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Are Student Loans Threatening the Goal of Home Ownership?

By Melissa Condensa (NMLS# 1149324), Producing Branch Manager – Guild Mortgage and Member – CCAR’s Affiliate Committee

Inventory is tight and interest rates are going up, but could student loan debt be one of the biggest threats to home ownership for millennials?  As our news feeds are filled with graduation pictures, it is worth taking a look at the amount of student loan debt that many young people are graduating with and the impact it can have on their ability to buy a home of their own.

The Wall Street Journal recently ran a story about the number of students who will graduate with over $1 million in student loan debt. The number of students with over $1 million in student loans for 2018 is estimated at 101, up from just 14 five years ago. That is clearly an extreme, but the average student graduates with $17,000 in student debt, and many are graduating with more debt than they will ever be able to pay off.

One reason people might never be able to pay off their debt is the program called Income Based Repayment. This repayment option allows people to make a small payment that is commensurate with their income. This payment is usually lower than an interest only payment, which results in a negatively amortizing loan. The lending institution wants their debt repaid, so the remaining unpaid interest is added onto the balance of the loan. While this makes the monthly debt more manageable, it also means the balance continues to grow each month.

How can student loans affect a person’s ability to purchase a home? First, there are potential buyers who will simply sit on the sidelines because they do not believe that they can afford to purchase a home due to their student loan debt. This may or may not be true, so it is always a good idea to have them meet with a loan officer to determine whether they can qualify.

There are also people who believe they can afford to buy a home, but in reality cannot because of their student loan payments. The ones most often impacted are people who are on an Income Based Repayment plan or whose loans are deferred. Most loan programs will not allow the payments on deferred student loans to be excluded from the debt to income calculation, and FHA for example, will not accept an Income Based Repayment plan for qualifying purposes. FHA requires that the lender use 1% of the outstanding loan balance, or the verified lowest fully amortizing payment to qualify the borrower to ensure the borrower can afford both their home and their student loans if they ever want to pay the student loans off.

Another major impact to someone’s ability to purchase a home are delinquent student loans. Potential homebuyers whose student loans are deferred, often allow them to become delinquent when they come out of deferment. Borrowers either do not realize, or are in denial about the fact that they need to start making payments or need to renew the deferral. Payment history makes up 30% of a credit score, so someone suddenly being 30, 60, 90 or more days delinquent on multiple student loans will see a dramatic decrease in their credit scores and limit someone’s ability to purchase a home.

There’s no arguing that a college education can set someone on the course for success in life, or that owning a home is a tremendous driver of wealth. We all need to find ways to help people manage both their debt and become homeowners. What can we do to facilitate both goals? First, let’s encourage young people not to borrow more than they absolutely need to borrow. Also, encourage everyone to do a cost benefit analysis on the degree they are earning and the amount they are going to have to spend to get it. Once they are out of school, we need to help them realize there are things they can do to ensure they can become homeowners. Rent adds up, so regardless of their situation, we should encourage young people to explore their options for home ownership.

Important Change to IRS Transcript Requirements

By Jake Perry, Fairway Independent Mortgage Corporation and Member, CCAR’s REALTOR®/Lender Committee
Have you ever been told by a lender: “We are approved, but we must have IRS Tax Transcripts before we close, this is going to delay closing”?
Good news – mortgage companies have recently changed their requirements regarding IRS transcripts. Prior to this change, many lenders would not allow a loan to close before receiving transcripts that matched the returns submitted to the lender by the borrower. This policy led to a countless number of delays and confused and dissatisfied borrowers. Borrowers could have faced a delay of days or weeks from closing on the home of their dreams.

What is this mysterious IRS tax transcript or Record of Account Transcript? It is an electronic record of a taxpayer’s IRS Tax Return. The IRS maintains records of exactly what an individual, couple, or business has filed every year. These records are kept so the government, a consumer, a CPA, or a mortgage company can go back and get a copy later.  They document the reported income to the IRS. Mortgage companies historically have required these records as one fraud prevention mechanism.

