2. The Detroit News ran an article today talking about how over 50% of the people who had their loans modified this year are again 30 days late on their mortgage payment. John Dugan, head of the Treasury Department’s Office of the Comptroller of the Currency (Really, is such a long title necessary? Sounds like a made up position) said “The results, I confess, were somewhat surprising, and I say that not in a good way.” Why were you surprised John?

3. It does not surprise me at all. When I worked at Quicken Loans I saw a ton of people who should never of been approved on a loan to begin with. It was all of those sub-prime loans they had in the first place which I could not even work with. Many were behind on their payments already or owed over 100% of the value of the home. This was when the market started going down or as I like to say back to what it should have been.

4. The people whose loans are being modified are probably the people who should have NEVER BEEN APPROVED ON A LOAN IN THE FIRST PLACE!!!!

5. The banks are trying to keep the people in those homes paying some sort of payment. Its better to accept half of what the mortgage payment use to be then to foreclose on the home and let it sit vacant for a year because homes are just not selling. It costs the mortgage company more to maintain a foreclosed home then it does to keep the people in there.

6. One of the problems with the way mortgages are done is the mortgage companies only look at what they see on your credit report. I can remember just barely approving people on 30 year mortgages and their debt to income ratio (DTI) was at 57%. That’s right 57% of their income was going to what I saw on the credit report. This was usually the mortgage, car payment, and maybe a credit card. This does not account for car insurance, food, cell phone bills, gym memberships, or any other monthly obligations. You know that if mortgages were to take those into consideration nobody would get approved on any mortgage. You know what, maybe they shouldn’t be.

7. These same people are not changing any of those things they do on a monthly basis because they do not have to. If we really wanted to protect the housing industry the banking community should come together and make people send in receipts of all of their purchases every month to determine what their true DTI is. Unfortunately it will probably be at 90% every month. Before the refi boom happened you had to have a DTI under 38% to get approved.

8. Let’s say that these people are doing their best to make the payments but its all of those what ifs that are happening. Lay offs, less hours at work, car repairs, or maybe the cost of operating the house went up. Electricity rates are going up by 10% in Michigan alone this year. Maybe you live in the city of Detroit and the Water and Sewage Departments plan to raise water rates by 10% and sewer rates by 17% . I can’t believe they are doing that. Their reasoning is because demand went down because of a wet summer. I’m no economist but don’t prices go down when demand goes down. Probably not since its a government thing. They need to protect their jobs so its easy to raise peoples rates instead of being happy that their fellow neighbors didn’t pay as much this past year. With all of these increases in things needed to keep the house livable its no wonder why people are still defaulting on their modified mortgages.  Don’t even get me started on the cost of food. The only thing we can be happy about is the sharp decrease in the cost of gas.

9. With all of these outside factors that a mortgage company does not take into consideration when approving somebody on a loan we can probably bet on seeing another article in 6 months about how 75% of modified mortgages are now 3 months late. I think its admirable what the banks are doing but its going to be a lose/lose situation. People need to understand that owning a home is the biggest liability you could ever take on. A home is not an asset until it is paid off. The people who are having their loans modified probably do not deserve to be a home owner. Sometimes its better to rent and know if something goes wrong (leaky roof, furnace, etc.) you can call the landlord and they have to fix it, not you.

10. You know there is no way that the bank is going to forgive a large portion of the debts because it hurts their bottom line. Not even a 4.5% interest rate on the same balance of loan is going to make enough difference to help them out. Expect to see more of the same troubling news in the housing market even with this so called help.

The Top 10 Reasons

Post from: The Top 10 Reasons

The Top 10 Reasons Why We Knew Modified Mortgages Were Not Going To Work

2. The old saying of “Good Ain’t Cheap And Cheap Ain’t Good” could describe what will happen if this goes through. Remember last time interest rates were lowered. Wasn’t it in 2002 after 9/11? Didn’t Alan Greenspan and the rest of the ass clowns at the Federal Reserve lower rates on things like home equity lines of credit to historical lows to spur the economy. It worked, right? Well it did for about 5 years and look at where we are at now. Is going back to low mortgage rates the answer? No!!

3. I understand their thinking. They think that if their were lower rates it will get people off of the fence who are ready to buy but are waiting for rates to come down. Some people may have been declined on a loan because their debt to income ratio was too high. By lowering the 30 year mortgage rate to 4.5% this will be all the motivation one needs to write up a purchase agreement and get moving. Umm, no. The amount of homes sitting vacant is going to grow because of all the layoffs going in the economy. Foreclosures are still popping up and probably will continue to do so. So who is going to buy all these homes again?

4. The reason people are not buying homes has nothing to do with interest rates. People are not buying homes because real estate values have been dropping by double digit figures every 6 months since late 2007. So what sounds better to the person sitting on the fence. Save 1% on your mortgage rate or 10% off the price of the house? Both do of course but what’s better? Is that a trick question?

5. As an example. Let’s say a couple is planning on buying a $175,000 home. They plan on putting 20% down payment for a loan of $140k. Let’s assume that 30 year interest rates as of 12/5/2008 are at 5.5%. This would give them a payment of $794 principal and interest a month. If they could get the 4.5% interest rate their payment would be $709 a month. That’s $85 less a month in interest. Not that much. To somebody looking at buying that much of a house is not going to slow down their decision. It might (and I mean might) sway them but that’s like not going out to the bar one night a month. If they want that house they are going to buy it regardless of the rate. Let’s take that same couple who is waiting until home prices start averaging home value drops of 2%. Its smart to wait until that time period because nobody offers full price in a down market. You always offer 10% less than what they are asking. For the examples sake let’s say they wait another 6 months and the value of the home drops another 10% like what’s happening here in Michigan. The same home of $175k is now worth $157,500. Putting the 20% down the loan is now $126k. Let’s say 30 year mortgage rates are at 5.5% in 6 months. Their monthly payment would be $715. Only $6 more a month in interest. Some may argue that it makes sense to get off the fence and buy with those numbers. What you don’t think about is where the money’s coming from. Its coming from the Government who just decided to print up a bunch of money and flood the markets again with cheap coin. This causes inflation and a decline in the value of our dollar. Both are a lose/lose scenario. You might say that on paper it makes sense but you will be paying for it in the long run in your taxes and your purchasing power. 

6. The problem is not the interest rates, its getting people approved on the loans. Mortgage rates are near historical lows. Mortgage lenders have had to tighten lending restrictions to people without a good credit history or enough income to make their mortgage payment. Nobody deserves to be a home owner. You have to earn it.

7. More mortgage companies will go bankrupt. Sure, in the short run it will be like the good old days of the refi boom where people were calling left and right and begging to do a loan. Most of the housing boom was called the “refi boom” for a reason. People were refinancing because rates were low, not buying. All of the people who have stuck it out at mortgage companies will get rewarded with this quick burst of refi applications, or will they? I can remember before I was shown the door at Quicken Loans that over 90% of my clients had a loan to value over 85% and a 30 year interest rate around 6%. From what I hear from my friends that still work at mortgage companies they don’t allow cash out refinances over 90% LTV anymore. I assume that most of my past clients are around 95% LTV which disqualifies them before you can even get into the mortgage application. Too bad for them.

