Paying off collections – Caution!

Happy Friday!

One of those things that causes a big surprise to consumers is finding a collection on their credit report. Occasionally they are there because of simply ignoring a debt obligation. However more often than not, we see medical collections. These may show up due to ignoring a bill from the doctor’s office or some related service that we are sure our insurance will pay for. However, it is not uncommon for some procedures or billings to still be in review when the provider’s collection services start kicking in due to lack of prompt payment and get sent to collection.

A simple collection can drop a credit score 50-80 points immediately, even if a 25.00 collection, the size does not matter! And simply paying it may not increase the score, but often drop the score!!!!

Collection companies have done a great job over the years of convincing consumers that paying off collections will raise their credit scores. Many are actually surprised to learn that paying off collections will actually lower their credit scores.

Collections are usually reported on the credit as a “9” status or collection account. This means the account has already been “written off’ and assigned to collections by the creditor. Once an account is reported this way on the credit report, the damage to the credit score is irreversible, unless that item is removed completely from the report.

If the account is paid off, the collection company reports that the account now has a $0 balance, but they do not usually delete the item off the report. The account has already become a collection, and the risk of the consumer defaulting on another account is already very high, due to that collection.

So their credit score will not go any higher if it is paid off, because paying off a collection after the fact, doesn’t lower the risk of defaulting in the future. However, the DATE OF LAST ACTIVITY is updated to the date the account was paid off. So if that account was sent to collections 3 years ago, the date of last activity is 3 years old and the impact to the credit score is not as much. But if the consumer pays off that collection today, they just update the date of last activity to today’s date, sometimes causing the scores to go DOWN as a result.

Crazy isn’t it? Your clients are trying to do the right thing and pay off collections, but their scores can be lower as a result. Help your clients work with collection companies to have their negative item removed completely from their report, if they pay it off. This will help their credit while satisfying the collection company.

I recommend always trying to have “removed or deleted”. Corrected, or shown as paid will not recover those lost points on the FICO scores.

All the best,

Don

VA Allowable & Non-Allowable Fees

HANG ON TO THIS LIST! 🙂

Veterans are one of the best types of buyers in the market place, with zero money down payment required up to 636,150, in OC and LA counties. However you can go above that loan amount with just a small down payment, usually less than 5% as well, and the rates are slightly better for VA loans and very few hits for lower FICO scores. Also, if the Veteran has ANY monthly disability income, the 2.15% first time use, usually financed VA Funding Fee (VA’s MI) is waived! 🙂 Here are the fees that are allowed and not allowed. The non-allowables can be paid by the seller or the Lender, or the Realtor. First the Non-Allowables:

VA Non-Allowable Fees:

  • Application and Processing Fees*
  • Document Preparation Fee*
  • Underwriting Fee*
  • Loan Closing or Settlement Fee*
  • Notary Fees*
  • Interest Rate Lock-in Fee*
  • Tax Service Fee*
  • Delivery/Wire Fees*
  • Commitment or Marketing Fees*
  • Trustee’s Fees or Charges*

VA Allowable Itemized Fees and Charges:

  • Appraisal Fee and Compliance Inspection
    • Reconsideration of value if requested by Veteran
  • Attorney Fee only if attorney was independently retained by the veteran
    • Veteran and Co-Borrower must execute a Veteran’s Attorney Certification
  • Closing Protection Letter Fee- Should not exceed $35.00 Page
  • Credit Report
  • Flood Certification Fee
  • Flood Insurance- If required
  • VA Funding Fee (unless veteran is exempt)
  • Homebuyer Assistance Program
    • Fees may not exceed $250.00 without approval
  • Hazard Insurance
  • HOA dues (prorated)
  • Loan Discount (must be able to prove discount points with rate sheet)
  • Loan Origination Fee (may not exceed 1% of the loan amount)*
  • MERS registration fee- reasonable and customary
  • Pest Inspection (Termite)- refinance transactions only, not allowed on purchase transactions
  • Prepaids (interest, taxes, assessments, etc.)
  • Recording Fees/Taxes
  • Recording of Warranty Deed
  • Septic Inspection
  • Survey (Condo loans must check with the underwriting department)
  • Taxes
    • Purchase- the portion of the taxes, assessments and similar items for the current year chargeable to the borrower and initial
    • Refinance- All
  • Tax Stamps
  • Title Endorsement-applicable environmental protection lien endorsements
  • Title Examination/Search
  • Title Insurance
  • Well Inspection

*If you do not see a fee on the “Allowable” list, assume that VA does NOT allow the veteran to pay.

