I hate to tell everyone I told them so, but I posted a blog similar to this GREAT article a while back. I cannot stress to you enough how important it is to work with an FHA Lender in Texas that UNDERSTANDS and foresees these types of things! Read on.

Addressing Continued Concerns About the FHA

In January of this year, both Joe Murin and I were asked by HUD Secretary Donovan to remain as Ginnie Mae president and FHA Commissioner respectively to help the new Administration deal with the on-going housing crisis.  We both were privileged to be asked and were honored to continue serving in the Obama Administration for several more months.

However, today, as a former government official, if I could leave you with one message it would be this:

There has never been a point in our nation’s history that better illustrates exactly why FHA and Ginnie Mae exist. During these uncertain economic times, their counter-cyclical role of ensuring adequate mortgage activity and liquidity has been necessary and vital.

FHA has saved close to one million sub-prime/Alt-A borrowers from possible financial ruin by allowing them to refinance into a safe and secure 30-year fixed rate mortgage.  Another 2 million qualified borrowers (80% of them first-time homebuyers) have taken advantage of the declining house prices and historically low interest rates to purchase a home using FHA.  FHA’s role has grown substantially from three percent of lending activity by dollar volume in 2006 to nearly 25 percent of all mortgages originated today. That massive uptick in volume occurred almost overnight beginning in spring 2008.

Through it all…. FHA has helped pump more than $400 billion of mortgage activity and liquidity into the market since 2008, while still managing to deliver a higher credit quality borrower whose average FICO score is 700.

One can only imagine how much worse our economy would be right now without the FHA. However, the growth of FHA in the past 18 months has understandably attracted a lot of attention. While the FHA did not take part in the housing boom, it is feeling its effects.

As many anticipated, given the current sluggish economy, the FHA is experiencing an increased rate of delinquencies and more foreclosures.

Simultaneously, as home values fall or just fail to appreciate, the number of homes the FHA insures is rising significantly. In October, this forced HUD to announce that in 2010 the FHA’s reserves could dip below the mandatory 2% level required by Congress.

Reminder: FHA collects premiums from borrowers (revenue) and also pays out claims to lenders when loans go into default and foreclosure (outlays).

For FHA, the primary reason for continued defaults and foreclosures will be macro-economic problems that go beyond the scope of underwriting. For instance, continued job losses and the further decline of home values and equity.

Absent a massive economic downturn, I don’t believe FHA will face the same type of catastrophic losses we saw in the subprime sector. The reasons for FHA’s problems are very different from the ones experienced in the subprime sector where unsafe loan features and poor underwriting made investing in non-agency mortgages risky from the start.

The FHA has undeniably tightened guidelines in an effort to help ensure a higher loan quality.  Prospective borrowers must verify income and job history as part of a rigorous underwriting process.

I offer this assurance in an effort to raise your comfort level as to the future of FHA.  FHA must keep its eyes on the ball to make certain that American homeowners and renters are served while American taxpayers are protected.

As a reminder, I offer the following insight about the strategies the FHA is considering to ensure the market remains confident in the FHA’s risk management models:

• Tighten underwriting criteria
• Increase premiums
• Raise the down payment requirements above 3.5%
• Overlay a credit score cut-off

Looking forward it’s important for all of us to continue advocating for reforms that better ensure a vibrant, transparent, and sound mortgage marketplace. Current market conditions highlight the critical role of the private and public sectors in keeping mortgage credit flowing.

All of us are trying to make sure we are well positioned to continue serving customers as this industry moves through truly tectonic change. I welcome the opportunity to hear about the challenges you face and discuss how all of us are addressing this brave new world of mortgage finance.

by Adam Quinones

The National Association of Realtors released Existing Home Sales data this morning.

Think about the materials that go into building and maintaining a home….WOOD, STEEL, PLASTICS, WIRING, PIPING, CONCRETE, GLASS, ELECTRICITY, FURNITURE, CARPETING ,ELECTRONICS, APPLIANCES….LABOR.

How about the commissions earned by Realtors and mortgage originators who help the borrowers close on their home? What about the home sellers? They are either moving into a bigger house, which implies they will be spending to furnish their bigger home, or downsizing, which would imply a lower payment and therefore more disposable income to spend.