8. What about the people who can get approved? Now they have a 4.5% interest rate. Do you think they will ever refinance again? They better not. If they do, then their dumb. So now the mortgage company has lost a past client it could do a loan for. So much of the business mortgage companies do is refinances, not purchases. It was just like when I did a second mortgage for one of my favorite clients in Washington. We did 4 loans for her in a matter of a year and a half. She kept taking money out of the equity in her home and then on the last one I told her that we would probably never be able to do a loan for her again because she was (over a year ago) at 100% LTV. She’s probably at 110% LTV now. On to the next client.

9. So with everybody jumping in to get lower interest rates now the margins the banks make on the loan is going to be less. I wonder if it will be enough to cover their losses from the past or be able to hit their estimates on Wall Street.

10. The biggest reason why it won’t help is because the Government is running the show. They want to show all of us that Fannie Mae and Freddie Mac still work. The market clearly shows they make it worse. Its not that I don’t want the economy to get back on track but every time I hear the Directors at the Federal Reserve talk I wonder how such intelligent people could ever think of such idiotic ideas. They should let the market take its own course, lock the doors at the Fed and get out of the way.

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The Top 10 Reasons Why 4.5% 30 Year Mortage Rates Will Not Fix The Housing Crisis

2. Home prices are expected to drop in the greater Detroit, MI area another 8% by May 2009. CNN wrote an article analyzing data and what home prices should be doing. In there you will see Detroit, MI going down 8.6% and Farmington Hills going down 5.9%. This is one of the first charts I have seen that I agree with. Its probably because it was not written by the National Realtors Association. Realtors will always tell you its a great time to buy…mainly because its how they get paid.

3. Shouldn’t this be the time that you want to buy? Prices are dropping at a alarming rate and you have endless choices of where to live. This is the time that you really need to think about why you want to move or buy a house instead of “I can get a great deal.”

4. So why would you want to buy a home in Michigan in 2008 or 2009? There are only a couple instances where it makes sense. Let’s say you just got married and you need a place together now. You need to live somewhere. If both of you were living in a 1 bedroom apartment then you need more space. Another reason would be that you plan on living in this next home for the rest of your life. When you commit to this then it does not matter what is happening in the economy. That house is now your home. Maybe you want to make a lateral move. This is one where you are buying a home worth the same as your current but maybe its in a better school district or nicer community.

5. What about the people who want to upgrade their style of living and already own a home? This is what you have to ask yourself. If you plan on living in that home for the next 15 years (everybody does) then buy it. Do you really need the bigger or newer home? If you have the money, then do it. I have told friends of mine that if they are happy knowing the house they are going to buy is going to de-value by 20% over the next 2 years then it does not matter, i.e pay $300k and in 2010 its now worth $240k. As long as you are comfortable with losing $60k in equity in your home then go for it. Just do not complain in 2 years if you lose your job and cannot sell your home or your neighbors bought the same exact home for $230k. Remember, nobody pays full price for real estate anymore.

6. First time home buyers really need to take a look into their future if they plan on buying in Michigan. Let’s say that right now you currently rent a 2 bedroom apartment for $900 a month. In the same city you live in you could get a 3 bedroom home for $120k. Lets assume you have money for a 20% down payment which would give you a loan for $96k. Assuming 30 year fixed mortgage rates are around 7% you can get a monthly payment for about $640 a month. With property taxes and home owners insurance your probably looking at $900 a month. Not bad. You get another bedroom and a tax write off now. What if you could wait another year. That same house or one just like it is now worth $108k. This is $12k off the asking price now. Lets say you put down the same 20%. You get a mortgage of $86,400. Monthly principal and interest payments are $575. This saves you $65 a month in interest over the life of the loan. Over 30 years it comes out to $23,400 + $12k in down payment you saved by waiting a year = $35,400. To somebody buying a $108k home, I know that is a lot of money. It would make more sense to just rent for another year while home prices keep on dropping. This way you can save more money and not have to worry about things like the furnace blowing, replacing a roof, mowing the grass, and any other things that can go wrong with a house. If you rent, all of those are included in your rent payment. When you own they are additional payments on top of your mortgage payment.

7. Renting is the way to go in Michigan and let me tell you why. Landlords cannot raise rents on their properties because there are not enough people to rent to. Even the people buying homes for rentals are feeling the pinch. Here is a great example. My family owns a rental property in Eastpointe, MI. We bought the home in 2005. Fixed it up and have been renting in since. Since 2007 there have been a number of homes on the street which have been foreclosed on. Speculators have came in and bought those homes for $30k (we paid $60k plus upgrades to make the house pretty). The mortgage payment on those houses are now half of ours. They charge $200 less a month for rent than we can because our mortgage payment is higher. Its basically the same house. Ours is just a little nicer, but why would somebody pay $200 more in rent just because it has newer appliances? You wouldn’t. So now we are on the outside looking in. We need the money to cover the mortgage payment. We had to lower our rent by $30 a month so now we just break even. Hopefully, you see where I am going with this. This is happening in every city including Royal Oak, Ferndale, Warren, Detroit, Farmington Hills, etc. The renter can now negotiate because there are so many homes and apartments available. Before, it was never like this. Remember, if something goes wrong with the house its not your responsibility to fix it, its the landlords.

8. The economy in Michigan sucks. What makes you think your job is not replaceable? It is. What makes you think you will not be laid off? You could be. Why tie yourself into a bigger mortgage payment or take on the responsibility of being a first time home buyer in a dying economy? It would be smarter to stay what your doing until outside economic forces cool down. I read this article from the Detroit News and it blew me away. It talks about the possible sale of Chrysler to General Motors. About 37k Chrysler workers live in the State of Michigan. If GM were to buy Chrylser, some 21k hourly workers and 15k salaried workers could lose their jobs throughout North America. Of the 36k that could lose their jobs half of those are in Michigan. Some 18k people could be unemployed because of the sale. Now you need to think about all of those people who do not have jobs anymore and how their lifestyles are going to change. These are good paying jobs (a little too good paying). You will see even more homes go into foreclosure in Michigan because nobody can make the payments on their home loans. This will cause home prices to drop even more.

