the comments section for the up to date particulars.

~ ~ ~ ~ ~

As always please write me with your comments, questions and concerns.  I read everything that comes back and I always respond. Sharing my blog is easy! Is there someone else that you feel might want to read this? Don’t be shy – introduce my blog to those you think will benefit.

Financially Speaking – James Spray, CCMB, CNE – March 11, 2012

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give complete attribution to James Spray.

Reverse Mortgage Facts

It is our pleasure to discuss and offer the placement of Home Equity Conversion Mortgages (HECM) for the benefit of our clients. These are best known as Reverse Mortgages. The type of Reverse Mortgage we offer, and the only kind available in Colorado, is the one insured by the Federal Housing Administration (FHA) and guaranteed by the US Department of Housing and Urban Development (HUD).

We are pleased to say we have helped many people solve serious problems and gain new opportunities with this product. In the future, I will refer to this post when describing some of the situations where we have helped improve peoples lives with this product.

To this event, following are specific facts regarding some of the benefits of a Reverse Mortgage.

1              Reverse mortgages are extremely well protected – One of the protections is the requirement that borrowers receive counseling from a HUD trained and approved third-party counselor. There is also a prohibition on cross-selling.

2              No monthly payments required – Instead of making monthly mortgage payments, the reverse mortgage is due and becomes payable once the home is no longer the primary residence of the borrower(s). With no monthly mortgage payments required, the risk of foreclosure is reduced.

3              There are a variety of program options available – The HECM Standard, HECM Saver and Home Purchase Programs are available with either fixed rate or adjustable rate options.

4              The interest rate is not determined by your income or credit score – The interest rate is based on the program chosen, no matter what the borrower’s income or credit score is. With a conventional mortgage, one’s credit score, income and assets will impact the interest rate.

5              Funds are guaranteed to be available during the term of the loan – As long as the borrower abides by the terms of the loan, the funds are guaranteed to be available. Borrowers are responsible to pay property taxes, insurance and maintain the home, and if applicable, pay home owner association fees.

6              Flexibility on how funds are received – Funds are available to borrowers in an interest bearing line of credit, monthly payments, in a lump sum or a combination of these methods.

7              No limitations on how the funds can be used – One can use the funds received from the reverse mortgage however one chooses – there are no restrictions. The reverse mortgage is like any other mortgage where the borrower is using the equity of their home to meet their needs and desires now.

8              The title stays in your name – The bank does not own your home.

9              Closing costs are comparable to conventional loans – As with any mortgage there are closing costs. While often said to be expensive, the reverse mortgage closing costs are actually comparable to those of a conventional loan.

10           Fees charged are regulated by HUD – The US Department of Housing and Urban Development only allows necessary fees which are standard and customary – no mark up and “junk” fees are allowed.

11           Reverse mortgages are non-recourse – On settlement of the mortgage, if the loan balance is higher than what the home can be sold for, the borrower or their estate does not owe the difference. If the home is sold for more than the loan balance, the difference benefits the borrower or their heirs.

12           Social Security and Medicare are not impacted – One can still receive Social Security and Medicare with a reverse mortgage. Medicaid may also be received under certain circumstances. The reverse mortgage is a loan and the proceeds are not considered income.

13           Present value is protected in a declining value market – With property prices in certain parts of the country continuing to stagnate or fall, this FHA-insured reverse mortgage is one way to lock in a home’s current value and protect its equity.

14           You may make payments if you want to – but you do not have to make payments. Payments are not prohibited and are optional and not required. You may pay-off the reverse mortgage just as you may pay-off a forward mortgage.

Financially Speaking – James Spray, CCMB, CNE – February 18, 2012

Legal Notice: The content of this blog are copyright 2012 by First Place Development Corporation. All rights reserved – Reproducing any of this document is prohibited without express written consent from James Spray. Protected by U.S. Copyright Law – Title 17 U.S.C. Section 101 et seq., Title 18 U.S.C. Section 2319 – Violations can be punishable by up to 5 years in prison and $250,000.

HARP II – Who It Is Good For?

[It is my pleasure to introduce a guest writer for this post. Cristine L Masson has been recognized for her achievements in working on behalf of her clients best interests. I first met Cristine about 15 years ago and heartily attest to her skills and commitment. She has over 24 years of experience and knowledge as a trusted and qualified Loan Officer.]