The point is, when homes are selling, money moves around the economy more efficiently. The size of the housing market combined with the broad influences it has over the economy make the real estate sector a reliable leading indicator of economic activity. Real estate is one of the first sectors to contract when a recession is looming and one of the first to show signs of recovery when economic activity begins to improve.

A caveat regarding Existing Home Sales: because existing home sales data is only reported at the time of closing, when the deed is transferred to the new owner, this report is considered less “forward looking” than other housing indicators like Pending Home Sales, Housing Starts, and Building Permits. This is because it can take up to three months for a purchase transaction to close. This problem has been more relevant in recent months as lender turn times have slowed and other roadblocks like HVCC, new RESPA rules, and market volatility have delayed closings. Pending Home Sales data helps provide more timely market data because it reports on the number of contracts that have been signed, not actual closing, therefore giving economists and traders a more timely read on the health of housing.

READ HOW THE NAR COMPILES DATA AND GAIN A BETTER UNDERSTANDING OF SEASONAL INFLUENCES

Last month, the NAR reported that Existing Home Sales in August gave back a portion of their their strong July gains. Existing Home Sales, including single-family, townhomes, condominiums and co-ops, declined 2.7 percent to a seasonally adjusted annual rate of 5.10 million units in August from a pace of 5.24 million in July. This was 3.4 percent above the 4.93 million unit level in August 2008. In the previous four months, sales had risen a total of 15.2 percent.

This month the NAR reported the following:

From the NAR press release…

Existing-home sales bounced back strongly in September with first-time buyers driving much of the activity, marking five gains in the past six months, according to the National Association of Realtors®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – jumped 9.4 percent to a seasonally adjusted annual rate of 5.57 million units in September from a level of 5.10 million in August, and are 9.2 percent higher than the 5.10 million-unit pace in September 2008.

Sales activity is at the highest level in over two years, since it hit 5.73 million in July 2007.

Total housing inventory at the end of September fell 7.5 percent to 3.63 million existing homes available for sale, which represents an 7.8-month supply at the current sales pace, down from an 9.3-month supply in August. Unsold inventory totals are 15.0 percent below a year ago.

“The current housing supply is the lowest we’ve seen in two and a half years,” Yun said. “If we could continue to absorb inventory at this pace, home prices would return to normal, modest appreciation patterns next year.

The national median existing-home price for all housing types was $174,900 in September, which is 8.5 percent lower than September 2008. Distressed properties continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes in the same area.

Single-family home sales rose 9.4 percent to a seasonally adjusted annual rate of 4.89 million in September from a pace of 4.47 million in August, and are 7.7 percent above the 4.54 million-unit level in September 2008.

The median existing single-family home price was $174,900 in September, which is 8.1 percent below a year ago.

Existing condominium and co-op sales jumped 9.7 percent to a seasonally adjusted annual rate of 680,000 units in September from 620,000 in August, and are 9.7 percent above the 561,000-unit pace a year ago. The median existing condo price was $175,100 in September, down 11.7 percent from September 2008.

Regionally, existing-home sales in the Northeast increased 4.4 percent to an annual level of 950,000 in September, and are 11.8 percent higher than September 2008. The median price in the Northeast was $234,700, down 7.0 percent from a year ago.

Existing-home sales in the Midwest jumped 9.6 percent in September to a pace of 1.25 million and are 7.8 percent above a year ago. The median price in the Midwest was $147,600, which is 1.0 percent below September 2008.

In the South, existing-home sales rose 9.0 percent to an annual level of 2.06 million in September and are 10.8 percent higher than September 2008. The median price in the South was $153,500, down 7.6 percent from a year ago.

Existing-home sales in the West surged 13.0 percent to an annual rate of 1.30 million in September and are 5.7 percent above a year ago. The median price in the West was $219,000, which is 15.0 percent below September 2008.
————————————————————————————————————————————————

Overall, today’s release indicated continued progress in the stabilization of the housing market. However we are troubled by the forward looking statements Yun made regarding the variables that must continue to improve if housing it to undergo further stabilization and recovery.

“We’re getting early indications of price stabilization, but we need a steady supply of qualified buyers to meaningfully bring inventories down and return us to a period of normal, steady price growth and to fully remove consumer fears, which would then revive the broader economy. Without a firm foundation for middle-class wealth recovery, the post-recession economic growth likely will be one of the weakest in U.S. history.”