9. The 18k number is probably on the small side. Take into consideration all of the suppliers Chrysler has. All of those places would not be needed anymore. More small businesses would close in result of the Chrysler sale. Lets add another 6k in job losses just from the suppliers. Now we have 24k unemployed people. Now you need to take into account where those 24k spend their money at. Places like restaurants, movie theaters, car dealerships, lawyers, Dr’s offices, and shopping malls. All of those places will be hurt too because nobody is spending money. The cities of Sterling Heights and Auburn Hills would be hit hardest. The Chrysler World Headquarters (a 1 million square foot building) in Auburn Hills would be of no use, and the plant on 17 Mile Road and Van Dyke would be obsolete. Auburn Hills collects $3 MILLION in taxes and Sterling Heights $2 MILLION in taxes every year just from Chrylser. Let alone all of the people that own homes in those cities who work for Chrysler. All of the tax revenue they collect from property taxes is gone. Do you think those two cities might go bankrupt without the revenue? I wonder who is going to pay for the police and fire departments. Lets add another 500 city and county workers on top of that. We now get about 24,500 more unemployed people JUST IN THE STATE OF MICHIGAN if this sale of Chrylser to GM goes through.

10. Figuring out real estate prices is all about supply and demand. The supply of homes is getting larger and the demand for them is getting smaller. If 24,500 people are given pink slips over the next 2 years just from Chrysler it will cause home prices to drop even more. Do not think you are getting a deal because the home you want to buy is worth half of what it was in 2004. The market is telling you what its worth. If you are comfortable where you live in Michigan right now then you need to stay put. It will save you thousands of dollars on the price of a home over the next two years. Stay posted on the sale of Chrysler. If it goes through then you may need to wait longer than 2010.

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The Top 10 Reasons To Not Buy A Home In Michigan Until 2010

2. Most mortgage companies like Quicken Loans for instance have very particular guidelines when it comes to this. With all of the homes listed for sale around the country this is one that can become a real deal breaker. Depending on the company, many have a 12 month delisting period. Some will have a 6 month but for the most part its 12.

3. What does this mean? You need to be able to show the mortgage company that you have taken your house off of the market. You can do this by getting a de-listing ticket from your realtor. On the “De-Listing Ticket” it will show how long the home was listed for sale and the exact date it was taken off of the market. The mortgage company needs this information and must follow all of the guidelines set forth by Fannie Mae. This is one of them.

4. So why does the mortgage lender care when your home was listed and de-listed? It really comes down to you, the home owner. The mortgage companies know that you are just trying to consolidate all of your debts to give you some breathing room while you try to sell the home. The mortgage company wants you to stay in that home and pay them the interest on that loan.

5. You are probably going to find this out the hard way first. I remember being a mortgage banker and getting that phone call from people desperate to refinance their home. I would go through all of the normal application questions and ask them if their home was listed for sale. For the most part people would tell me whether or not it was. If they did not we would find out. Unfortunately, it would be when the appraisal gets back. The appraiser has a database of all of the homes that were listed for sale. The home owner is the one that is affected the most because they just spent $350 on a appraisal and are not going to be able to close the home loan.

6. So what are you to do? The best bet would be to call the mortgage company who holds the note, i.e, Countrywide, Chase, Bank Of America. Ask them if there is anything that they can do. More than likely all that they will do for you now is a “rate/term refinance.” This is for people who are in a adjustable rate mortgage. The mortgage company will not let you do a “cash out refinance” because they do not want you rolling more debt into the equity of the home. You will have to wait the time needed to refinance. Its probably not worth your time to call up a mortgage broker. They have to follow the guidelines set forth by the lender who actually funds the loan.

7. No need to call the original mortgage company that did the loan for you if its different than the one who holds you mortgage note now. You probably noticed after your loan closed your mortgage was sold to another company. The deal is the first company gets paid by the next company a premium for your loan. They keep this money as long as you do not refinance or sell the home within 120 days. The 120 days is known in the mortgage business as the “recapture period.” Its more like 140 days because its not from the day the loan was closed, its from when the mortgage was bought the first time. So you have to look at this from the lenders point of view. Here is somebody who is trying to sell their home, then can’t, and now is trying to roll more debt in to the equity of the home. The company knows you are going to put that house right back up for sale the second after the loan closes. So why waste time on somebody who is going to stick it back to them within 4 months if they can? No need to do that. Move onto the next client.

8. A real big reason why mortgage companies are not letting people refinance after the home was listed for sale was now it gives you the chance to foreclose on the property with all of your debts in the new loan (that is if you are rolling in debts). Now the loan to value (LTV) is way high. You are not going to be able to sell the home now because any wiggle room in the equity of the home is gone. Now the bank is stuck with a mortgage note on a property that is not going to sell for what is needed to cover the mortgage note. The bank will have to write off some of the balance and take a loss just to move the property off their books. You in the mean time have all of your debts paid by the new mortgage and those are included in the house you just foreclosed on. Your credit cards, car loans, past collections, everything. Who cares if you need to rent for two years. At least all of your bills are paid so you can start fresh with just a minor (big) blemish on your credit report.

9. So how can you not get caught? There is only one way to get around this underwriting guideline. It is to list your home “For Sale By Owner.” When you do a “FSBO” (fancy term for “For Sale By Owner) your property never goes in the database called “Multiple Listing Service” or “MLS”. Wikipedia has a great definiton of what it does. As long as you do not contact a Real Estate Agent than you are in the clear. When people told me their house was “FSBO” I told them to walk out into the front yard and take down the sign. Then after we closed the loan they could put it back up if they wanted. Does that sound shady?

10. The most common response I heard from people that I denied on a mortgage was that “you get the house if I foreclose.” Mortgage companies do not want you to foreclose. They do not want your house. They want you in the house paying a mortgage note they earn interest on. The scenario of why mortgage companies will not refinance a home that has been listed for sale is really a lose – lose one. The mortgage company cannot make new loans. The home owner cannot get into a better loan or even roll in some bills to help them keep the house. If you are thinking about putting your house up for sale I suggest you do it “FSBO.”

Post from: The Top 10 Reasons

The Top 10 Reasons Why You Cant Refinance Your Mortgage After The Home Was Listed For Sale On The Market

2. One of the main guidelines is that all mortgage lenders must do an appraisal on the home. There was a time during the refinance boom that sometimes you could get away without having to do an appraisal. The only times you could do this was when you were doing a “rate/term refinance” or doing a second mortgage like a home equity loan. A “rate/term refinance” is one where you just change the terms of the loan, i.e, change from a 30 year fixed to a 15 year fixed or redo a loan with a higher interest rate to a lower interest rate. What the mortgage banker would do is take your application and put a value into the desktop underwriting (DU) system, wait a minute for the approval and if it came back with a “Property Inspection Waiver” you could do the loan without having to do the appraisal. This was a nice feature because it saved the client $300-$400 off the closing costs because an appraisal was not needed and the loan would close in half the normal time. The property inspection waiver could only be done if no cash was being taken out of the home. If you were doing the second mortgage some mortgage companies had this program called an “Automated Valuation Model” or “AVM.” All that they did was put your addredd into this program, the program would look at recently sold homes, take those values and shoot a number back. If the number made the second mortgage work you could do the second mortgage only without having to do an appraisal.