Hang on to this list. Escrow companies have this list usually, but it does not hurt to forward over to them when you open a VA escrow. 🙂

All the best,

Don

FHA Property Flip Guidelines

Happy Friday!

FHA Property Flip Guidelines

(Please note that agency/conventional loans do not necessarily have these rules, but many lenders have overlays that do have these restrictions…jumbos, some do some don’t…always check with me first-our Fannie/Freddie Direct products/conventional, typically allow flipped properties) 

Once upon a time FHA didn’t have a restriction on the purchasing of a property recently acquired by the seller (AKA a “Flip”) … then along came the “FHA Prohibition on Flipping” provision, circa 2003. A brief waiver to the anti-flipping rules was provided by HUD back in 2014, but the waiver has since expired.

Today, we must abide by FHA’s strict rules surrounding flip situations – so make sure to pay close attention to the chain of title on your FHA purchases!

Here’s a summary of the current FHA guidance:

The term Property Flipping refers to the purchase and subsequent resale of a property in a short period of time.

The eligibility of a property for a Mortgage insured by FHA is determined by the time that has elapsed between the date the seller acquired title to the property and the date of execution of the sales contract that will result in the FHA-insured Mortgage.

FHA defines the seller’s date of acquisition as the date the seller acquired legal ownership of that property.

FHA defines the resale date as the date of execution of the sales contract by all parties intending to finance the Property with an FHA-insured Mortgage.

Resales Occurring within 90 Days or Fewer After Acquisition:
A property that is being resold within 90 days or fewer following the current owner’s date of acquisition is not eligible for an FHA-insured Mortgage.

Resales Occurring Between 91-180 Days After Acquisition:
A Mortgagee must obtain a second appraisal by another appraiser if:

  • the resale date of a property is between 91 and 180 days following the acquisition of the property by the seller’s; and
  • the re-sale price is 100 percent “over the purchase price” paid by the seller to acquire the property.

The required second appraisal from a different appraiser must include documentation to support the increased value.

If the second appraisal supports a value of the property that is more than 5 percent lower than the value of the first appraisal, the lower value must be used as the property value in determining the adjusted value.  The cost of the second appraisal may not be charged to the borrower.  The Mortgagee must obtain a 12-month chain of title documenting compliance with time restrictions on resales.

Exceptions to FHA property flipping restrictions are made for:

  • properties acquired by an employer or relocation agency in connection with the relocation of an employee;
  • resales by HUD under its real estate owned (REO) program;
  • sales by other U.S. government agencies of Single Family Properties pursuant to programs operated by these agencies;
  • sales of properties by nonprofits approved to purchase HUD-owned Single Family properties at a discount with resale restrictions;
  • sales of properties that are acquired by the seller by inheritance;
  • sales of properties by state and federally-chartered financial institutions and Government-Sponsored Enterprises (GSE);
  • sales of properties by local and state government agencies; and
  • sales of properties within Presidentially Declared Major Disaster Areas (PDMDA), only upon issuance of a notice of an exception from HUD.

The restrictions listed above and those in 24 CFR 203.37a do not apply to a builder selling a newly built house or building a house for a borrower planning to use FHA-insured financing.

All the best,

Don

New Enhancements to FNMA Selling Guide

Here are again some new enhancements to the FNMA Selling Guide, which are already effective as of July 29.  I trust they will keep it coming! There is certainly more stuff to change! 🙂

Alimony Income is Getting a Face Lift:

 Lenders will now have the option of reducing the borrower’s monthly qualifying income by the amount of the monthly alimony payment in lieu of including it as a monthly payment in the calculation of the debt-to-income (DTI) ratio. Going forward, lenders may choose to use either option – reducing income or treating it as a debt – when qualifying borrowers. [Read more…]

Condo Buyer’s Guide: What you need to know when buying a condo.