Given our in-depth involvement in the primary mortgage market, we are not encouraged by Yun’s outlook. Specifically the comment on QUALIFIED BORROWERS. The continual contraction of the labor market and ongoing tightening of lender underwriting guidelines is already having a direct impact on Yun’s recovery assumptions, and we expect these issues to continue to impact the stabilization process.

On a regular basis we are contacted by consumers who complain of higher cost loans and loan denial due to an unexplained drop in their FICO score. We ask the same question each time we hear these outcrys: Did your credit card limits fall? The answer is almost always YES, my credit card limit was cut.  Next we ask, have you missed a payment on your car loan or even a credit card? If the answer is yes…credit scores have been drastically effected, which has resulted in outright loan denial or a higher mortgage rate.

Adding to our relatively negative outlook is the soon to expire first time home buyer tax credit. Yun says the tax credit has played a role in the stabilization so far:

“Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home,” he said. “We are hopeful the tax credit will be extended and possibly expanded to more buyers, at least through the middle of next year, because the rising sales momentum needs to continue for a few additional quarters until we reach a point of a self-sustaining recovery.”

We could go on and on about the industry, lender, and borrower specific problems limiting the housing recovery, however we believe the general big picture economic environment is providing enough roadblocks to recovery on its own. Thus, we will continue to state that until the labor market stabilizes and jobs start being created, the housing market will undergo a slow, frustrating recovery process (for mortgage and real estate professionals especially).

Consumers: Have you found the loan qualification process difficult?

Mortgage and Real Estate Professionals: Are you turning down more applicants? Are less deals closing? Are lending regs still tightening?

Are we being too bearish here?

A neat Q & A that I came across today…

By Steve Bucci

Dear Debt Adviser,
A recent credit score report from TransUnion states that I “have no real estate accounts that can be used in determining a credit score.” Yet I do have a mortgage in good standing with a credit union that does not show up on my credit report. Would it be worth the effort to have this mortgage included, and how would I go about doing so?
– Eric

Dear Eric,
Your problem is more common than you might expect, although I don’t usually see it from mainstream lenders. An estimated 15 million consumers in the U.S. have mortgages that are not reported to the credit bureaus, according to Michael Nathans, the founder of Pay Rent, Build Credit, Inc. in Annapolis, Md. Nathans has been working for years to empower consumers with the ability to have their regular bill payments — often referred to as alternative or nontraditional credit information — included in credit decisions. I’ll come back to this later.

I predict that one of the other bureaus will have your mortgage listed. It would be unusual for your credit union not to have a relationship with at least one of the bureaus. It is more likely that the credit union does not have a relationship with TransUnion. So, I suggest you begin by checking your credit reports from the other two major credit bureaus — Equifax and Experian. You can access a free copy of your credit reports annually at www.AnnualCreditReport.com. Review your reports for accuracy and dispute any inaccurate or out-of-date information with the bureau that reported it.

Should you find that your mortgage does not appear on any of your credit reports from the major credit bureaus, I recommend you contact your credit union and ask what its policy is on reporting mortgage loans. Reporting your loan may have slipped through the cracks and once the credit union is alerted, it will be a simple matter of sending in the account activity to the bureaus.It could be that your credit union does not have a relationship with any of the credit bureaus, particularly if it’s very small. If that is the case, the bureaus will not contact your lender for information, and your account will not be included on that bureau’s report. Creditors are not required by law to report information to the credit bureaus, and likewise, the credit bureaus are not required to request information from creditors who do not have a financial relationship with the bureau such as landlords, small or private lenders or many utilities.

Unfortunately, there isn’t a practical way for a consumer to add nonreported accounts or payment histories to their bureau files. In order for accounts to be included in your bureau reports and scores, the source of the information must meet specific requirements under the Fair Credit Reporting Act, including updating a reported account regularly via the bureaus automated reporting system.

Some good news for consumers is Section 202.6 (b)(6) of the Equal Credit Opportunity Act establishes a consumer’s right to present all of his recurring monthly payment history in establishing his creditworthiness, and that information must be considered by a lender if it is available. Nathans, mentioned above, is now working on a Web-based, secure, consumer self-storage application for bill-paying information that should meet this requirement, enabling consumers to present their financial file to any lender and have it scored.