3. The one thing that the mortgage company has no control over is what the appraisal comes in at. It is what it is. Calling a client back to tell them that their house is not worth what they thought it is might be the worst part about being a mortgage banker or mortgage broker. First thing is that they know that you are going to say something like “I just put in new French doors,” or “The granite counter tops are only two years old.” Trust me, I’ve heard all of the stories. The one I heard all the time was that “we just put in a $20k in ground pool.” Most people do not know that having a pool de-values your home unless you live in Arizona or Florida. The other one is that now the mortgage company cannot close this loan which results in wasted time and a lost commission.

4. Even if you are dealing with a nation wide mortgage lender like a Countrywide, Chase, Bank of America, or Quicken Loans the mortgage company is going to call an appraiser from your local area. The operations team of all mortgage companies have a database of appraisers to choose from and they hire one to schedule the appraisal with you. Mortgage companies do not have a in house appraiser that they fly out to value your home and then fly them back in. I could not imagine how costly that would be or how it would even work. I remember days at Quicken where the company as a whole would get over 2,000 new loan applications in the door from around the country. The labor cost would be huge.

5. Who knows your area best than an appraiser from your local area. They probably live within a couple miles of you and know what neighborhoods are best and all of the extra little factors that determine what your house is worth.

6. After the appraiser is done going through your house and taking pictures of comparables (comps) in the area they go back to their office and start adding and subtracting things you have in your house. They add up things of value like an extra bathroom, more square footage, new cabinets, fireplace, etc. After that they start subtracting value based on what the other homes in the area have that yours does not. Take for instance a garage. If yours does not have it then its a major value deduction. The one factor that really determines the value is what the most recent sales prices where of homes in your area. The appraiser will try to find homes that have sold within the last 6 months because those will tell what the market is saying what homes are worth that are similar to yours.

7. When its all said and done, the numbers are added up and a value is written done and the appraisal is faxed back to the mortgage company. The appraisal team is notified and the value is put back into the desktop underwriting system to see if an “approval” is still granted by whoever insures the mortgage, like a Fannie Mae for instance. If the system still says its approved, then you proceed with the mortgage and close the loan. If it comes back with an error (it usually says “Refer”) then you need to see whats not getting the approval. If its the appraisal coming in too low than there is nothing that can be done.

8. This is where you need to see if your mortgage banker can move some numbers around. Maybe you can take out less cash to get an approval. Then you need to see if the loan still makes sense for what you are trying to do. Maybe there are other factors not getting you the approval now because of your debt to income (DTI) ratio or your credit score is low or you do not have enough assets in the bank.

9. The one thing that the desktop underwriting system really likes is a low loan to value. Approvals are easy to get if you have a LTV under 80% and sometimes up to 90% depending on your credit score. Anything higher than those numbers and you are not going to find any help anywhere. This is mainly due to the credit markets tightening. The days of loans up to 100% LTV are basically gone and if your appraisal comes back at over 90% its not because the mortgage company wanted you to spend $350 to do an appraisal that was not going to come through and then deny you on the loan. Its because that is what your house is worth. The mortgage companies are in the business to close loans, not to deny you on a loan.

10. There are times when you can get a second opinion done. In the mortgage business they call it a “value appeal.” This is when there are things that the appraiser just flat out missed. It happens, they are people and people make mistakes. I have seen it where the difference of $3k in value of the home can kill a deal. If the home owner can find more recent comps or can show a reason for the bump in the value then the mortgage lender can take those and give the appraisal back to have the appraiser re-certify it. Sometimes, they will give the value increase and sometimes they will not. It sounds kind of shady (because it is). I can probably picture some conversations between a mortgage brokers and a appraiser saying that they will never use them again if they do not make the value a certain number. I know that happened because it has been in every major newspaper for the past two years. Any credible lender will not let this happen because they have too much riding on it. So if your appraisal comes in low you have two options. You can pay $350 for another appraisal from a different company. I only saw this work once over a two year period. I had a client that lived in Vail, Colorado and the mortgage company I worked at sent a appraiser from Denver, Colorado which is about 100 miles away. The appraisal came in very low and my client told me that we needed to use an appraiser from Vail. We ate the cost (only time this happened) and ordered an appraiser from Vail. Appraisal came in $100k more than the first one. Weird, but it worked. Second option is just to accept that your house is not worth what it was during the years of the refi boom of 2002-2006 and eat that $350 you spent on the appraisal. From all accounts, regardless of where you live, your house has probably gone down in value by 20% from 2006-2008. Don’t feel bad, its not your fault, its not the mortgage companies fault, its the markets fault.

Post from: The Top 10 Reasons

The Top 10 Reasons Why You Should Give Up Trying To Refinance Your Mortgage If The Appraisal Comes In Low

2. The mortgage lending system kind of works like this. The Federal Reserve has the power to set interest rates and to determine when they should open up the spickets to flood more money into the economy (thus lowering the value of the U.S Dollar). This money is lent to large banks like JP Morgan Chase, Citibank, Wells Fargo, etc. at the going prime rate. The banks are on the hook for that money they borrowed and now turn around and lend it to you in the form of car loans, home equity loans, and 30 year fixed rate mortgages with their premium added on top. The premium usually comes in the form of a higher interest rate.

3. I am not for any kind of regulation of any type. Maybe back in the day…which was on a tuesday…in like the early 1900s the flow of information around the country was not that good. Regulation was needed to keep things in check and to inform the American citizens. Nowadays, any person in the world can go to a computer and look up information of their own for free on the internet machine. Everybody has heard about the Google Machine and its so easy to use. Got off topic there. Regulation is funny because I feel like these companies that practiced predatory lending and doing crazy loans like option arms and negative amortization loans have regulated themselves as best as they could. They are no longer in business. Nothing says regulation better than your mortgage company going bankrupt. I mean could it be that easy? I think so.

4. Since the U.S Government feels like its doing all of us a favor (nope, just making it worse) by stepping in and cleaning up this mess why don’t they just take it to the next level. They already are bad mouthing mortgage companies across the land. Some CEO’s of mortgage companies have had to go in front of the Congress to testify about their companies. Then they get mad about falling property values and the millions of jobs that have been lost that are all mortgage related. All of the builders, construction laborers, mortgage brokers, home re-modelers, decorators, accountants, etc. All of those jobs have been lost because of this mortgage fiasco. Foreclosed homes are sitting around vacant in every city around the country. Nobody is exempt from this regardless of your income level.

5. The finance market will never be the same, but it never had to change in the first place. Only over the past 6 years has this phenomenon of easy money and loose lending standards ever taken place. Before that it was mandatory for anybody buying a home to have a 20% down payment. The days of 100% financing are gone but there are still some programs that will do 97% loan to value. The only place you are going to find those is through the FHA. I was talking to a friend of mine the other day that works at a mortgage company still and they told me that over 60% of their business is FHA. I wonder why? Could it be because the FHA is the only entity doing loans over 90% still? Probably. The finance sector was always a strong area to invest in. You could usually count on gains in the 5%-8% every year. Mainly because the banks were always making that kind of return. This meant to people that were looking for a solid return on stocks or their 401k knew that they were getting a safe return every year and with a 401k calculator they could figure out how fast they could make a million dollars over their life time.

