Facebook
YouTube
LinkedIn
You are here: Home » 2011 » June

MORE CLARITY ON MODS

In the past, your lender could turn you down for a loan mod, and didn’t have to give you
a reason why. A recent new law will change that for some homeowners. If you applied
for a Home Affordable Modification Program (HAMP) loan mod and are turned down,
your lender must now send you a letter detailing why you were rejected. There are up to
33 “data points” that they can use to make their determination. Not all loans will covered
by this requirement, so it’s not guaranteed that you’ll get a letter.

The data points look at your home’s value, your debt ratio, income, etc. They will
provide the information for the items that lead to your denial. If you think the lender has
made a mistake in any of these figures, you have 30 days to appeal and provide them
what you believe is the correct information.

They will also look at something called the Net Present Value test (NPV). This can be a
complicated calculation, but the basic summary is the lender wants to know if they’ll lose
less money be allowing a loan mod, or should they go ahead and just foreclose? There
are 51 recommended input values for the NPV test, so it is fairly extensive. They look at
the cost of the modification vs. the cost of foreclosure and the chance that the homeowner
will default on the loan mod if it is approved. The bottom line is that if the NPV comes
out positive for the loan mod, the lender is supposed to offer a loan mod.

Since this is a fairly new development, I haven’t seen any of these letters in person yet. If
you happen to get one, I’d love to see it. I’ll be happy to review it with you to see if they
had your information correct and if you can appeal.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE
(6683). To search the MLS for free and view virtual tours of homes for sale, go to:
www.SharpHomesOnline.com. Sharp Realty

FREE LOAN MOD VS. SHORT SALE ANALYSIS

Are you having trouble making your payments? Are you not sure if you should even try a
loan mod or just give up and try a short sale? Are you confused as to what they even look
at to decide if they approve a loan mod or short sale? (Here’s a hint: It’s NOT the same
things!) Are you ready to just throw in the towel and “walk away”?

I can help… Over the last few years I’ve met with hundreds of local homeowners who
had the exact same questions. I have developed a spreadsheet that will analyze your
mortgage situation and compare it to your income. The end result is a pretty good guess
as to whether your bank will approve a loan mod and/or a short sale. If you’ve already
received a loan mod offer from your bank, it will also help you determine if you should
accept it, or reject it as “unaffordable” for you. If you haven’t received a loan mod offer,
it will generate a target number for what IS an affordable payment for your situatoin.
It will also help you determine if your monthly cash flow will improve by becoming a
renter or not (the answer may surprise you!).

For a free, no-obligation analysis of your situation, call me at (925) 998.9712, or send
an email at Brian@SharpHomesOnline.com. I will give you a list of the info I need,
and then I can send the analysis back to you. If you have questions on the results, I’ll be
happy to discuss them with you, but there is no obligation on your part.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE
(6683). To search the MLS for free and view virtual tours of homes for sale, go to:
www.SharpHomesOnline.com. Sharp Realty

PERMANENT LOAN MOD?

I’ve offered this in the past, but I wanted to remind you that I’m willing to review any
loan mod offer you get from your bank. Sometimes it can be quite challenging to wade
through all the fine print to see REALLY what the new terms are.

One of the most important items I look for is whether this is a temporary or permanent
modification. Based on the fairly small sample size of the modifications that I have
reviewed, I’m seeing a fairly even split among three different types of modifications.
About a third are permanent modifications, where they drop your rate and it stays there
until the loan is paid off. Another third are short-term modifications where they drop the
rate for a year or two, but then after that period it goes back up to whatever terms you are
under now. And the last third are where the rate is dropped for a few years, then it stair-
steps up a bit every year after that for maybe 2-5 years, but eventually levels off at a rate
that’s lower than your current rate.