Prior to late 2017, mortgage companies were required, in most cases, to obtain transcripts that matched the returns.

The CCAR REALTOR®/Lender Committee is very excited to announce that many mortgage loans that previously required tax transcripts no longer do. Unfortunately, not all loans were excluded from the new transcript rules. For example, loans to self-employed borrowers still require transcripts. Also, borrowers must still sign the IRS form 4506T.

Here are the situations that no longer need transcripts:

  • Only hourly/salaried W2 or not employed, using documentation other than tax returns to qualify, such as Social Security or pension
  • Not employed by a family member
  • No tax returns in the file for any purpose
  • Conventional, VA, FHA

Here are situations that still require transcripts:

  • When a borrower is not required to file taxes, the lender must have a transcript that shows that there is no filed return
  • Self-employed borrowers using the income from self-employment
  • Manually underwritten loans
  • Bond
  • USDA
  • Jumbo
  • Non-arm’s length

The changes in the IRS transcript rule will remove some delays that could previously not be prevented. Will it prevent every IRS related delay? No! It’s the government, after all.

For these and other questions about lending, contact the REALTOR®/Lender Committee at RealtorLender@ccar.net.

Reminder: 2018 Annual Membership Renewal Dues

December 1, 2017 is the due date for 2018 Dues. The 2018 Annual REALTOR® dues and fees are $456. Following are the three ways to submit your payment:
  1. To view your invoice and/or pay online:   
    1. Go to www.ccar.net and select “Pay Dues” from the white “Supporting Your Success” box.
    2. Log-in with your seven-digit real estate license number. You will also need your MLS password. If you don’t remember your password, please click here.
    3. Affiliate members please use your member # and password assigned by Member Services. If you don’t know your member number or password, please contact membership@ccar.net
    4. Follow the step-by-step procedure to pay your invoice.
    5. PRINT your receipt page for your records.
    6. Auto-bill-pay credit card forms on file will be charged on December 1, 2017. NOTE: Members taking advantage of auto-bill-pay will continue to receive reminders until December 1, 2017.
  1. You may fax or email your credit card payment:
To fax in your credit card payment, complete this form: www.ccar.net/docs/membership/forms/credit_card_form.pdf
Fax the completed form to 972-491-3180, or email the completed form to membership@ccar.net
  1. You may also pay your dues by bringing or mailing a check payable to CCAR to:
Collin County Association of REALTORS®
6821 Coit Road
Plano, Texas 75024
If you pay local dues to CCAR as a Secondary Member, and you wish to make CCAR your primary association, please contact Member Services at 972-618-3800 or membership@ccar.net  Application fees for REALTORS® and Designated REALTORS® are waived if you are transferring membership from another association in Texas or joining CCAR as a Secondary Member.
December 1, 2017 is the due date for all 2018 Annual Membership Dues. For more information about your dues, please click here.
A $50 late fee will be assessed for all dues received at CCAR after December 15, 2017. 
Please pay online at www.ccar.net or remit to: CCAR – 6821 Coit Rd. – Plano, TX 75024-5417.
Collin County Association of REALTORS® is very pleased to have you as a member. It is our mission to aggressively provide the tools and resources for our members to succeed. For 17 years, CCAR has held the line on local dues costs while continuously improving the most responsive and personalized member services in the region. For personal attention to your dues or membership questions, please call us at 972-618-3800 or email membership@ccar.net.

Qualified No More: How Fall Events Wreck Havoc on Buyers’ Lending Status

By Sam Brock, Supreme Lending and Member, CCAR’s REALTOR®/Lender Committee

Your buyers have finally gotten an offer accepted on the perfect property, in the perfect neighborhood, with the perfect school district. Congratulations! They’ll be closing in September, you will have a new listing in their existing home, and you luckily have buyers ready for it as soon as it hits the market. When the contract is submitted to the lender with whom they prequalified in May, you receive an email reply simply saying, “Call me on this, ASAP please.” What could the lender need? They did the prequalification already; you know the lender does a great job, and you know the borrower looks good. What in the world has happened?