6. Let’s just get the middle man out. If the U.S Government were to start writing their own mortgages the process of getting a loan would be so much easier. No more haggling with mortgage brokers over interest rates and closing costs. No more shopping for the best rate on a home loan. No more feeling like you got ripped off. No more mortgage brokers making quick profits and then shutting down their business and moving onto the next quick money maker. The mortgage application process would be that much easier.

7. Most people do not know that mortgage rates are a commodity. They are traded on the secondary market just like orange juice. On normal conventional mortgages you will be offered the same interest rate as any other bank that day. These markets trade mortgage notes all over the world trying to make a profit off of their investment. Wouldn’t it be cool if the U.S Government could just step in and set their own interest rates for their beloved citizens?

8. The U.S Government can set their own interest rates. What they should do is start printing up their own money (I wish I could do that) and start offering everybody a 30 year fixed rate loan at 5%. Let the U.S Government write the loan and hold onto the note. This way the money they printed up in the first place is being watched over by them and they can collect the interest on it, not a bank. I know what you are thinking. The banks are paying back the loans over a long time period so isn’t the U.S Government still getting theirs? Maybe. What the banks do is borrow the money, sell you a mortgage, and sell the loan. As an example, on a $100k loan, the bank will borrow the money from the Fed or even a larger private bank at let’s say 4%. They start getting charged the interest as soon as they take the money. They write the loan and sell it within the first month. They charge a 2%-2.5% premium. Which means that $100k loan is now being tried to be sold for $102,500 making them a quick $2500 profit. The original $100k is paid back before any large amount of interest can be charged by the Fed and the second bank walks away with no ties since they do not hold the note any more. It would be better if the U.S Government would just hold onto those notes and make the 5% forever. That 5% note will end up making the Fed over $120k just in interest over 30 years. No banks involved. No selling of notes. Just the U.S Government charging a low amount of interest to its citizens and getting a decent return.

9. The return that the U.S Government would make could be used to pay down its national debts. What an idea. Pay down its debts while putting some coin back into its pockets while helping its citizens out. It would not have to worry about shady mortgage companies. No more time spent on Capital Hill grilling mortgage company CEO’s. No more finger pointing. No more worries. Make the underwriting guidelines the same as they were back in the 1990s and before.

10. The one thing that always sticks out the most is that the U.S Government already owns your home. Let’s say that you do not escrow your property taxes and home owners insurance but still pay your monthly mortgage payment on time. You have no mortgage lates on your credit report but are late paying your property taxes. It gets to the point that you just cannot afford your property taxes anymore. Did you know that the U.S Government can come in and take your home anyways? Since you are behind on your property taxes your house is theirs. Ever seen those tax lien commercials where people buy up homes with past tax liens of $3k where the home is worth $100k? Its real, that stuff happens. Every single mortgage company in the land could not lend anymore. Maybe they could service the loans the U.S Government writes now. Anyways, the U.S Government can make some money by charging lower interest rates and never have to worry about a mortgage mess happening again.

Post from: The Top 10 Reasons

The Top 10 Reasons The U.S Government Should Become A Mortgage Lender

2. I am not sure on the exact numbers but right now China holds some ridiculous amount of the United States debt. When we did not have enough money to lend to from within we called up China and they sent us over a bunch of money. We have been paying interest on that money for quite some time now. The tricky part of this is that China can “call” on that debt to be paid back at any time. This puts us in quite a predicament because if we couldn’t just print up the money in the first place for ourselves how the hell are we going to come up with the money to write a one time lump sum check. We can’t. If this stupid bill gets passed, the U.S Government will now have to figure out some way to run the USA on 19% of the income it gets from income taxes. Yup, that’s right. If this bill gets passed, this bill plus the other expenditures (Defense Department, Department of Education, Border Patrol, Some War Going On In Iraq, You Get The Picture) will now assume 81% of the revenue the IRS collects from taxes. If this does not get you thinking that we are screwed because we are already trillions of dollars in debt than I do not know what will.

3. Worst phone call of all time happens the day after the $700 billion economic dummy plan gets passed from Chinese President Hu Jintao. It goes like this. “Hey George, its Hu,” says Hu. “What up Hu,” says W. “I want my money,” says Hu. “We don’t have your money,” says W. “You bankrupt now,” says Hu. “Crap,” says W. “This better than launching nuclear weapons at you,” says Hu. “…,” says W. Its really that simple. If this bill gets passed, China can call us up and say they want all of their money paid back the very next day. Of course we can’t pay them, because we are already broke, and now we are even more broke. Picture the movie “Pretty Woman” where Richard Gere buys failing businesses and sells the pieces individually and makes a profit. We would have to start doing something like that. Maybe we could sell (give) them Alaska or Hawaii to wipe the slate clean.

4. The only people that win with this bailout is the executives of the mortgage companies and banks that are failing. They have already made a crap ton of money and now they do not even get a slap on the wrist. WTF? Sure, they get fired, but after making $20 million in one year of so called work is not to shabby. There is no need to ever go back to work.

5. The tax payers are not going to get any kind of reward from this. I kept looking at this plan on the NYTimes site and I could not think of how we earn our money back. The problem is that the system is not going to change at all. All that happens is that the U.S Government now owns a bunch of crappy mortgage notes that nobody wanted in the first place.

6. Here is how I believe the U.S Government thinks its going to work in favor for the citizens it cares for. They buy a mortgage note on a property that has been foreclosed on. They are telling us that they are going to charge interest on that loan and get paid back that way. Wait a second. If nobody was paying that mortgage to begin with how are you going to get paid back now? You can’t keep charging interest to nobody. Nobody lives in the home. The bank does not own the home, the U.S Government now owns the home. How does the loan get paid back + interest? I do not see how this happens.

7. The only way I see any part of the loan getting paid back is when the property is sold. Again, how does the U.S Government and the tax payers get paid back and make money? They don’t is the answer. If nobody wanted to buy the home at a discounted value in the first place, then what makes you think somebody is going to step up and buy this home at what is left on the mortgage. Here’s an example. Somebody bought the home in 2004 for $250k and did 100% financing. Times got tough for this couple and they had to foreclose in 2007 because of a loss of job. They still owe $248k on the home but all of the homes around them are also dropping in value and those homes are all now selling for $175k. The home could not of been sold before foreclosure because the balance was to high. Now the Government is going to step in and assume that mortgage note for $248k. They cannot sell the home for $248k. The only offers they are getting are for $165k. In the mean time, somebody needs to be cutting the grass (costs money) checking the pipes (costs money) and maintaining the house (costs money). To keep the house from being fined the U.S Government will need to send somebody to do those things so it does not get fined by the local government where the house is. That is funny. The “Local Man” is sticking it to the “Federal Man.” Anyways, the U.S Government knows they cannot sell the home for what is owed on the house so they sell it for $170k. This comes out to a $248k – $170k = $78k loss. The $170k gets paid back to the $700 Billion dollar loan but with a huge loss, that did not collect any interest at all.