My normal advice to people is to only accept a permanent modification unless your
income has only temporarily been reduced, and you are confident your income will rise
once the payment rises again. I’ve had some clients report back that the lender refuses to
make their modification permanent. When I ask the client to push back on that point, the
lenders often say that they are forbidden to make permanent modifications. My clients
ask me if this is true, and in some circumstances it actually IS true. If the loan has been
sold off into a bond issue on Wall Street, there very well may be legal restrictions against
making permanent modifications. The investors of the bond have been guaranteed certain
rates of return, so the terms literally CANNOT be changed, even though that may lead to
a foreclosure with even bigger losses. Many of the people that put these bonds together
didn’t even consider that home values could drop as much as they have, so now their
hands are tied in regards to making permanent modifications.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE
(6683). To search the MLS for free and view virtual tours of homes for sale, go to:
www.SharpHomesOnline.com. Sharp Realty

HOW TO CALCULATE DEBT RATIO

I’ve met with literally hundreds of distressed homeowners over the past few years. My #1 goal is to keep them in their home, if possible (and if it makes sense). The first thing I USED to ask them is if they can afford their payment. Many times they will shrug their shoulders and say, “Well, yeah, kind of.” I’ve found that most people have never really calculated their own debt ratio, so they really don’t know if they can afford it or not.
Your debt ratio is your housing expense divided by your monthly gross income. The government and most lenders use 31% as a guideline. 31% and below is considered “affordable.” Sounds simple enough, but let’s define what goes into that calculation. Your housing expense is your first mortgage payment, plus property taxes, homeowner’s insurance, plus any payments for mortgage insurance, HOA and then any 2nd or 3rd mortgages. (Do NOT include any house maintenance fees like utilities, landscaping, etc). Then for your gross income, put down all household income, and use the gross number (before taxes). If you are receiving tax-free income of some kind, then you have to “gross it up” so you are using the number as if you were paying taxes on it. For example, if you get $2,000, but no taxes are taken out, then divide by, say, .7 (we are adding back in what would have come out if taxes of 30% were being withheld). That would be $2,857.
Where this gets complicated is when you have an adjustable mortgage (ARM), negative-amortization, or interest-only loan (or any combination of these). For this situation I usually calculate several debt ratios. First, the debt ratio on your minimum payment, then what it would be after the ARM adjusts, and then I factor in making the payment a full-amortizing payment (one that reduces your principal balance each month). Or just call or email me and I can do this for you and email you back a printout.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

DEBT RATIOS PART II

Last week I told you how to calculate your own debt ratio (or you can send your info
to me and I’ll calculate it for you and send you back a worksheet). I explained that
where this gets tricky is when you have an interest-only and/or ARM loan because your
minimum payment may or may not even cover all the interest due or any principal. This
week I’ll tell you how three of the biggest lenders handle this situation when they are
considering you for a loan modification or short sale.

Here is a quote from one Chase loan mod negotiator, “When we calculate the proposed
ratio, it begins with a 30 year amortization on outstanding principal at current rate.
Compared to validated income, we then start backing off the interest rate down in ¼%
increments. On a HAMP situation if we get to 2% full PITI and still are over the 31%
housing ratio, then we start extending the amortization in 5 year increments up to a
maximum of 40 years. If we still aren’t at the 31% but within sight, we may then set
aside into a “special forbearance” enough principal to make the 31% payment to income
including PITI + HOA.”

For Bank of America, they weren’t as forthcoming with details, but a fairly highly-placed
executive told me that if someone has an interest-only loan, BofA will calculate their
payment based on it being principal-reducing for the purposes of calculating their debt
ratio.

For Wells Fargo, I couldn’t get a direct answer to my question, so I can’t give you their
official policy. But I’ve had MANY clients with interest-only and/or ARM loans with
Wells where they are using the minimum payment and saying, “You can afford to make
the minimum payment, so we don’t need to modify your loan.” In my mind, an interest-
only (or below-market ARM) is not the “real” payment, so I wish they would look at a
principal-reducing payment like Chase and BofA does. (If anyone from Wells wants to
correct me on this, I’m all ears and I will post your response if it needs clarification.)

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE
(6683). To search the MLS for free and view virtual tours of homes for sale, go to:
www.SharpHomesOnline.com. Sharp Realty

CHECK YOUR NPV

I’ve had many local homeowners call me recently to say that after months of applying
for a loan mod, their lender just turned them down, and the reason they were given
was “negative NPV.” Leave it to our lending industry to make things even MORE
confusing, right when they should be being the most clear and transparent!

“NPV” stands for “Net Present Value” and it is the key number that your lender may look
at when considering whether or not to approve your loan mod request or short sale. The
short definition of NPV is the lender is trying to figure out if they’ll lose more money by
offering you a loan mod, short sale, or doing nothing and letting it foreclose. If your NPV
is negative, it means your lender thinks they’ll lose MORE money through a loan mod or
short sale than with a foreclosure. There are 33 different data points that your lender will
consider to come up with your NPV. Some of the points are value of the home, amount
you owe, your income, when the loan was originated, your payment, your current credit
score, etc. They take all that info, crunch their numbers, and then if the NPV is negative,
you are declined, if it is positive, then they will consider you for a loan mod or short sale.