Until that happens, if your account does not appear on any report, I suggest that you keep a copy of your annual mortgage statement from your lender, the one you get for your taxes at year-end. It will show your payments and any fees you may have paid if you were late. Then, you can show any potential lender that you have a mortgage loan in good standing with your credit union that hasn’t been reported on your credit report, and you’ll be able to offer documentation of the loan when applying for credit.

Good luck!

In a previous post of mine, I outlined a problem that FHA has been currently dealing with, and today, on the front page of Yahoo, I found an article from the New York Times that gives a nice little update.

I wanted to repost it so please take a moment to read this, as its VERY important.

—-

U.S. Mortgage Backer May Need Bailout
by David Streitfeld and Louise Story
Friday, October 9, 2009

A year after Fannie Mae and Freddie Mac teetered, industry executives and Washington policy makers are worrying that another government mortgage giant could be the next housing domino.

Problems at the Federal Housing Administration, which guarantees mortgages with low down payments, are becoming so acute that some experts warn the agency might need a federal bailout.

Running questions about the F.H.A.’s future — underscored by interviews with policy makers, analysts and home buyers — came to the fore on Thursday on Capitol Hill. In testimony before a House subcommittee, the F.H.A. commissioner, David H. Stevens, assured lawmakers that his agency would not need a bailout and that it was managing its risks.

But he acknowledged that some 20 percent of F.H.A. loans insured last year — and as many as 24 percent of those from 2007 — faced serious problems including foreclosure, offering a preview of a forthcoming audit of the agency’s finances.

“Let me simply state at the outset that based on current projections, absent any catastrophic home price decline, F.H.A. will not need to ask Congress and the American taxpayer for extraordinary assistance — we will not need a bailout,” Mr. Stevens said in his testimony.

But to its critics, the F.H.A. looks like another Fannie Mae. The hearings on Thursday came on the same day that the federal agency charged with overseeing Fannie Mae and Freddie Mac provided a somber assessment of those giants’ health. In the year since the government stepped in to rescue them, the companies have taken $96 billion from the Treasury, and may need more.

Since the bottom fell out of the mortgage market, the F.H.A. has assumed a crucial role in the nation’s housing market. Created in 1934 to help lower-income and first-time buyers purchase homes, the agency now insures roughly 5.4 million single-family home mortgages, with a combined value of $675 billion.

In addition, these loans are bundled into mortgage-backed securities and guaranteed through the Government National Mortgage Association, known as Ginnie Mae. That means the taxpayer is responsible for paying investors who own Ginnie Mae bonds when F.H.A.-backed mortgages hit trouble.

“It appears destined for a taxpayer bailout in the next 24 to 36 months,” Edward Pinto, a former Fannie Mae executive, said in testimony prepared for the hearing. Mr. Pinto, who was the chief credit officer from 1987 to 1989 for Fannie Mae, went further than most housing analysts and predicted that F.H.A. losses would more than wipe out the agency’s $30 billion of cash reserves.

The issue has polarized Congress. Republicans, who led efforts to rein in Fannie Mae and Freddie Mac before those companies ran into trouble, are now seeking to bridle the F.H.A. Many Democrats insist the F.H.A. is playing a vital role in the housing market, which is only just starting to stabilize.

“F.H.A. has stepped into the void left by the private market,” Representative Maxine Waters, Democrat from California, said at the hearing. “Let’s be clear; without F.H.A., there would be no mortgage market right now.”

That was the case for Bernadine Shimon. Like many Americans, Ms. Shimon has recently been through some rough times. She lost a house to foreclosure, declared bankruptcy, got divorced and is now a single mother, teaching high school English in a Denver suburb.

She wanted a house but no lender would touch her. The Federal Housing Administration was more obliging. With the F.H.A. insuring her mortgage, Ms. Shimon was able to buy a $134,000 fixer-upper in August.

“The government gave me another chance,” she said.

The government is giving as many people as it possibly can the chance to buy a house or, if they are in financial difficulty, refinance it. The F.H.A. is insuring about 6,000 loans a day, four times the amount in 2006. Its portfolio is growing so fast that even F.H.A. backers express amazement.

For decades it was an article of faith that helping people of limited means like Ms. Shimon get a house was good for the new owner, good for the neighborhood and good for American capitalism. Then came the housing bust, which demonstrated that when lenders allowed people to buy houses they ultimately could not afford, it hurt the parties — while putting the economy itself in a tailspin.