8. I do not see how the scenario above does not happen across the board. People are not going to over pay for a house and if people were smart they would wait until 2010 to buy a home. At that time most of the damage will be done with foreclosures and property values will probably have leveled off. Going back to the $700 billion dollar dummy loan. If the U.S Government is going to take a loss on all of these properties and bad mortgages how are they going to make any money. The $700 billion out lie of money will ( if we are lucky) probably get paid back by 50% over the next 30 years. This means that we lost $350 billion plus the interest that the U.S Government could have earned in bank accounts of their own over 30 years. It probably comes out to some ridiculous number like a $1 trillion or more. I think the math looks pretty simple to me, I hope I am missing something. The housing market is not going to change because of this bill. The credit markets are going to get tighter. Less money is going to be lent. The mortgage companies that are remaining are not going to lend money to people with bad credit. They know that they are not going to be able to sell that loan on the secondary mortgage market. So they change all of their underwriting guidelines to make it harder for people to get approved on a mortgage. By harder, I mean the way it was done for 80 years before 2001. There is still plenty of money floating around for people to get a 30 year fixed mortgage. You just need to have credit scores over 720, no mortgage lates, money in the bank, and a solid job history. Its that simple. Banks will fight over you to do business with you and that’s the way it should be. Their will be more mortgage companies going bankrupt even if this $700 billion bailout goes through. There are less first time home buyers in the market. Many are going to just wait it out as long as the market keeps going down. There are less people that can qualify when trying to refinance their home. Many owe more than what their house is worth and no mortgage company will go near that home loan. Those two examples alone are the bread and butter of the mortgage industry. No people buying homes and no people refinancing their homes means less business, which means more layoffs, which means more bankrupt mortgage companies. So, $700 Billion does nothing to save the mortgage industry or to keep it going. All it does is put the U.S Government on the hook for a bunch of crappy loans.

9. I understand that the whole goal of this is to “calm the markets.” I told myself I was not going to do this but I went and checked out my 401k statement this morning and it is down 27% for the year. It was shocking to say the least. I was tempted to take it all out of the stocks that I have and put it into the money market that is earning 2%. Maybe I’ll do that and maybe not. I do not plan on cashing any of that money out for another 30 years (hopefully there will still be something there) so it will probably stay. What worries me is the people that are like my parents age. In their late 50′s and are living off of the dividends in their 401k’s and IRA’s. I am sure they are not happy that 27% of the money they had invested is now gone. Hopefully they moved it all into a mutual fund when they retired so they are not affected by this change in the market. The market will always have its ups and downs. Yesterday the market had its biggest one day loss in its history. Everybody was assuming that the $700 billion dummy plan was going to get passed so investors were assuming what was a safe bet to make on stocks. The market had already planned for it to go through so value was still there. When it did not get passed in afternoon trading people started jumping ship. It was not expected. This morning, the market is up over 2% from its 7% loss yesterday. What is happening is people know if they start buying today they are going to get a big discount on stock prices. Its simple “Buy Low, Sell High.” The market will correct itself but it does not need the U.S Government doing anything.

10. I really hope that this $700 billion economic bailout does not get passed. It would mean that my generation would be paying on it until I am retired. If you look at the wording in the bill, at year 5 there is this statement that baffles me. It says something like “If this bill is not working in the tax payers favor we can make changes to benefit them.” That statement scares the crap out of me. Throw in the towel now before it gets even worse. The U.S Government is working our country to being bankrupt. Do not think it can’t happen. I wonder what Barack Obama and John McCain are thinking right now. It sure would be an accomplishment to be the President that was able to work us out of one of the toughest times in U.S History. Its sad that it is tough because all of this we put on ourselves. The Iraq War, Housing Crisis, all from the U.S Government. Every time I start thinking about this election year and what is going to happen after it I wish there was something more I could do to spread the message about Ron Paul. He was our only shot and the average American did not take the time to educate themselves about the important issues. I hope that this $700 billion economic bailout does not go through for the future of all American citizens.

Post from: The Top 10 Reasons

The Top 10 Reasons Why Congress Should Not Pass The $700 Billion Bailout Plan

2. Most people start the mortgage shopping process by comparing different mortgage companies interest rates on the 30 year fixed rate mortgage. This is a safe bet and 9 out 10 times should be the way that most people go about picking the right mortgage for them. Its a way that people will know exactly what their payment will be until the day they pay it off. No surprises with that one. It usually comes down to picking the right bank or getting referred to somebody that your friends went with.

3. What makes the home equity loan so appealing is first off, the closing costs are very low. The average closing costs on a 30 year fixed mortgage not including state tax fees or lawyer fees is in the $2k-$3k range. This usually covers the appraisal, title insurance, and any underwriting costs. This will usually be the same across the board regardless of what mortgage company you go with. These are all third party fees and its hard to get around those.

4. The normal closing costs on a home equity line of credit are usually less than $1k. There is something about the wording that is involved in the paperwork when doing a home equity loan that considers it more of a lien on the property than an actual mortgage. I will say though that it differs from state to state but I saw times when I was a mortgage banker that we had a system called an “automatic value module” that searched a database of recent home prices in the area you were looking to buy or refinance. If the value of the home came back at what we needed to make the loan work, we would not even have to do an appraisal on the home. This would save the cost of an appraisal (about $350) plus the week it took for the appraisal to go out and get it back. This did not happen all of the time, but since it was considered a second lien on the property it was considered a little bit riskier. Whatever mortgage company held the mortgage note on that property would get paid second in the case of a foreclosure on the property. There was less title work that had to be done since the property was already under the property owners name.

5. With closing costs being about $1k-$2k less than a normal fixed rate mortgage you are already starting to save money. The only trick to this scenario is trying to find a mortgage company that will do a first lien home equity loan. ( Find some at:) Most mortgage companies stopped doing second mortgages all together because they are losing their butts of trying to sell these loans on the secondary market. This is because of falling real estate values across the country and with people owing more than what their house is worth.

6. Let’s say that you can find a mortgage company that will do a home equity loan as a first lien for you. You are going to save money on the closing costs already. The only downside that I can think of is that a HELOC is considered a adjustable rate mortgage. The interest rate is never fixed on the loan. While this might make some people nervous a bout the whole concept of not knowing what your mortgage payment will be from month to month it is no need to get anxious.

7. As of September 2008, interest rates on Home Equity Loans are around 5.25%. Interest rates on 30 year fixed rate mortgages are around 6.25% with no points. Its easy to see that you are already saving about 1% on the rate alone.

