Archive for June, 2008

Declining Value Markets . . .

June 18, 2008

Declining Value Markets – the value of my house could do what!?!!??

Investors/Lenders across the country continue to tighten lending guidelines — the newest (and possibly most painful) development is that of designating certain counties as “Declining Value Markets.”  Simply put, if a lender or investor is concerned that properties in a certain area are steadily and/or rapidly going down in value, they may want to reconsider how much of a mortgage they are willing to approve for that specific property.

Fannie Mae and Freddie Mac have declared certain areas as “Declining Value Markets” over the past months, but some lenders have taken it upon themselves (in a pro-active protection of their pipeline of loans) to add even more counties to their list.  In most cases, for properties located in one of these designated areas, a reduction in the loan to value of 5% is necessary — in other words, the borrower has to put down 5% more than what the normal loan guidelines would require.  Add that to 100% financing disappearing and 97% possibly close behind, and a designation of a declining market could mean a minimum of a 10% downpayment for some borrowers. 

 To make (mortgage) matters worse, some investors — one comes to mind in particular who I have vowed to never use again — have declared counties as a declining market value, effective immediately with very little or no warning to mortgage brokers.  (They seemingly “forgot” to notify mortgage brokers about the change in policy.  Nice, right?? . . . if only there were a way to communicate important information in mass to a designated group of people or customers).

So, even though the words “Declining Market” were previously only used when talking about million-dollar shacks in California and gold-rush style real-estate prospecting condos in Florida, the term is (unfortunately) too close to home.

So what is your house really worth?  It depends.  More next time.

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com. 

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Thinking inside the box.

June 10, 2008

I am in the mortgage business.  I help clients borrow large amounts of money from various lenders collateralized by real property (houses, townhouses, condos).  I help to build a loan file (a “case” if you will) to help prove why my client should be trusted to borrow and to pay back over time thousands of dollars.  A good file (usually an inch or two thick in paperwork, financial documents and disclosures — any thicker usually means long explanations or documentation of unique problematic situations) closes without much commotion and ends up filed neatly in a box (behind lock and key) or in a file drawer somewhere safe.  Ah . . . a file in the box means a closed-loan, a happy client and a comission paid for a job well done.

That’s it really.  Sure there are things like credit scores, tax returns, appraisal reports and other things that help to build the borrower’s case (or the collateral’s); and there are 4506-T forms, fraud-scans, VOE’s, VOD’s and VORs to insure that the information submitted is accurate and honest.  And there are even some complications around housing ratios, debt ratios, what to do with deferred debts, loans from 401Ks, gifts from family members, and private mortgage insurance, to name a few . . . but basically, I help people borrow money to buy houses.  

Certainly the mortgage debacle of 2007 has changed the way that lenders and underwriters look and scrutinize potential candidates to borrow money.  In the past, underwriters had room to make exceptions to paperwork, reduce documentation and even be swayed by a persistent loan officer . . . well, even though the borrower ___ (insert file weakness here), the loan really does make sense because of ___ (insert file strength here).  For years, in the business, this was called a “common sense underwriting approach.”  If the loan makes sense, let’s do the loan.  It was the mantra for wholesale lenders trying to gain the business of mortgage broker clients, “We want your loans.   We take a common-sense approach to underwriting files.  We’ll get your deals done.”

This is no longer the case.  The goal is not to make sure that the file makes sense (that is now a given . . . a pre-requisite).  The goal of the underwriter is to make sure that the loan is put together and documented in such a way as to meet ALL of the investor’s guidelines so that it might be sold in the secondary market.  Call it crossing every “t” and dotting every “i” if you want, but, now loans must fit neatly in the guidelines so that it can be sold in secondary market.  

If it is not inside the guidelines, then it is not inside the box . . . and if it’s not inside the box, then it must be outside the box.  And the only place outside the box for a loan file, is right here

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com