“Fannie Mae or Freddie Mac Owned loans that closed prior to June 1st, 2009 may be eligible for HARP II. HARP II is designed to help borrowers who may be underwater, or have little or no equity in their homes by making a refinance easier and more affordable.  First, determine if either Fannie or if Freddie own your loan. The changes will allow refinancing of loans that are more than 125% of the home’s value, ease or eliminate the appraisal requirements, and a number other factors that will make it easier and cheaper for homeowners to take advantage of today’s ultra-low rates.

What We Do Know About HARP II

• Loan-to-Value Ceilings: The current loan-to-value (LTV) ceiling of 125% will be removed entirely.  This means, in theory, that no matter how upside down, the LTV ratio alone will not impede refinances. Second mortgage lenders will be asked to subordinate to the new First mortgage also with no LTV restrictions.
• Appraisals: To the joy of everyone but appraisers, formal appraisals will be (almost) eliminated.  The potential downside? They are being replaced by Automated Valuation Models (AVM’s) where such models are deemed “reliable.”  If you hated an appraisal, the AVM may be worse for some, though the elimination of LTV renders any measure of value somewhat moot.
• Fee Reductions: Some of the risk -based fees associated with HARP II will be reduced or eliminated.
• Eligibility Dates Don’t Change: ONLY loans closed before June 1, 2009 will be eligible, and HARP remains a one-time only program.
• Documentation: Income and other documentation is expected to be reduced, thereby streamlining the process.
• When it will be available: No earlier than Dec 1^st 2011, with many of the changes delayed until March 15, 2012.

What We Don’t Know About HARP II

• Lender participation: Is still NOT mandatory.  Under the initial release of HARP, many major lenders and servicers imposed additional limitations on the program (capping LTV at 110%, even though Fannie allowed 125%, etc.) While HARP II addresses that (in theory, by waiving certain “representations and warranties” that lenders were required to make) we expect that HARP II rules will also see inconsistent treatment and application across the industry. Each lender will be allowed to decide what they are going to use as an overlay/restriction, so not all lenders will follow the same rules.
• Mortgage Insurance:  The transference of mortgage insurance was a huge sticking point under HARP I, with the effect that almost all HARP I eligible loans with PMI were impossible to refinance.  This is supposed to be fixed under HARP II, but details are few, and vague as to how this will be handled.
• Second Mortgages: While there are no rules under HARP I or HARP II that would prevent a borrower from refinancing, it is an open question as to whether the second mortgage lenders will follow the new rules regarding LTV, appraisals, and reduced borrower documentation.  These lenders have traditionally been stricter than even the first mortgage lenders when it comes to documentation.
• Interest Rates:  Base mortgage rates for HARP II will still be set by the market, are always in motion, and thus will be different than today when the program is actually available.  We also do not know what specific pricing changes or “loan level price adjustments” will be applied to HARP II loans according to credit, loan type, LTV etc.
• Bottom line: While this is an encouraging set of changes, and may allow hundreds of thousands of additional refinances, implementation and participation by the private lenders.

Consumers wanting to refinance under HARP II

 Be first in line: You do NOT need to wait until the rules-changes are in place to submit your application.  If you are not currently eligible for HARP, we’ll simply keep your file on hold until the new rules are published.  This way, you can be first in line to lock a low interest rate as soon as HARP II is available.

You do NOT have to refinance with the same lender/servicer that currently holds your loan.

When can my HARP II refinance close? Except where noted, these changes will not be implemented until about March 15, 2012.  It is important to note that you might be able to take advantage of the HARP II changes as early as January if you can refinance with your current servicer.  Same-servicer HARP rules are different than the open access rules, so check with your servicer for details.

When will the program expire?  Loans under HARP II must close before December 31, 2013.

What are the eligibility dates?  Only Fannie or Freddie Mac Owned loans closed prior to June 1^st  2009 are eligible for HARP II.

Can I refinance with HARP II if my loan is more than 125% of my value?  Yes, Freddie Mac is removing the maximum loan-to-value ratio limit.  However, this ONLY applies to new Fixed Rate Mortgages with terms up to 30 years.  Loans with terms greater than 30 years or Adjustable Rate Mortgages (ARM’s) with fixed terms of 5 Years or more are limited to 105% of value.