In the aftermath of the crash, there is wide divergence on how easy, or how hard, it should be to become a homeowner. Skittish lenders are asking for 20 percent down, which few prospective borrowers have to spare. As a result, private lending has dwindled.

The government has stepped into the breach, facilitating loans with down payments as low as 3.5 percent and offering other incentives to stabilize the market. Real estate agents in some hard-hit areas say every single one of their clients is using the F.H.A.

“They’re counting their pennies, scraping up that 3.5 percent,” Bonni Malone of Prudential Americana in Las Vegas said. “Mostly they’re buying foreclosed homes from banks, although I had one client who bought from a guy that was dying. It’s turning around the market.”

While the government’s actions have helped avert full-scale economic disaster, there is growing concern that it might have doled out its favors with too generous a hand.

Many of the loans the F.H.A. insured in 2007 and last year are now turning delinquent, agency officials acknowledge. The loans made in those two years are performing “far worse” than newer loans, dragging down the whole portfolio, Mr. Stevens of the F.H.A. said in an interview.

The number of F.H.A. mortgage holders in default is 410,916, up 76 percent from a year ago, when 232,864 were in default, according to agency data.

Despite the agency’s attempt to outrun its fate by insuring ever-larger amounts of new loans to such borrowers as Ms. Shimon — the current rate is over a billion dollars a day — 7.77 percent of the portfolio is in default, up from 5.6 percent a year ago.

Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that the defaults were, in essence, worth it.

“I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast. That’s a policy.”

The troubled loans are nevertheless weighing on the agency’s capital reserve fund, which has fallen to below its Congressionally mandated minimum of 2 percent, from over 6 percent two years ago.

The optimism expressed by Mr. Stevens, the F.H.A. commissioner, places him at odds not only with some outside experts but with Kenneth Donohue, the inspector general of the Housing and Urban Development Department, who is also F.H.A.’s watchdog. Mr. Donohue said the drop in reserves was “a flashing red light” that the agency was not taking seriously enough.

“It might be we’ll get ourselves out of this and that everything will be fine, but I don’t paint that rosy a picture,” Mr. Donohue said. “They’re banking on the fact that the economy will continue to improve, that the housing market will begin to sustain itself.”

He noted that if private lenders had raised their down payment requirements in the last two years, it raised the question, “what does the F.H.A. think it is doing by asking only 3.5 percent?”

Any more than that and Ms. Shimon, 45, would still be a renter. As it was, she cashed in her retirement savings account to come up with the necessary funds. She did not have enough to spare for closing costs, so her mortgage broker arranged a deal where the charges were wrapped into the loan at the cost of a higher interest rate. She cried when the deal was done.

The house was empty and trashed. Slowly, she is trying to bring it back to life. She spent the first few weeks picking up garbage in the backyard.

Is Ms. Shimon a good bet? Even she has no easy answer. Her mortgage payment, $1,100, is half of what she takes home every month. It is not easy to make ends meet. Teachers can get laid off like everyone else.

“The government,” she said, “is doing what it needed to do — taking a risk on people.”

Chaz Fullenkamp, an automotive technician in Columbus, Ohio, got an F.H.A. loan even though he was living on the financial edge. “If I got unemployed, I’d be wiped out in a month or two,” he says. Thanks to the F.H.A., however, he is better off than he used to be.

Mr. Fullenkamp used F.H.A. insurance to buy a house this spring for $179,000. The eager seller paid the closing costs and also gave Mr. Fullenkamp $2,500 in cash. He immediately applied for the $8,000 tax rebate. Even taking his down payment into account, he came out ahead.

“I knew in my heart I could not really afford the house, but they gave it to me anyway,” said Mr. Fullenkamp, 22. “I thought, ‘Wow, I’m surprised I pulled that off.’ ”

As the number of loans has soared, random quality control checks have decreased sharply, F.H.A. staff members say. Mr. Donohue, the inspector general, cited numerous examples of organized fraud in testimony to Congress earlier this year.

“They need to stop taking bad loans in the door,” he said in an interview. “They’re taking on all this volume, they have to have very active underwriting standards.”

Jack Healy contributed reporting from New York.

Just this morning, I was reading an article that I came across regarding a couple things that are going on with the Federal Housing Administration (FHA)….and it wasn’t pretty.

Basically what’s going on right now is that there are justifiable rumors that the FHA’s reserves (capital) are hovering around dangerous levels.