The months of August and September are wrought with opportunity for your buyers to damage their mortgage qualification status. Through what would normally be viewed as sound, financially prudent decisions, buyers can negatively affect their ability to qualify for some of today’s most widely used mortgage programs. Here’s how:

Credit Cards: Retailers flood consumers with ‘Back to School’ and ‘Labor Day Savings’ sale ads, and then pile on the discounts for opening a store credit card when they check out. For some buyers, a single inquiry can cause their FICO score to decrease below acceptable levels. For others, the new account’s monthly payment may increase their debt-to-income (DTI) ratio over what is allowed by guidelines. Even if the promotion states that there are ‘No Payments for 6 Months,’ the lender will have to ascertain what the new payment will be and add that to the list of monthly liabilities used in calculating the DTI. This can be especially detrimental with larger purchases such as appliances.

Auto loans: Traditionally, auto makers release their new models in September and October, which means dealerships are motivated to move their current inventory to make room for new models. There are often great deals to be had in August and September, and financing terms can be very attractive, but the DTI change can be a deal breaker. With many loan programs, an installment debt, such as a car loan, can be left out of the DTI calculation if there are 10 months or less remaining on the loan. If your borrower’s qualification includes a debt being omitted because of the length of time remaining, a new car loan, even with a lower payment than his or her existing car loan, will force the payment back into the DTI calculation, potentially causing that individual to exceed allowable guidelines. Again, the inquiries, especially if the buyer did what he or she should and shopped rates with multiple lenders, can cause his or her FICO score to decrease.

Student loans: Cosigning for a college-bound child’s student loans may appear relatively harmless, but changes to agency guidelines over the last few years now oblige lenders to include 1% or more of the outstanding balance in the DTI, depending on loan program. Even if the payments are deferred, lenders have to include a monthly payment in the DTI ratio. The payments that the parents and child have no intention of making until later can damage their qualification status.

Tax returns:  Many taxpayers file extensions for their personal and/or business tax returns in the spring, with the plan to file later in the year. As we all know, these extended returns must be file by October 15. If they haven’t gotten around to it yet, a loan closing in early October can easily be extended past that date. There are no exceptions available in most cases, and an unfiled return or a filed return with an outstanding balance due can cause a lender to keep a purchase from being able to fund.

The bottom line is that in the constantly evolving landscape of mortgage guidelines, everyone has to keep everyone else in the loop when making financial decisions.  Lenders, REALTORS®, and buyers have to be vigilant and communicate openly until the loan funds.  Through open, honest communication with all parties, great local lenders, like those in the CCAR REALTOR®/Lender Committee, can keep your buyer’s hopes of homeownership alive and well, no matter the season.

New Credit Reporting Changes To Impact Real Estate Closings Positively and Negatively

By Alexandra Swann, GenEquity Mortgage and Member, CCAR’s REALTOR®/Lender Committee

On July 1, the three major credit reporting agencies—Transunion, Experian, and Equifax—are going to implement some major changes to the way they report judgments and tax liens on individual credit reports. As with many new rules, this one has both positive and negative ramifications for your borrowers.

So what are these changes? In accordance with the National Consumer Assistance Plan, the three major bureaus will no longer be able to report public records—specifically civil judgments and tax liens—without verifying three pieces of consumer Personal Identifying Information (PII). These three items are:

  1. Name of consumer
  2. Address of consumer
  3. Social Security number and/or date of birth

Civil judgments and tax liens not containing all three elements must be deleted from consumer credit reports.

Additionally, the new standards require that the three agencies must update their records every 90 days with the courthouse. This means that changes to public records—such as a paid judgment—will show up sooner than they have in the past.

What does this mean for you and your clients?