However: If your new first mortgage is less than or equal to 80% of value, the maximum total loan to value (first and seconds combined) may not exceed 105%, no matter the new mortgage type.

Will I need a physical appraisal of my property?

Not necessarily, but maybe.  Lenders have two choices:

- Option 1: An automated appraisal through Freddie Mac’s proprietary Home Value Explorer, or HVE.  Only for 1-2 unit properties, automated results must have a high or medium “confidence” factor (technicality, which basically means the automated appraisal is statistically sound as a measure of value.)

- Option 2: Obtain a new appraisal.  This will be a less appealing option, since the lender then must stand behind the value and condition of the property, and is on the hook if in the future the value or condition is deemed to be misrepresented.  I expect most lenders to follow option 1.

Can I combine a first and second mortgage?

No.  All existing subordinate financing must be resubordinated (meaning stays in place) and cannot be paid / combined with proceeds of the new mortgage.

Can I take out a new second mortgage at the same time as my HARP II refinance?

No.  New subordinate financing is not permitted.

Can I refinance my second mortgage at the same time as my 1st?

Yes, provided the terms of the second improve (payment must go down).  Otherwise you will need to check what your existing lender requires to subordinate their 2^nd mtg.

Will I be restricted by loan type?

Yes.  You cannot request an ARM loan with an initial fixed rate period of less than 5 years.  Aside from that, HARP refinancing does not restrict product type, but requires one of the following Borrower benefits: Reduce interest rate, Reduce monthly principal and interest payment, shorten the term, go from ARM to fixed, or interest only to amortizing.

Can a refinance my current loan into an Adjustable Rate Mortgage?

Yes, but the loan-to-value cannot exceed 105%, and ARM’s with initial fixed rate periods of less than 5 years are not allowed under HARP.

What if my payment history is not perfect?  Will I be eligible for HARP II?

A perfect payment history is not required.  Technically, there is no minimum required standard here, and the acceptability of the payment history will be determined by Freddie’s automated underwriting software.  That said, the expectation is that a few lenders will want to maintain an ‘overlay’ that requires no more than 1x 30-day late in the last 12 months.

Can my payments go up when I refinance?  

Yes.  There is no limit to the amount the payment may increase, so long as one of the other “borrower benefit” provisions is met: Reduce interest rate, shorten the term, go from ARM to fixed rate, or interest only to amortizing.

Will I have to document my income to refinance?

It depends.  Technically, Freddie’s automated underwriting engine will determine the documentation requirements, so the results here will be HIGHLY dependent on other aspects of the loan file (LTV, Credit Score, Assets, etc.).  At minimum, a verbal verification of employment will be required, and at least one borrower must have a source if income.

What is I am self employed, will income documentation requirements differ?  

Yes.   Again, the ultimate determination will be made by Freddie’s automated underwriting software, so requirements will vary by applicant, but at a minimum you can expect verification of the existence of the business to be required.

Will investment properties and second homes be eligible?

Yes.  Investment properties with 1-4 units, 1 unit second homes will be eligible, with some restrictions on both.

Will I be able to add closing costs to my refinance?

Yes. For loans greater than 80% of value, the lesser of 4% of the unpaid principal balance or $5000 in related closing costs & pre-paids (escrows) may be added.

For loans less than 80% of value, you can add all related, bona-fide closing costs to the loan.

Can I get cash back at closing?

Yes, but only if the new first mortgage will be less than 80% of value, and the cash back amount does not exceed 2% of the new loan amount, or $2000 dollars, whichever is less.

For loans where the first mortgage is more than 80% of value, the cash back cannot exceed $250.

If I am bringing cash to closing, will this cash be verified?  Yes.  Freddie’s automated underwriting software will determine the minimum documentation requirements.  Expect to provide at least 30 days of bank statements.

Is there a minimum credit score required?  Not technically, Freddie’s automated underwriting system will determine credit acceptability, but treatment will vary.  Many lenders are expected to maintain minimum credit score requirements.  Currently they range from 620-680, depending on the lender.

