Texas One Mtg – Blog

Occupancy fraud is increasingly becoming a cause for concern for mortgage lenders nationwide. In a recent report released by Fannie Mae at the end of May 2011, statistics revealed that occupancy fraud now makes up 18% of misrepresentations in originations, narrowly trailing income and liability misrepresentation, but heading credit, SSN, value, assets, and property misrepresentation.

While occupancy fraud is currently affecting the nation as a whole, some locations in the US have seen the occupancy fraud index rise at least 25% in the first quarter alone. States currently at high fraud risk include Nevada, Arizona, Florida, Hawaii, and California, and in a 2010 examination of the nationwide distribution of misrepresentation findings, Texas ranked fourth in the nation.

Occupancy fraud occurs when an individual’s intent to occupy a property is misrepresented. The borrower trying to obtain a mortgage will list within the loan application that he or she intends to occupy a property as a primary residence, but in actuality, the borrower intends to purchase the property for investment purposes, such as a rental or a flip.

Higher interest rates are normally charged for non-owner-occupied residencies because of historically high delinquency rates. Therefore, as a result of stating that the property will be used as a primary residence, the borrower will subsequently pay a lower down payment and lower interest rates than he or she would otherwise. Moreover, when occupancy fraud occurs, there is an increase in the chance that taxes on gains are not paid, resulting in the possibility of an additional fraud.

One possible reason for the recent increase in occupancy fraud is because individuals have been hit hard by the economy and are enticed by low mortgage rates and housing prices that are more affordable than in recent years. Another reason for occupancy fraud is simply because borrowers that are interested in obtaining a mortgage are required to submit lower qualifying criteria for an owner occupied property versus an investment property.

Borrowers should be aware of the additional efforts being made throughout the industry to avoid occupancy fraud. All brokers should be prepared to provide additional documentation on loans when a borrower is not closing on their departing residence prior to closing on a new property. Wholesale lenders across the industry have implemented prefunding fraud detection policies in order to continually decrease the overall occurrence of occupancy fraud.

I would ask that those of you with me in the mortgage industry, to help to get the truth and real situation in the mortgage industry today, out to the public as best we can. Speak out in every format. We won’t truly fix the mortgage industry until the general public perceives a crisis to them and that its way beyond a problem just for people that shouldn’t have got a loan in the first place or Big Banks/Wall Street. Normal people and society are being harmed.

We can respond to newspaper articles in our local area or blog comments, explaining unintended consequences in layman’s terms. We can comment on all Federal proposals or Rules with reality and stand up for what’s right. Share any comments you make with your database of customer and referral sources with links. Yes, you will get negative responses, sometimes personally. Sometimes they will easily find you directly. Some comments could upset your referral sources that could perceive you as being negative though not the true professionals. Still it needs to be done. Not just for your personal career/income or the mortgage industry, but for the country’s economic wellbeing. If we who understand the real issues and the nuances don’t speak out for what’s right, who can? Don’t wait for MBA or other trade groups to put out their responses, respond personally now & often.

We have fundamental problems now (and coming) that are going to harm normal people. Harm society much greater than the financial crisis has to date, and the average person doesn’t know it yet. Worse, the media and conventional wisdom is causing the harm to spiral on itself by feeding myths about fixes. The continuing mortgage industry woes with new negative media releases about foreclosures and MERS, doesn’t help. Consumer Group’s wish hit lists to change mortgage regulation that they’ve tried to get passed for decades, are getting passed and more. The Congress and States are racing to see who can pass more regulation to “fix” the mortgage industry before the items passed a year earlier even take effect. No one knows the consequences of this “risk layering” of new regulations at this pace. Frank-Dodd Act & the Consumer Financial Protection Bureau are the opposite of helping consumers, and we know it. Financial regulation is in the details and very hard for legislators to understand or get close to seeing unintended consequences coming. It is a perfect storm and I don’t want to sink.

Below I put forth some of my opinions on the problems today. You may agree with some of what I write, or all, but get the message out in your way with your perceptions. I realize few in media or government want to listen to mortgage industry’s warnings as the “they caused this mess in the first place” attitude is widespread. We can succeed getting the message out by getting it directly to the public ourselves.