Happy Friday! The OC Fair begins…

Please see attached a great brochure to hand out to prospective clients related to buying a condo or townhome. If a first-time buyer, or someone downsizing, this brochure could say a lot about it for you. Attach your card and mail or just e-mail it.  Click here to download a copy.

Keep your eyes peeled for a big announcement in the near future on a new strategy to “wake up” the public and start talking about and wanting to buy real estate! This will rock your boat! (in a good way) 🙂

All the best,

Don

REAL ESTATE LAW UPDATE: Equitable Easements

From real estate attorney Scout Souders.

New Case Expands The Scope of Equitable Easements in California.

In the case of Hinrichs v. Melton, 2017 DJDAR 4168 (May 3, 2017). The Court of Appeal fashioned an equitable easement despite no preexisting use of the servient owner’s property. This is the first time a preexisting use of the servient owner’s property has been dispensed with. The court determined that because the neighbor’s property needed access and the owner of the servient tenement did not use this portion of his property an equitable easement was in order. [Read more…]

Mortgage Rules Eased Again

Happy Friday Again!  Mortgage rules easing again! Debt to Income (DTI) Ratios expanding.

July 29th, this rule takes affect for Fannie Mae.  Freddie Mac and Fannie Mae more recently have allowed this case by case with enough compensating factors, but often loans would not receive that enviable “approve/eligible” finding.  Now, it appears we will see many more approvals possible.  Often there is income in a family that can not be counted according to the rules, cash, short term bonuses, short term overtime, 2nd job that does not have two years history or other famiy member income where they are not going on the loan, etc.  So this can make a lot of sense after a 2nd look.  🙂

The maximum allowable debt-to-income ratio (DTI) in DU will be adjusted in DU Version 10.1. Under the adjustment, DU will consider applications with a maximum DTI of 50%. For DTIs above 45% and up to 50%, DU will no longer require certain additional compensating factors. 

All the best on this great Friday!

Don

Mortgage Rules Eased

Refinancing with Cash Out to Pay Off Student Loans

Formerly paying off debt, including Edu loans or Equity Lines of Credit, etc. via refinancing your home and using some of your equity was considered a “cash out” transaction and depending on the amount of remaining equity and credit score, increased your interest rate and/or your costs of the loan.  Recently Fannie Mae issued a bulletin that they would no longer consider paying off a “student loan” a “cash out” transaction.  This is huge.  I am not holding my breath on Equity Lines of Credit receiving the same treatment, but at least the fox guarding the student loan hen house has provided some respite.  If you have a client or family member buried in student loans, please call me right away to discuss.  Like many rule changes, they have a tendency to change the other direction as soon as the markets change again. [Read more…]

Fannie Mae & Collections – Good News

Happy Friday!  DID YOU KNOW? 

Fannie Mae – A Good Option for Open Collections

FHA loans generally don’t require open collection accounts to be paid, but they will in most cases require that a payment is calculated based on the balance of the unpaid collection account. Needless to say, FHA’s method of qualifying borrower’s with collections can become problematic.

Fannie Mae, on the other hand, makes qualifying with collections easy (at least when the subject property is a 1-unit!). Please take a look at the Fannie Mae guidance below for  reminder on how to approach unpaid collection accounts:

When the subject property is a 1-unit Principal Residence: Borrowers are not required to pay off any outstanding collections or non-mortgage charge-offs regardless of the amount, unless specified in the DU findings.

When the subject property is a 2–4 unit Owner-Occupied Primary Residence or Second Home: Collections and non-mortgage charge-offs that total more than $5,000 must be paid in full prior to or at closing.

When the subject property is an Investment Property: individual collection and non-mortgage charge-off accounts greater than or equal to $250 and accounts that total more than $1,000 must be paid in full prior to or at closing.

All the best,

Don

FHA Appraisal Guidelines and Requirements for 2017

What Is a Home Appraisal?

When using an FHA loan to purchase a house, an appraisal will need to be done before the loan can close.

A home appraisal is an estimate of the current market value of a property. When a property is purchased or refinanced a home appraisal is almost always required.

FHA Lenders use the appraisal to calculate the loan-to-value ratio of the loan. And to make sure the borrower is not paying more than the fair market value of the home.

This not only protects the borrower, but the lender as well.

If you’re a first-time buyer, or seller it’s important you know about the different factors that a home appraiser looks at. [Read more…]