The good news is that the government recently came out with a website where you can
check your own NPV. It is www.CheckMyNpv.com. The bad news is that the average
person is going to have a pretty difficult time coming up with all the data points they are
asking for, and if you don’t fill it out 100% completely, it won’t give you the number.
However, if you were recently turned down for a loan mod and they sent you the NPV
form, then you are in luck because it will have the data they used on it. You can take their
form, then go to the website and try it yourself if you think some of their numbers aren’t
correct to see if it would result in a different NPV calculation. Or call me and we can sit
together in my office and input the numbers together.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE
(6683). To search the MLS for free and view virtual tours of homes for sale, go to:
www.SharpHomesOnline.com. Sharp Realty

LOAN LIMITS CHANGING

I’ve had some nervous people ask me if I think “what’s going to happen in October” is
going to tank the market. Some of them don’t know exactly what’s going to happen in
October, they’ve just heard there are BIG changes coming to loans on October 1. What
I assume they are worried about is that Jumbo loan limits are going to decrease in high-
cost areas from $729,750 to $625,500.

This means that Fannie Mae and Freddie Mac (two quasi-government agencies who are
now basically wards of the Federal Government) will only back loans up to $625,500.
So someone who wants to buy a home for $1,000,000 will have to come up with a down
payment of $374,500 instead of $270,250, or pay a slightly higher interest rate to get a
non-government-backed loan. To this, I say, “Big deal…” Median home prices in our area
are in the $250-300K range. Not a whole lot of $1,000,000 home sales going on around
here anymore.

Jumbo loan limits up to $729,750 are a recent phenomenon, anyways. They only got that
high in 2008 when the entire mortgage market was melting down and the government
was throwing everything including the kitchen sink at the problem. The Jumbo limit
before then was $417,000 and got raised to $625,000 and then $729,750, but the
$729,750 was just a temporary increase. Loans over $417,000 only make up less than 7%
of all loans nationally, and I would guess that percentage is even smaller for our area.

So while this will make loans over $625,000 slightly more expensive or harder to get
come October 1, it’s possible that private lenders may step up to the plate to make these
loans. And even if they don’t, I don’t think it will have much of an impact on Eastern
Contra Costa County either way.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE
(6683). To search the MLS for free and view virtual tours of homes for sale, go to:
www.SharpHomesOnline.com. Sharp Realty

LOAN LIMITS CHANGING

I’ve had some nervous people ask me if I think “what’s going to happen in October” is going to tank the market. Some of them don’t know exactly what’s going to happen in October, they’ve just heard there are BIG changes coming to loans on October 1. What I assume they are worried about is that Jumbo loan limits are going to decrease in high-cost areas from $729,750 to $625,500.

This means that Fannie Mae and Freddie Mac (two quasi-government agencies who are now basically wards of the Federal Government) will only back loans up to $625,500. So someone who wants to buy a home for $1,000,000 will have to come up with a down payment of $374,500 instead of $270,250, or pay a slightly higher interest rate to get a non-government-backed loan. To this, I say, “Big deal…” Median home prices in our area are in the $250-300K range. Not a whole lot of $1,000,000 home sales going on around here anymore.

Jumbo loan limits up to $729,750 are a recent phenomenon, anyways. They only got that high in 2008 when the entire mortgage market was melting down and the government was throwing everything including the kitchen sink at the problem. The Jumbo limit before then was $417,000 and got raised to $625,000 and then $729,750, but the $729,750 was just a temporary increase. Loans over $417,000 only make up less than 7% of all loans nationally, and I would guess that percentage is even smaller for our area.

So while this will make loans over $625,000 slightly more expensive or harder to get come October 1, it’s possible that private lenders may step up to the plate to make these loans. And even if they don’t, I don’t think it will have much of an impact on Eastern Contra Costa County either way.

Return to top of page

Contact Us

  • Sharp Realty
  • 320 Fairview Ave.
  • Brentwood CA 94513
  • P: 925.240.6683
  • F: 925.524.2302
  • E: info@SharpHomesOnline.com
  • DRE# 01858431