Jobs, Housing Values, Mortgages, Financial System overall, are deeply connected. Jobs won’t come back until the financial crisis is perceived to be over. All lending has tightened, not just mortgages. The public perception on how mortgage loans are done needs to be changed though. Today we are not losing the media labeled “bad loans” of stated income, 100% LTV, bad credit 80/20 ARMs, we are losing loans most would consider easy to get loans for normal people. Sub-Prime has been gone for four years so it’s time to quit blaming it for today’s problems. We know how the difficulty of even getting the above average consumer a mortgage today has accelerated the last few years.

The tightening of FNMA/Freddie/HUD the last two years has caused the housing value drops the last two years. Look how tight investor loans have got. We may call them “guidelines” but who has seen many underwriters do any exception lately? Appraisals are a nightmare these days. How about needing an excel spreadsheet to try and track all the different MI restrictions for score, DTI, LTV, etc. Investor overlays, need I say more. Throw in seller flips, continuity of obligation, new reserve requirements and right or wrong, credit has tightened on “normal” loans substantially just the last two years.

Securitization with FNMA was the reform and savior of the 1930′s in mortgage lending. Before FNMA, money would dry up in an area and housing values would collapse and then the banks that made the mortgage loans locally went next. FNMA was created to fix this by stabilizing the availability of funds nationally. Getting rid of FNMA that operated for 70+ years because of a problem in their behavior ’03-’07 is bizarre. Just don’t let politicians push home ownership by letting FNMA buy Sub-Prime loans again like they did from New Century and others during this period. If FNMA hadn’t funded these loans, they wouldn’t have been originated. The taxpayer wouldn’t be on the hook for FNMA’s losses. Also the fact FNMA bought these Sub-Prime “MBS” let others think they must be safe and the spigot opened wide on Wall Street with a multiplying effect. FNMA should only buy qualified loans that meet traditional FNMA conventional guidelines.

MERS is a good thing for consumers but it is branded because of the foreclosure crisis. It continues the negative perception of the industry and the need to continue to “fix it”. Many in society think stopping foreclosures with technical legal maneuvers is a great victory over the villainous mortgage lenders, society will find it is a pyrrhic one. Now mortgage lenders not only have to worry about business risk of their borrower paying back the loan, but also political risk with courts/legislators not allowing them to foreclose on borrowers 1.75+ years behind on their payments. Yes, the mortgage lenders should have done the paperwork a little more carefully when they foreclose, but does that justify letting borrowers stay in their homes for free more than two years? Or declare the mortgage paid? I think the majority of society, especially those still paying their mortgages even with reduced family income in these times, would think it immoral to not foreclose these borrowers almost 2 years behind in payments. In Oregon, mortgage lenders can foreclose in 120 days. Giving someone almost two years should be enough time to try modifying or working out something with the lender. When is enough, enough? If the Judges starting to rule against MERS nationally are right in society’s eyes, then we have a huge moral hazard again and a potential financial system collapse just from this one issue.

Even the administration has seen what a mess HAMP has been, but from an opposite to reality perspective. “9 million will be helped”, not. They still push for principal reductions with playing the public with the myth “Banks got a bailout, pass it down.” without seeing the huge moral hazard this creates. And the press wonders why the financial institutions are holding on to cash? Get real. If banks have to give principal reductions en masse, there isn’t enough dollars in the banking system to cover the losses as they accelerate and everyone goes all in. House values will plummet.

Senator Merkley added in the pay cuts to loan officers to the Frank-Dodd Act. Of course they didn’t actually “cut” or “limit” loan officers pay, they just did as government always does and write the law in such a way so that was the desired effect. In restricts lending further as well. What is this but revenge or punishment from legislator’s perceptions? How is it not un-Constitutional with a 5th Amendment violation of “. . . nor be deprived of life, liberty, or property, without due process of law; . . .”? Who’s next that isn’t screaming on our behalf?

These are not all the issues, nor all the details. Many benefited from the bad loans made 03-07 and many are in great pain from foreclosures to lost jobs/indictments to closed companies. There is plenty of blame to go around to all parties from borrowers to Realtors to Loan Officers to Lenders to Wall Street to Rating Agencies to Congress to the last three Presidents. We need to fix it but let’s not let the “fix” destroy the system.