Congress requires that the magic number FHA needs to be at is 2%. At the moment, its speculated to be down to about 3% (down from 6.5%  in 2007) and if it falls below that mark, Uncle Sam has to come in and save the day once again. (Is it just me, or is this a never-ending cycle? Has anyone seen AIG’s stock quote recently?)

At the moment, FHA’s defaults (90 days+) are nearing 8% and depleting a good portion of FHA’s reserves. While that number may not seem that HUGE, you have to see how all this links together.

Several high-cost areas in the US got hit pretty hard the past couple of years. What goes up, must come down, right?

Well because of those declining markets, FHA decided to increase their loan limits and availability to accommodate the supply/demand in those areas. Who has $140,000 stashed under their mattress in CA to buy that $700,000 home? Not too many people. Well, who has around $25,000? Get the point?

And while this WAS needed to help stimulate buyers, you have to think of what happens on the flip-side. When that $5,000 (est) payment can’t be made anymore, and its time to jump ship, and who gets stuck with the bill? FHA.

FHA then has to tap into their reserves to make good on this.

Think about this for a moment:

In Texas, about 4-5 homes have to foreclose to match that ONE home in California. The odds of 4-5 consumers simultaneously defaulting is not that likely, unless they’re Madoff’s advisors.

The point I’m trying to make is that the high-cost areas are affecting FHA a little bit more than other more stable areas. While I am not saying that FHA lending shouldn’t be available here, I think it would be a good idea (especially now) to implement some more stringent measures before approving every Tom, Dick, and Harry that apply. Last thing we ALL want is to wave bye bye to FHA.

The remainder of the year will be quite interesting. An important incentive is coming to an end ($8k Tax Credit), and as for interest rates, well, let’s just hope they keep steady. Too many good things coming to an end is not a good thing.

Tommy’s 2 Cents

I would safely venture to say that FHA credit score requirements will be going up here in the upcoming months, as well as a larger down payments later down the line. While FHA loans have been the hot product, I wouldn’t be surprised to see Conventional loans start to SLOWLY creep back in and create a “2nd hand FHA loan” if capital continues to diminish as it has.

Remember what happened with Sub-Prime loans? High Demand, High Supply, POOF- they’re gone! History always repeats itself, let’s just hope we’ve learned our lesson the first time, and we don’t screw up FHA, especially for Dawson’s sake.

By Kenneth R. Harney

The IRS has an urgent message for would-be home purchasers: Make the most of the $8,000 first-time-buyer tax credit before it disappears Dec. 1 — if you qualify.

But if you don’t truly qualify, don’t try to play games with the credit. The IRS already has 24 criminal investigations of suspected fraud underway around the country. It has executed seven search warrants, and last month a tax preparer in Florida entered a guilty plea on federal charges of fraud in connection with the first-time-buyer credit. He’s awaiting sentencing and faces up to three years in prison, a $250,000 fine or both.

Congress’s two versions of the first-time-buyer credit — a repayable $7,500 credit in 2008, and this year’s more generous $8,000 credit that does not have to be repaid — have stimulated home sales nationwide. But they’ve also become irresistible temptations for dishonest taxpayers to cash in and claim bogus refunds.

Claiming the credit looks so easy: You just fill out IRS form 5405, list the address of the house you bought, mail it in and wait a month or two for your money. Who’s going to check on whether you really qualify under the definition of first-time buyer — someone who hasn’t owned a principal residence in the previous three years — and that you’re eligible on income and other factors?

With thousands of people buying houses and claiming tax credits, who’s going to be able to check all those filings? The answer from the IRS: We are. The agency said it uses “sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit.”

The IRS won’t discuss the nature of its screening, but it’s clear from the number of ongoing investigations that claims for the credit are getting special scrutiny.

According to a summary of the facts agreed to by Price as part of his plea agreement, he admitted that in February he met with a client who told Price that she didn’t want to buy a house. But Price insisted that she qualified for the credit because “she had two jobs.” He then wrote in a house address on the form 5405, claiming the client closed on the purchase Jan. 5. When she received her $7,500 credit, Price took $1,000 of it for himself.

In the plea agreement, Price admitted following a similar pattern in 14 other tax returns.

IRS spokesman Terry Lemons declined to discuss the ongoing criminal investigations of taxpayers claiming the home-buyer credit. He said the investigations involve individuals as well as tax-return preparers.