If I have mortgage insurance, will I be able to refinance?

Cautiously, yes.  All of the details have not yet been worked out between the lenders/servicers, so we will have to punt a little until we see better guidance, but so long as the same percentage of coverage is maintained on the new loan, as existed on the original loan, for the entire unpaid principal balance, there’s nothing in the Freddie rules that prevent this.

What if I have Lender Paid Mortgage Insurance (LPMI)?

Maybe, but so far it does not look good.  Previously, both LMPI borrowers and those who paid a single, up-front premium ran aground on the technicality that lenders and insurers just could not figure out how to affect this transfer.”

Want to know more about a HARP Refinance?  Please contact Cristine L Masson with a few bullet points on your situation, and she will do her very best to help you determine if this is a good fit for you.

Financially Speaking – James Spray, CCMB, CNE – February 11, 2012

Legal Notice: The content of this blog are copyright 2011 by First Place Development Corporation. All rights reserved – Reproducing any of this document is prohibited without express written consent from James Spray. Protected by U.S. Copyright Law – Title 17 U.S.C. Section 101 et seq., Title 18 U.S.C. Section 2319 – Violations can be punishable by up to 5 years in prison and $250,000.

Refinance After Chapter 7

You filed a Chapter 7 Bankruptcy and your debts were discharged. You have continued paying on your mortgage and now you want the payments reported on your credit report. Without exception that is not going to happen. The fact is that there is but one permanent way to get your mortgage payments reported on the credit reports and that is to refinance. When your bankruptcy was discharged, the Promissory Note portion of the mortgage was legally eliminated. As a result, the mortgage payments can no longer be reported to the credit reporting agencies. Consumers, for obvious reasons, cannot self-report their own credit history. For further information as to why the bank or mortgage company doesn’t report your payment, refer to an earlier post I wrote on this subject.

How To Get “Credit” For Your Mortgage Payments To Refinance

How can you get a refinance when your present mortgage servicer does not credit report your mortgage payment? There are a couple of ways to do this. The least expensive is for you to obtain proof of your mortgage payments for the past twelve (12) month and provide this to your mortgage broker.  A temporary way to pull the mortgage payments onto the credit reports is via a proprietary system such as Rapid Rescore which is available only to mortgage brokers. The mortgage history can be pulled onto the credit reports for the purpose of mortgage refinance. The only permanent fix is to refinance.

How To Qualify To Refinance After Chapter 7?

• You have been paying your mortgage(s) on time every month for the last 24 months with no 30 day late payments since filing bankruptcy.
• Per current Minimum FHA underwriting Guidelines you must have reestablished your credit and have at least 580 FICO® Scores. As well, there are investor overlays.
• You also have no new bad credit and no open credit disputes.
• Your present appraisal value is greater than what you owe on your mortgage.
• To get an idea of your score range use the FICO® Score Simulator.

Congratulations, you may be eligible to qualify for a FHA, VA or USDA mortgage at today’s historic low rates.

Investor Overlays

Investor overlays are measures lenders take to manage risks. You may need to shop around as, some FHA approved lenders require 36 months from the Chapter 7 Discharge. Most FHA approved lenders require higher credit scores, say in the plus 620 or 640 range before considering FHA insured loans. The higher the FICO® Score, the better the rate that will be offered. There is much more that can be discussed on the subject; perhaps we’ll delve more deeply into investor overlays in a future blog.

Streamline Refinance Not Available For Discharged Notes

A streamline mortgage refinance is the alteration of the term and/or rate of your mortgage note. Those with Discharged Notes have nothing to “streamline” as the Note is dead, it can’t be restructured to streamline without being brought back to life. To bring a Discharged Note back to life, one must reaffirm the debt. Neither your attorney nor I would recommend doing this; nor should you, in any case, do so without seeking the advice and council of your bankruptcy attorney.

For a discussion on both 1^st and 2^nd Discharged Mortgages, you may wish to read this blog.

For a discussion on how and when to refinance your first mortgage while in a Chapter 13, you may wish to read this blog.