The Good:

In the short term, it should mean that virtually all civil judgments (the official statement from the Consumer Data Industry Association says “a vast majority”) and about 50% of tax liens will be removed from credit files on July 1. Since public records have a negative impact on credit scores, the immediate result should be improved credit scores for borrowers who are plagued with public records.

Since the rule requires that public record reporting be updated every 90 days, we should also see paid judgments updating more quickly on credit reports. This can help scores to improve dramatically, and it can also allow more borrowers to get approved.

Going forward, John and Mary Smith should not have public records and tax liens from 10 other John and Mary Smiths reporting erroneously on their credit reports. The new requirements should eliminate some of the errors today that occur among people with common names and should help to protect the innocent from having their credit ruined just because they share a name with someone with credit problems.

The Bad:

The new law will also shield the guilty—at least for a while, and that may be very problematic. Although tax liens and civil judgments may be initially removed for a time, the attorneys and government entities can refile with proper information. That may result in a time lag between initial pre-qualification and final loan approval, where a judgment or tax lien that was initially removed has now reappeared on the credit report complete with all identifying information. Since lenders have to recheck credit as late as 48 hours before closing, this could cause serious issues for underwriting.

Also, even though the reporting requirements have changed with regard to tax liens and civil judgments, underwriting standards have not. No government agency or government-sponsored enterprise will make a loan to a consumer with an open tax lien or judgment. As part of the mortgage application process, the consumer is asked whether he or she has either tax liens or judgments against him or her. If a consumer is less than truthful, the loan originator may not know that there is a problem, since in the past, lenders have relied heavily on credit reporting information to fill in gaps in consumers’ memories, so the judgment or tax lien may not be discovered until well into the underwriting process. This could potentially kill some transactions that looked great at the point of pre-qualification.

How to Protect Yourself:

Whether you are a buyer’s agent or a listing agent, talk to the loan originator. Make sure he or she is asking the right questions. If the loan is a government loan—VA, FHA or USDA, ask if the loan originator has run the borrower information through CAIVRS—HUD’s Credit Alert System—prior to issuing a pre-qualification letter. This system catches many hidden issues that torpedo files.

Finally, recognize that the title company is going to be an increasingly important partner in the loan transaction. The title company can search for public records, liens and judgments and can help identify hidden issues.

For more information on this or any lending issues, please contact your REALTOR®/Lender Committee at realtorlender@ccar.net.

McKinney Residents Now Eligible for SETH 5 Star Texas Advantage Program

Courtesy of the City of McKinney

The City of McKinney Housing & Community Development Department has announced the city has been added to the Southeast Texas Housing Finance Corporation (SETH) 5 Star Texas Advantage Program.

The SETH 5 Star Program makes homeownership possible for families and individuals wanting to purchase a home in McKinney by providing support for down payment and closing costs. The program provides qualified buyers a grant for up to 6 percent of the total loan amount. The grant can be used toward a buyer’s down payment and closing costs. Mortgage options include 30-year fixed rate FHA, VA, USDA, and conventional financing. The program is intended to assist a broad range of families that include middle- and low-income households.

With this program, there is no first time homebuyer requirement. All borrowers on the mortgage loan must complete the SETH on-line Homebuyer Education Course. The program can be used for the purchase of single-family homes, townhomes, condominiums, and owner-occupied properties containing up to four units. Interested homebuyers can find more information about the program here.

Jonna Fernandez

Jonna Fernandez Named CCAR’s New Chief Operating Officer

Jonna Fernandez has been named CCAR’s new Chief Operating Officer (COO). Having served as Communications Director since 2007, Jonna accepted the position vacated by the retirement of former COO, Steve Haid. In her new role, Jonna will continue to apply her vast knowledge and experience in REALTOR® association leadership, as well as communication.

“Jonna is so deserving of this promotion. She is always open to accepting new challenges, and I know she will far exceed all expectations,” says Mary Leidy, Chief Executive Officer. “She is a vital team member, who we all love and respect, and she is committed to CCAR and supporting our members’ success. I’m happy to say she will continue to oversee our CCAR communications as well!”