The IRS doesn’t “want to discourage people from taking advantage of the credit,” Lemons said, but it wants them to be certain that they’ve read through the eligibility rules so they don’t end up with audits, back taxes and late penalties. On the list of things that can disqualify buyers:

– Purchasing your house from a “related person.” That’s a broad category of people and entities, ranging from immediate family members — a spouse, parents, children, grandparents, grandchildren — to a corporation or partnership in which you have more than a 50 percent ownership stake.

– Buying a home with a spouse who is ineligible, even if you are eligible individually.

– Acquiring a house through an inheritance or gift.

– Financing the house through a tax-exempt mortgage bond program.

– Making too much money — in excess of $95,000 of modified adjusted gross income for singles, $170,000 or more for married joint filers.

What are the downsides if you claim the credit erroneously and do not intentionally defraud the government? If you are audited, the IRS most likely will ask for the full credit amount back, plus interest and a late-payment penalty.

Bottom line: Don’t let this year’s tax credit pass you by if you meet the criteria. And if you don’t, beware of slick-talking professional tax preparers who tell you that you do.

When the unemployment rate is near 10%, it’s really not hard to see why people may have a hard time paying their mortgage on time.

What do you do if YOU are one of those people? Where do you turn? Who do you call?

The point of this brief article is to direct you to a LEGITIMATE source that may be able to help you if  currently in a financial bind.

First and foremost, do NOT pay attention to the majority of all these scam-atic loan mod companies. Over 178 Loan Mod companies are having the hammer brought down on them pretty frikkin’ hard, and it’s not going to be pretty when the dust will settle.

TBWS said it best – “…most loan mod specialists out there are a little more than failed loan officers… bottom feeders, sub-prime refi guys that went looking for the next quick buck when their market dried out.”

Jerry Brown, the current CA state AG, along with the FTC and 18 other various government agencies are going to rip these guys to shreds, and I’m going to enjoy every second of it.

I’ve come across several individuals (even one of my Realtors), that were facing foreclosure, and were almost duped by some “part-time” telemarketer promising them the “solution” to keeping their home…and world hunger…and the cure for AIDS…and (get my point?).

If you get a chance, please check out http://makinghomeaffordable.gov/eligibility.html and see if you are eligible for some help.

This, in my opinion, is one of the best solutions  if you are looking into your options. Chances are if you contact your current lender, they will most likely refer you to Making Home Affordable themselves. I’ve heard a hell of a lot more success stories on with this program than any other one, and personally give them my stamp of approval.

Please take a moment to look around the site. You can even find a counselor in your area and see what advice/direction they can give you as well.

Tommy’s 2 Cents:

If you’re having trouble paying your mortgage and looking for an answer, be SKEPTICAL!

To MOST of these loan mod companies, you facing foreclosure is an IDEAL chance for them to capitalize. Best bet is to get in touch with your current lender and see what options are available to you…write them down… then sleep on it… then make a decision.

Here’s an excerpt from one of my favorite movies, A Bronx Tale. Please follow closely:

Sonny: Get this over with, Mush.

Mush: Come on, dice. Baby needs a new pair of shoes. Come on, seven!

Mush: Come on! Come on, dice!

Sonny: I don’t even have to look.

(Spectator) And seven!

Mush: Craps! I’m out!

Sonny: Get him out of here! Man never hit a number in his life!

As we all have been following lately, rates have been pretty damn good. I mean REALLY DAMN GOOD. That was…until a week or so ago.

I was working with one of my clients and highly advised him to lock in his rate at 4.875% on a 30 Year Fixed, however he decided to float instead of paying a “little” bit more for an extra 15 days. Why? Only he knows.

He is now at a 5.75%. (crickets chirping)

Ladies and Gentlemen- DO NOT END UP LIKE EDDIE MUSH (featured above) and crap out in this market!!! I cannot stress to you enough how important it is to secure a good rate in when you see it. I am coming across several people daily that REALISTICALLY expected rates to go down to the high 3’s because the media puts their dirty little paws on it, and in the end, they lose out on something great.

Would you listen to Al Roker talking to you about mortgage rates or me about weather? I really hope not.

