Dave Thurman's Real Estate Blog

Last year, more than two million people were turned down for homes, according to federal data, often because the applicants didn’t meet certain lender requirements or because their applications were incomplete or otherwise problematic.  With lenders’ underwriting criteria becoming more rigorous in recent years, it’s important buyers know the most common triggers for mortgage-loan rejection.

Making sense of the story

• Insufficient income: Lenders want to be sure borrowers can afford to make the mortgage payments.  Lenders typically look for at least a two-year track record of income, which could hurt those who have changed jobs recently.
• Cloudy financial picture: Generally, total debt payments, including the mortgage, cannot exceed 45 to 50 percent of a borrower’s adjusted gross monthly income.  Overtime and bonuses are included only if the borrower has worked for the same employer at least two years, and has a history of receiving them.
• Poor credit: Lenders typically reject applicants with FICO scores below 620.
• Low appraisal: One of the predominant reasons buyers are turned down for home loans is because the appraisal on the property is too low.  A buyer may think he or she is purchasing a house worth $800,000, but if the appraisal comes in less than that, the lender will not loan the borrower the money.
• Property problems: Sometimes issues turn up within a house, like a major repair or safety issue that needs to be addressed, before an application can be approved.
• Information mix-ups: Approximately 12 percent of new mortgage applications were denied because of unverifiable information or incomplete credit applications, according to the Federal Financial Institutions Examination Council.

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I found a very interesting article about foreclosures…that I would like to share from CNNMoney

Obama administration sings new tune on foreclosures

By Tami Luhby, senior writerNovember 2, 2010: 9:21 AM ET

NEW YORK (CNNMoney) — The Obama administration is singing a different tune about foreclosures.

A year ago, officials focused on stemming the foreclosure tide. Now they are touting the need for foreclosures to rebuild the housing market.

Last week Phyllis Caldwell, head of the Treasury Department’s Homeownership Preservation Office, told a congressional panel that “an important part of ensuring longer-term stability in the market is to enable properties to be resold to families who can afford to purchase them.”

And White House Press Secretary Robert Gibbs last month told reporters that without sales of homes in distressed areas the “recovery in the housing market stops. It’s frozen.”

“That obviously can have — we believe and others believe — a very negative and detrimental impact to our economic recovery efforts and the housing markets in states that have been hardest hit,” Gibbs said.

But when Obama unveiled his signature foreclosure prevention program in February 2009, he said loan modifications were a key way to prevent the housing crisis from deepening. His initiative called for reducing distressed borrowers’ monthly payments to 31% of their pre-tax income.

“We’re not just helping homeowners at risk of falling over the edge; we’re preventing their neighbors from being pulled over that edge too — as defaults and foreclosures contribute to sinking home values, and failing local businesses, and lost jobs,” the president said. [Read More]

The California Housing Finance Agency has announced a new $700 million program to help California homeowners who are struggling to make their mortgage payments.

The program, “Keep Your Home,” offers payment subsidies, lump-sum catch-up money, principal reduction, and relocation assistance for low- and moderate-income homeowners who’ve experienced a financial hardship, major change in life circumstance, unaffordable increase in their mortgage payment, or severe decline in their home’s value.

If the above describes your situation, please consider the program’s four  components:

• Homeowners who’ve lost their job and are in imminent danger of foreclosure due to short-term financial problems can obtain a payment subsidy of up to $1,500 or 50 percent of their monthly mortgage payment, whichever is less, for as long as six months.

• Homeowners who’ve missed one or more payments can receive up to $15,000 or 50 percent of the past due amount, whichever is less, to reinstate the mortgage and prevent a foreclosure. The lender, loan servicer, mortgage insurer, and/or borrower must match the catch-up money on a dollar for-dollar basis.

• Homeowners who have severe negative equity can receive up to $50,000 to reduce the principal balance on their mortgage to a market level to prevent an avoidable foreclosure and promote sustainable homeownership. The money is granted on a matching basis, which means the lender must agree to reduce the principal balance by the same amount.

• Homeowners who can’t afford to keep their home and are willing to cooperate with a participating lender’s short sale or deed in- lieu of foreclosure program can receive a one-time grant of up to $5,000, paid through the loan servicer, to transition to a more affordable residence.

To qualify, you must occupy the home as a primary residence, meet income restrictions based on county and household size, sign a hardship affidavit, have enough income to make modified payments, be delinquent or in danger of imminent default, and meet other guidelines. The property must be in California and cannot be abandoned, vacant, condemned, or in serious disrepair. The program is expected to roll out by Nov. 1st.

Source: California Real Estate Magazine

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Homeowners defaulting on mortgages today may be surprised to learn years from now that they still owe thousands of dollars – and a collection agency is coming after them to get it.

That’s because lenders have been quietly selling second mortgages and home equity lines left unpaid after foreclosures and short sales. The buyers: collection agencies, which in California have up to four years to make a claim.

If they win court judgments, these collectors could have years to pursue borrowers with repayment plans, and even garnish their wages, … read more  from Sacramento Bee, Real Estate by Jim Wasserman.

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Interest rates continue to remain near their historic lows. Thirty-year, fixed-mortgage interest rates averaged 4.88 percent during November 2009, compared with 6.09 percent in November 2008, according to Freddie Mac.

Adjustable-mortgage interest rates averaged 4.41 percent in November 2009, compared with 5.26 percent in November 2008.

Platinum Home Mortgage Corporation

Good Faith Estimate form effective January 1st.

Under the new rules, lenders and mortgage brokers are required to give consumers the standard estimate form within three days of receiving a loan application. The Good Faith Estimate form requires lenders to combine all of the bank’s fees into one “origination charge,” enabling consumers to compare one lender’s fees with another’s. Lenders also are prohibited from increasing the origination fee from the estimate.

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• The new standardized mortgage estimate (blogs.reuters.com)
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• New Rules Help Home Buyers Understand Loan Costs (abcnews.go.com)

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I found this fascinating quote today:

We have already seen the real estate market improve every quarter of this year to date, stimulated by the tax credit, great mortgage rates, and moderate prices. Though the lack of mortgage liquidity negatively impacted the attempts of some buyers to gain entry to home ownership, on the whole , the true worry was whether the gains in the market would be sustainable – with the extension of the tax credit through the spring, that question would be answered.Bill Lublin, MOVEPHILLY, Oct 2009

 You should read the whole article.