8. What is a neat feature of the home equity loan is that it gives you a lot of flexibility with your monthly payments. Your HELOC’s payment would be based off of a interest only payment. Let’s say you took a 30 year mortgage of $100k at 6.25%. Your payment would be $615.72. A HELOC at 6.25% on $100k would be $520. The difference between the two is about $95. This means that only $95 of your fixed payment would be going to the mortgage every month for probably the first 3 years of the loan. You might as well just consider it a interest only loan in the first place. This extra $95 could come in handy for extra bills, rising fuel prices, or to start a savings account. If you do not need the extra money then put it back towards the loan and pay it down.

9. What also is cool about a HELOC is that if you do put extra money towards the loan your payment the very next month will go down accordingly. Many people think that if they make a one time larger payment towards their 30 year mortgage that their payment will go down. This is not true. Your payment stays the same until the day its paid off with a 30 year fixed loan. On a HELOC your payment will go lower even if you put $1 more towards your interest only payment. This is great because you can see you hard work and determination going to paying off your mortgage. By doing this you also leave your self an option to borrow back against the loan in the future. On a 30 year fixed you can never re-borrow witout having to go through the whole refinance process again. You will have to pay closing costs all over again. The HELOC will let you borrow up to whatever space you have available with a quick call to your bank saving you thousands of dollars in closing costs all over again.

10. The benefits of buying a home with a Home Equity Loan are lower closing costs. Lower interest rates. Greater flexibility with your monthly payments. The option to pay more towards the loan and see you monthly payment slowly go down. If you pay down some of the balance you can always borrow it back saving your self a lot of money in future closing costs. It might be hard finding this first lien home equity line of  credit. Many mortgage companies stopped doing second mortgage type loans because they are hard to sell on the secondary mortgage market. If you can find one you will probably have to put down at least a 10% down payment and have credit scores over 720. You will not have to pay any PMI (private mortgage insurance) which will also save you more money on your mortgage payment if you cannot come up with a 20% down payment.

Post from: The Top 10 Reasons

The Top 10 Reasons You Should Buy A Home With A Home Equity Line Of Credit (HELOC)

2. House poor is a relatively new term. You never really heard any terms like negative amortization mortgage, option arm loans, or adjustable rate mortgage before the refi boom. They became common place during the refi boom and were supposed to be good home loans. Unfortunately they were some of the worst loans ever. Nothing can ever beat the 30 year fixed interest rate mortgage.

3. So what is house poor? House poor is a combination of factors. The biggest factor is for people who are either first time home buyers or people looking to upgrade and move to a bigger home. When looking at all of their options they are told from their realtor and their mortgage banker to get approved for the biggest loan amount that they can. When you buy a bigger home you bring on more debt and expenses. Bigger home loan, bigger utility bills, more costs for upkeep,etc. House poor is when you make enough money to make the payments on your things like your house, cars, boats, student loans, and credit cards but cannot save any money for retirement, a trip, kids college funds, money to go out for dinner, or money to see a ball game. Everything looks good on the outside. You have a big house, nice cars, boat (maybe) but you are one missed check away from total financial disaster. If you were let go from your job tomorrow you would be screwed. Smart financial people would rather take a smaller house with a smaller mortgage payment and have money left over to play with.

4. As most of us know, realtors work on straight commission. So when you hear a realtor say “buy the bigger home” or “the one with all of the upgrades” you really need to step back. Of course they are going to say that. The difference on a $100k or $200k house is $6k more in commission for them. That is a ton of money. On the mortgage banker side, they also get paid a percentage of the loan amount. The bigger the loan amount, the bigger the commission check for them. Most of the times the mortgage banker will love to see you buy the bigger house but does not really care. What most of them do is tell you what you can be approved up to and then its up to you to work your way down from that number. The realtors for the most part are trying to find a home for you regardless of the price because they also want a sale. Do not fall for the “you’ll probably be making more money as your progress in your career” or “now you will never have to move.” Those are both ways to make you comfortable with buying a bigger house. Last time I checked homes were foreclosing all over the country and there are layoffs going on in every single industry. Might be hard trying to make payments on that larger house or even trying to sell it.

5. Going into your home search you kind of have an idea of what you can afford. Most people who are first time home buyers want to keep their first mortgage payment around what they pay for their rent payment. This is a good practice but what most home buyers forget is that all of those things like a hot water heater going out, cutting the grass, fixing the roof, and all other repairs add up. All of those things are just one call away to the apartment manager and they call a guy to come and fix it. Nothing comes out of your pocket for those expenses. When it happens in your home you have to pay for all of those out of pocket and still pay your mortgage payment. Expect to double your mortgage payment just in monthly maintenance and up keep to your house. I hope your starting to see why you do not own the home, it owns you.

6. When you buy a house that is at the maximum amount that you are approved for you have already began to handcuff yourself to this house. During the height of the refi boom, some people could get approved for mortgages with a debt to income ratio of 55% depending on their credit score. This means 55% of what is showing on your credit report is going to pay your new mortgage payment plus any car and credit card payments. This does not take into account things like car insurance, gas for your car, maintenance for your car, gas for your lawn mower, heating bills, water bills, cable bill, phone bills, etc. These are probably the largest of the bills that are not on your credit report. I bet if you added all of those up on top of your mortgage payment you will start to kick yourself because now you probably do not have anything left over for anything. You are now working for your house.

7. Here is a quick example. You and your spouse have a combined income of $125k a year. You pay $700 a month for car payments and $300 a month for pesky student loans. You do not carry any credit card debt at all and you have outstanding credit. You have saved up $30k in a savings account to be used for a down payment and have about $25k between 401k’s and retirement accounts. You currently pay $950 a month in rent. You are a first time home buyer and want to find something with a similar monthly payment. You call up your mortgage broker and tell him what your looking for. He says what you are looking for would be a home worth $125k. You can put 20% down of $25k and have $5k left over for closing costs. You decided to pay your property taxes and home owners insurance separately so you do not need to have anything for an escrow account. Your loan would be for $100k and lets say interest rates are 7% and if you were paying an escrow it would be $400 a month. Your principal and interest is $665 plus escrow of $400= $1065. This is still about a $100 more a month than what you were looking for but not bad since you get to write your taxes, insurance, and interest off on your taxes. Your debt to income ratio is calculated by adding all of your out going bills on your credit report $1065 + $700 + $300 =$2065 then dividing by your monthly income of $125k/12 months= $10,416. You get $2065/$10,416=19.8%. This is great. You will have more than enough money to save, make your payments and have enough money for repairs and upkeep.

8. But you really like that bigger, newer house the next street over. It has all of the upgrades you could ever want. You decide its the home of your dreams. Your realtor starts to smile because they know that you have sold yourself on the bigger house which means a bigger commission for them. You call your mortgage broker back up and ask them what the maximum amount you could get qualified on would be. Using the example above you could get approved for a home roughly in the $350k range. You could put your entire $30k down payment into the house and negotiate sellers concessions so they cover your closing costs. Your $30k only covers about 8% of the down payment which gives you a loan to value of 95%. You decide to only put down 5% and use the extra for closing costs. Your new monthly mortgage payment on $332,500 at 7% now includes private mortgage insurance (PMI). This will probably be another $200 or more (probably $400) a month and it is because you did not put 20% down payment. Your new payment is $2,212 + $200 (PMI) + escrow of $400 (it will probably be $700 because of the house value)= $2,812. To figure your DTI you have the $2,728 + $700 (cars) + $300 (student loans) = $3728. Your new DTI is $3728/$10416= 35%. As you can see this still sounds pretty good. I was saying how mortgage companies were approving people up to 55% DTI.