Financially Speaking – James Spray, CCMB, CNE – January 12, 2012

Legal Notice: The content of this blog are copyright 2011 by First Place Development Corporation. All rights reserved – Reproducing any of this document is prohibited without express written consent from James Spray. Protected by U.S. Copyright Law – Title 17 U.S.C. Section 101 et seq., Title 18 U.S.C. Section 2319 – Violations can be punishable by up to 5 years in prison and $250,000.

FICO® Scores & Insurance Shopping

Related Industry FICO® Score Requests

According to FICO®, credit which is requested within the same industry – in particular mortgage and auto – shall only count as one credit hit to the borrower within a 45 day period.  Looking for a mortgage, auto or student loan may cause multiple lenders to request your credit report, even though you are only looking for one loan. To compensate for this, the score ignores mortgage and auto loan inquiries made in the 45 days prior to scoring. So, if you find a loan and the corresponding insurance within 45 days, the multiple inquiries won’t affect your score while you’re rate and coverage shopping.

‘Hard’ vs. ‘Soft’ Credit Pulls

Another way to look at the same issue is this; there are two types of inquiries: ‘hard’ and ‘soft’ pulls. A hard pull refers to credit inquiries for acquiring credit, like from a credit card company or a mortgage lender. A soft pull is an inquiry that will review your FICO® score; much like an insurance company would in order to calculate an insurance quote.

Soft pulls often aren’t recorded on your credit report. If they are, the insurance company’s name will be listed on your report, but the inquiry will not lower your credit score as it is coded to relate to the specific industry such as a mortgage or vehicle loan.

Credit Scores Affect Insurance Costs

It’s no secret that a high credit score is a valuable thing. And while shopping for insurance quotes may not lower your credit score, it is important to know that a good credit score can lower your insurance costs.

Insurance companies and agents that see a potential client with a high credit score will consider you a low-risk client, someone who pays their bills on time and in full and is responsible. You will be offered more affordable insurance rates. Good credit saves you money in many different arenas of your life, including insurance.

Credit Warning – Your Lender Must Advise You

Once your mortgage lender has pulled your credit and prior to closing and funding, always check with your lender before shopping for furniture, appliances, automobiles, credit cards or anything whatsoever that will cause a hard credit pull. With the tightening of credit over the past few years, underwriting will pull your credit again prior to funding your “approved” loan. Lo and behold you may no longer be approved.

As always do not hesitate to write back with comments, questions or concerns.  I read everything that comes back, even though I don’t always get a chance to respond as quickly as I would like, I always respond.

Sharing my blog is easy! Is there someone else that you feel might want to read this? Don’t be shy – introduce my blog to those you think will enjoy.

Financially Speaking – James Spray, CCMB, CNE – December 17, 2011

Legal Notice: The content of this blog are copyright 2011 by First Place Development Corporation. All rights reserved – Reproducing any of this document is prohibited without express written consent from James Spray. Protected by U.S. Copyright Law – Title 17 U.S.C. Section 101 et seq., Title 18 U.S.C. Section 2319 – Violations can be punishable by up to 5 years in prison and $250,000.