The loan officers that are still here (you can tell who the seasoned ones are) are here for a reason. We have flourished through the good, withstood the bad, study the market, subscribe to various sources of mortgage news, and have a pretty good grasp on what’s going on.

Many feel that when the loan officer says “Mrs. Jones, you need to lock in,” it is mostly viewed as a sales pitch to get your commitment rather than advice, and many clients back off.

I mean this is normal. I can understand it and would probably do the same.

Do this. Next time your loan officer does this, ask them “Why should I secure this rate Mr. Mortgage? And don’t tell me rates are going to go up. Explain WHY” and see what they say. If studdering occurs, move on to the next mortgage professional. If they can advise you with detailed information, they’re a keeper!

In the end, it is only YOU that will win…or lose.

Tommy’s 2 cents

DON’T BE GREEDY.

So, you’ve decided to buy a house?

GREAT DECISION, especially now since rates are super low and you can walk into plenty properties with some decent equity.

Ok, step 1 complete.

Next step, picking the right lender.

I’ve written several articles on this previously, but I will summarize countless hours of explanation into ONE sentence:

YOU WILL CHOOSE WHOEVER YOU FEEL MOST COMFORTABLE WITH.

It’s not rocket science. To some consumers,  rates and fees are absolutely everything, and that is OK.

To others, discussing their loan parameters and figuring out WHY they should go on a 15 year mortgage vs. a 30 year makes more sense- a financial plan if you will. Ask most people why they went on the loan program that they did, and see what their response is.

Everyone is different. Remember, you are the one hiring the loan officer to do your loan. The questions that you need to ask yourself are:

1. “Why am I hiring this person?”
2. “What has he/she done for me so far?”
3. “What do you expect from him/her, and vice versa?”
4. “Has the loan officer asked what’s important to ME during the loan?”

Tommy’s 2 Cents:

Would you pay a CPA double what another CPA would charge if they saved you an additional $5,000 off your taxes?

Would you have a fresh-out-of-med school perform heart surgery on you to save a few thousand on the costs?

Would you hire ME or Johnny Cochran to represent you in a criminal trial?

Get the point?

In any profession, what you ultimately pay more for is knowledge.

So there has been a lot of rumors regarding the $8000 first time home buyer tax credit and that it can be used as a down payment for a new home with an FHA loan.

At first, I thought it was just another “mortgage scam”. Trust you me, the real mortgage industry always leaves room for the next “million-dollar-idea”. If you pay close attention, you may even end up seeing your next door neighbor on the 6 o’clock news getting caught for selling “ARMS” from the back of his van in a dark alley.

After doing a little bit of research to see the legitimacy of this rumor, I ended up finding the official HUD Mortgagee Letter 2009-15.

Who Can Offer It

Let’s begin with who can offer this “loan” on a loan. (Is that a conundrum?)

According the letter, Federal, state, local governmental agencies, non-profit governmental subsidiaries, and FHA-Approved nonprofits will be able to offer this to home buyers.

How It Works?

Essentially, this is a bridge loan. You are borrowing this money for a short amount of time until you get your tax credit, and then it is paid back to these agencies.

What happens is you are taking out a second lien on your home, and that amount CANNOT be more than:

Down Payment + Closing Costs + Pre-Paid Expenses

Here is a list of some more facts on how this works:

1.) You cannot get any cash back at closing.
2.) You will have a deadline to pay this money back, and if you do not, principal and interest will begin automatically. (What a concept!)
3.) If payments are required, it will be calculated as a monthly liability when qualifying for the loan.
4.) If payments are deferred, it must be for at least 36 months and will not be used against you when qualifying.

I cannot stress to you enough -BE VERY CAUTIOUS with this type of transaction. It leaves so much room for deception, and if you end up in the wrong hands, you may kiss your $8k tax credit goodbye very fast!

While it may bring an influx of new potential buyers to Realtors and open a lot of doors to potential buyers, it is a double-edged sword and I do not particularly agree with it. In my opinion, it can do more bad than good and is basically bringing back “100% financing” and that is part of what has caused the “Mortgage Meltdown”.

I would suggest stopping and thinking as to why many down-payment assistance programs went bye-bye towards the end of 2008. It was simply because more buyers defaulted on those types of loans. The LAST THING we need is the Federal Housing Administration (FHA) getting into financial issues.

Tommy’s 2 Cents:

Use it IF you absolutely HAVE to. The $8,000 is yours one way or another.