Please spread the word every chance you can.

Two quotes:

James Madison: “In another point of view, great injury results from an unstable government. The want of confidence in the public councils damps every useful undertaking, the success and profit of which may depend on a continuance of existing arrangements. What prudent merchant will hazard his fortunes in any new branch of commerce when he knows not but that his plans may be rendered unlawful before they can be executed? What farmer or manufacturer will lay himself out for the encouragement given to any particular cultivation or establishment, when he can have no assurance that his preparatory labors and advances will not render him a victim to an inconstant government? In a word, no great improvement or laudable enterprise can go forward which requires the auspices of a steady system of national policy.”

Ronald Reagan: “There are no easy answers’ but there are simple answers. We must have the courage to do what we know is morally right.”

Good News. The Senate voted unanimously to pass the Homebuyer Assistance and Improvement Act. The last minute vote on Wednesday afternoon extends the closing deadline until September 30th for people who have already qualified for the homebuyer tax credit. The original deadline was June 30th.

The National Association of Realtors has estimated that as many as 180,000 buyers who signed contracts by April 30th may have missed the June 30th closing deadline due to delayed closings.

The bill, already passed by the House on Tuesday, will now head to President Barack Obama, who is expected to sign it into law.

The GOOD news is -
Tuesday, June 29th, the House of Representatives voted 409 to 5 to delay the closing deadline to Sept. 30. This would give homebuyers three more months to close on their home purchase loans and secure up to an $8,000 federal income tax credit.

The BAD news is -
the Senate must still approve the bill and they better act fast – the deadline is currently Wednesday, June 30th. As it stands now, if you don’t close your loan by the end of today, you won’t get the tax credit.

This bill only changes the deadline for closing or finalizing your loan to qualify for the tax credit (your sales contract had to be signed by April 30th).  It doesn’t help anyone currently shopping for a home or who signed a sales contract after April 30th.

Most borrowers know that when you apply for a mortgage or other loan, the lender will pull your credit report. What you may not know is that this allows credit bureaus to sell your credit information to third party vendors for firm offers. But you have the right to “Opt-Out” and prevent the four national consumer credit reporting companies from providing your credit file information to third party vendors for Firm Offers. To “Opt-Out” you should register your information at Opt Out Prescreen. This will stop the four credit reporting companies (Equifax, Experian, Innovas, and Trans Union) from selling your name as a trigger lead for a period of five years.

Other steps you can take to prevent unwanted solicitations:

• Register your home & wireless phone numbers on the National Do Not Call list. Your phone numbers will remain on this list indefinitely.
• Register your home & wireless phone numbers on the Texas No Call list. Your phone numbers will remain on this list for a period of three (3) years.
  
• Cut down on postal junk mail by registering your name & address at DirectMail.com.

Hope this helps you control your personal information and prevent unwanted solicitations.

Surprise!
Hidden in the pages of the new 2,409 page Health Care bill is a requirement that, starting Jan. 1, 2012, all companies must issue a 1099 to any individual or corporation that they buy more than $600 in goods or services from in a tax year. Yes, if that new computer you buy costs more than $600, you will have to send a 1099 to the store you bought it from and submit a copy to the IRS. In addition, companies will have to provide their customers with their employer ID and other necessary info so they can complete the necessary 1099′s.

This should kill a lot of the trees. Where else are we going to get enough paper to comply with this requirement.

Check out this article on CNNMoney.com by Neil deMause that explains in more detail the Health care laws massive, hidden tax change.

It’s day three since the Fed stopped buying Mortgage-backed securities and current mortgage rates are continuing to rise. MBS prices, which drive mortgage rates in the opposite direction are down -10/32 this morning. The decline in MBS prices is helping to push interest rates higher.

The current VA 30-yr fixed rate is actually 1/8 lower than conventional rates at 4.875.

The cost of securing FHA financing will rise tomorrow when the upfront mortgage insurance cost, a premium charged at closing as a percentage of the loan amount, is boosted to 2.25% from 1.75%.

The benchmark 10-yr T-Note yield has now moved over 4%, which many economists predicted it’s peak for this year would be.

We expect rates to continue to rise…