Time From Adverse Credit Action To Qualify For A Mortgage

	Adverse Credit Event
Loan Type	Foreclosure	Short Sale /Deed- In-Lieu of Foreclosure	Chapter 7	Chapter 13
Conventional Date of loan application	• 7 years from transfer of deed  • 3 years from transfer of deed if the borrower puts 10% down	• 7 years if borrower puts less than 10% down • 4 years if borrower puts 10% down • 2 years if borrower puts 20% down • 2 years if borrower puts 10% down*	• 4 years from Discharge with reestablished credit and no new bad credit• Less than 4 years from Discharge with extenuating circumstances*	• 2 years from Discharge with reestablished credit and no new bad credit  • 4 years from Discharge with new good credit and no new bad credit
FHA Date of credit approval	• 3 years from claim paid by HUD*  • Less than 2 years but not less than 12 months from deed transfer*	• 3 years from claim paid by HUD*  • Wait period is not required if debtor is current and must take a job in a different market	• 2 years from Discharge with reestablished credit • Less than 2 years but not less than 12 months from Discharge*	• 12 months payments to Chapter 13 Trustee with no 30 day late payments and Court approval • 12 months payments to mortgage company with no late payments for purchase or refinance
VA Date of credit approval	• 2 years from transfer of deed to loan servicer  •Between 12-23 months from deed transfer*	• 2 years from transfer of deed to loan servicer*  • Wait period is not required if debtor is current and must take a job in a different market	• 2 years from Discharge with new good   •Between 12-23 months from Discharge*	• 12 months payments to Chapter 13 Trustee with no 30 day late payments  • 12 months payments to mortgage company with no late payment for purchase or refinance
USDA Date of credit approval	• 3 years from transfer of deed to loan servicer  •Less than 3 years*	• 3 years from transfer of deed to loan servicer*  • Wait period is not required if debtor is current and must take a job in a different market*	• 3 years from Discharge with reestablished credit   • Less than 3 years from Discharge*	• 12months payments to Chapter 13 Trustee with no 30 day late payments  • 12 months payments to mortgage company with no late pays for purchase or refinance
Reverse Date of underwriting	Same as FHA above except when no claim made and subject to underwriting	Same as FHA above except when no claim made and subject to underwriting	Possible to use to avoid bankruptcy and/or settle adversarial claim	• Date of Dismissal             -or- • Court Approval
What events may qualify as extenuating circumstances?		*Extenuating circumstances are temporary events that are beyond a borrower’s control, such as major medical expenses or death of wage earner. These events must be documented and verified, subject to review by underwriting.  Events such as divorce, job loss and the inability to sell the house do not qualify.

Special Promotion Credit Cards

Recently, I got the following email comment from a potential client. She had this, among other things, to say on the subject of a Special Promotional Charge Card: “Just an FYI. I had my credit pulled by Chase about 6 weeks ago, and got a shock. My
scores had dropped anywhere from 75 to 100 points. It turns out that I got dinged by [XYZ] Company earlier this year. I bought a new cell phone from then in January. They said if I opened a charge account with them, I could get a discount on accessories I needed for the phone. [XYZ] opened the account, then failed to send me a statement until the 3^rd billing cycle, and when I got the 3^rd one, I paid the $30 + $20 in fees immediately and asked them to send me the first two statements. I thought that was the end of it, but apparently they then reported me to the Credit [Reporting] Agencies.” . . .

She protested the lack of statements and was able to get her credit reports corrected but it caused her great inconvenience as well as lost time and may have cost her the opportunity to obtain an improved mortgage credit rating and a lower housing payment. In retrospect, it appears those were pretty expensive cell phone accessories.

Should one take advantage of promotional charge or credit card offers?

As with nearly all business decisions, there is a risk vs. reward evaluation needed.  Keep in mind that opening new accounts can indicate increased risk to lenders and can hurt your credit score. Everyone’s situation is unique, but as a general rule, you should only apply for credit when you need it. Should you go on a shopping spree, and take advantage of all special credit card offers during that spree, one should expect to get reduced credit scores. This is part of the risk. So the question is: was the special
promotional reward worth it?

What’s the difference between charge and credit cards?

It is important to know the difference between a charge card and a credit card.  The Federal Reserve offers this brochure explaining the difference. In short, a charge card is payable in full on receipt of the monthly bill and most charge cards have no limit. A credit card  always has a high balance limit and can carry a balance at interest with certain minimal payments. On this, it will be helpful to review the ‘new’ rules governing how a balance on a credit card must be treated by the creditor.

What is a private label (store) credit card? 

The largest provider of store credit cards is General Electric Consumer Finance. A historic example of a GE store credit card is J.C. Penny. This particular private label credit card will display on a credit report as GE/JCP or GEMB/JCP.

What is an affinity credit card?

An affinity credit card is offered by an organization that the user recognizes and supports such as a travel club, alumni, university, social club, airline or other entity.

As always do not hesitate to write back with comments or questions.  I read everything that comes back, even though I don’t always get a chance to respond as quickly as I would like.

Financially Speaking – James Spray, CCMB, CNE – November 3, 2011

Legal Notice: The content of this blog are copyright 2011 by First Place Development Corporation. All rights reserved – Reproducing any of this document is prohibited without express written consent from James Spray. Protected by U.S. Copyright Law – Title 17 U.S.C. Section 101 et seq., Title 18 U.S.C. Section 2319 – Violations can be punishable by up to 5 years in prison and $250,000.