9. The thing of it is that the mortgage company has a way of making you think your approved for the loan. What they look at is your income before taxes to get you approved on a mortgage. They need all the income they can get to get you approved and this is why they do it. They need to close loans to stay in business. So those DTI numbers above really do you no good. What you need to do is take your combined family income of $125k and take out at least 15% which is probably what your income tax bracket is, i.e $18,750. Then use $125k-$18,750 = $106,250 to figure what your after tax income ratio. Now you have $106,250/12 months= $8,854. Using our first example of $2065 you get $2065/$8854=23.32% DTI. Still not bad. On the second one you get $3728/$8854=42%. Big difference. What you need to ask yourself is that if you are okay knowing that almost 40% of what you make in your family only gets you the keys to the house and your cars. This does not include operating them, just the keys. When you add up all the other costs like I did above you will see that by getting the bigger house you are probably going to have 5% of your monthly income laying around for saving and entertainment purposes.

10. Americans were very greedy during the housing boom. Homes were being sold at inflated prices. People assumed that home prices would keep going up and decided it was the time to buy bigger because they would never be able to afford the house later. The sad thing is that they could not afford the house at the time they closed on it. Underwriting guidelines were to relaxed. Everybody was getting approved on loans. Not only were they buying homes, they were taking advantage of 0% car loans and other things they did not need. I always get a kick out of the people that have a big house, nice ,cars, and lots of things they do not need and complain about HAVING to work 60-70 hours a week. I smile and wonder if they would be happier without the bigger house. They probably would but nobody will admit it. As long as we can show off to one another what we have this “house poor” phenomenon will continue.

Post from: The Top 10 Reasons

The Top 10 Reasons Why Your Mortgage Has Made You House Poor

2. Besides all of the issues to get your small business going where it really hurts self employed people the most is trying to get financing for anything. If you just quit your day job and are going to go at your small business 100% than you better be ready for some tough love from the banks.

3. Banks do not like self employed people. It is really hard to get somebody approved on any kind of financing because there are so many loopholes involved with running a small business. The biggest loop hole is the one that self employed people enjoy the most, the tax write off. Small business owners write off everything and anything that they can so they hopefully can pay less taxes at the end of the year. I do not blame them, I hate paying income taxes too and wish the income tax would be removed from our way of life. It would just make things simpler. Unfortunately, the U.S Government does not like simple and this screws everybody.

4. The biggest reason most self employed people get shot down when applying for a new mortgage is that they had been self employed for less than two years. The banks and lending institutions know that most small businesses fail in their first two to three years and want to see that you have a history of bringing money into your business to cover your expenses. If you can prove that you have been in business for over two years with a license or certificate than you pass the first test.

5. Here comes the nail in the coffin. You prove you have been in business for two years or more, now you need to prove on your income taxes (1040s) that you can qualify for the mortgage. Your mortgage banker or mortgage broker will ask to see those. Let’s assume that you run a landscaping business and the business brought in $100k in revenue each of the last two years. After paying employees salaries, rents, health care, 401k, gas, maintenance, food, and any other small bills it says that your taxable income is around $17k. The $17k number is what the mortgage company is going to use to qualify you on the loan. As we all know, $17k is not going to qualify you on anything. I hope you are married and your spouse has a job where they get a W2 every year because that is going to be the only way you can maybe get approved. I think it kind of sucks that the small business owner is doing everything they can to break away from Corporate America to live their wn life, but the tax man is still going to stick it to them one way or another.

6. So your loan application gets denied in underwriting, now what do you do? At this point you only have two other options that will hopefully get you qualified on the mortgage. You need to have a credit score over 720 and be bringing a lot of money to the table to close. I have even hear now that some mortgage companies are making self employed people escrow their property taxes and home owners insurance. I think this is a sham and the reason they do it is because it makes the home owners stay current on all of their bills. Most self employed people know that all that they are good for on paper is their credit score. Lose your high credit score rating and say good bye to getting any kind of financing in the future. It is impossible for a self employed person to get a mortgage with bad credit scores.

7. Some mortgage companies have loans designed for people that are self employed. These loans are by far the hardest to get approved on now and more than likely have been removed from all mortgage lenders list of products. If you do some searching you might be able to find one that does it but when the U.S Government stepped in and said that everybody needs to show proof of income it killed this loan. How the loan works is that you qualify based on your credit score over 720 and a loan to value under 90%. So if you were a small business owner looking to buy a home you would have to put down 10% and have great credit. All that the mortgage company would ask for is a proof of ownership from your business like a license or even a letter from your accountant saying that you have been self employed for over two years.

8. I remember that the loan we had at the time was called a “Quick And Easy” and it was common place to say that every time somebody got on the phone and said they were self employed. The rates on these loans are comparable to a conventional 30 year fixed mortgage but maybe .25% higher. It was worth it for the self employed people to take this loan because it got rid of any hassle that might come up during the underwriting process. Mortgage bankers and brokers knew ahead of time to go over what the client told them before sending those documents to an underwriter. How it works at major companies like Quicken Loans, Countrywide, Chase, and Bank Of America is that whatever you send down to the underwriter is what they have to go off of. If you send them 1040s that disqualify them with their debt to income ratio (DTI) the loan is dead and you have unhappy clients. Best bet would be to sell your clients on the fact that this is their best option because they do not have to prove anything. As long as the appraisal came back in at what the client said then those loans closed in less than two weeks.

9. Self employed people, small business owners, and anybody that makes a living earning tips like servers or bartenders better know how to save money. This is going to be the only way most of them are going to get approved on a mortgage. They need to have a lot of money saved up for a down payment and about 6 months worth of liquid assets as reserves. Mortgage companies like seeing that you have lots of money laying around to make your mortgage payments in case you come across hard times.

10. Right now it is harder than ever for self employed people to get a mortgage. The lenders a tightening up their guidelines every day. I think this is great for the economy because it takes people that should not own a home out of the picture and will teach us a great lesson about responsible lending practices. If you are self employed you should probably call up your local bank or credit union and see what they can do for you. If not, a larger mortgage lender like Countrywide, Quicken Loans, Or Chase will tell you what or if anything they can do. More than likely they will not have the loan available like I discussed above left anymore but at least they will tell you if you need to bring more money to close, pay off some bills to bring your credit score up, or something else.

Post from: The Top 10 Reasons

The Top 10 Reasons Self Employed People Can Not Get Approved On A Mortgage