Jonna began her career with CCAR in 2007, having previously served in public relations and communications roles for the higher education and nonprofit sectors. Under her leadership as Communications Director, CCAR has implemented key branding strategies that have made the association stand out as a source for professional and reliable real estate information in North Texas. Her media relations work has garnered CCAR and its members local and national coverage, enhancing the REALTOR® image and promoting the protection of private property rights. In addition, she has led the complete redesign of CCAR’s member and consumer websites on two separate occasions, and established the Association’s decade-long social media presence.

“I’m honored and excited by the opportunity to serve as Chief Operating Officer of this great association. CCAR has a fantastic team of talented and skilled individuals, who I am truly privileged to have the opportunity to work with each and every day,” says Fernandez. “Our association is also blessed to have one of the most dynamic membership bases around, and I look forward to continuing to serve our members and helping them succeed at all levels.”

Jonna has a bachelor’s degree in Corporate Communication from Doane University and a master’s degree in Public Relations from the University of Denver. In addition, she received the REALTOR® Association Certified Executive designation from the National Association of REALTORS® in 2015. She is also a graduate of CCAR’s Texas REALTORS® Leadership Program, Class VII.

A native Coloradoan, Jonna has resided in North Texas since 2003. Married to her husband, Dedrick, for 13 years, they have two children. Outside of work, Jonna serves as Co-Leader of her daughter’s Girl Scout troop, sits on several church committees, and volunteers for Plano ISD at the district and campus levels.

Texas House Bill 2385

Texas House Bill 2385 Addresses “Required Use”

by CCAR’s REALTOR®/Lender Committee

REALTORS® can make a difference in the current legislative session by eliminating a practice in our industry that regularly harms consumers. Texas House Bill 2385 addresses what is known to regulators as “required use.”

“Required use” is widely used by volume or national builders to require the use of their mortgage and title companies. Here is how it works:

Your client goes to a new home build site and enters into a contract to purchase land and build a home. During your client’s build, the builder of the home offers an incentive of $15,000 towards kitchen upgrades (various incentives can be used), so long as the client agrees via contract to use the choice or owned lender or title company of the home builder. Later, when it is getting close to finalizing the mortgage and title issues, the client must use the lender or title company that they signed to use through the incentive, regardless if the actual market rate at this time is much less. At this stage, the incentive becomes a penalty, as the client must pay the $15,000 if the client decides to use a better market rate from a lender or title company that is not the choice or owned lender/title company.

Although the “required use” issue is viewed as a Real Estate Settlement Procedures Act (RESPA) violation, neither the Housing and Urban Development (HUD) nor the Consumer Financial Protection Bureau (CFPB) has had the resources to redress.

There is a history of Texans asking for “required use” oversight and enforcement at the state level. Legislation in the same spirit of HB 2385 was sponsored in the past, but was withdrawn because in March 2009, HUD indicated that the Department would begin to enforce the “required use” provisions nationally. Unfortunately, a lawsuit dissuaded HUD from moving forward in enforcing the provisions (see National Association of Home Builders, et al. v. Shaun Donovan, et al., Civ. Action No. 08CV1324, United States District Court for the Eastern District of Virginia, Alexandria Division). Today, CFPB oversees the “required use” provisions. Like HUD, CFPB has not taken any action to enforce.

Numbers don’t lie: Choice or owned title and lenders capture approximately 80% of their perspective mortgage and title business. In comparison, REALTOR® in-house mortgage companies struggle to capture 15% of their perspective business because there is no incentive penalty. HB 2385 helps ensure consumers have a choice in their mortgage or title business, up until they close without a penalty.

Examples of “required use” and the consumer:

  • A buyer was offered a $22,000 discount on the price of a home for using an affiliated lender, but the interest rate offered by the lender was 0.5% higher than the market rate and the origination fee charged by the affiliated lender was higher.
  • A buyer would be required to make a higher earnest money deposit and would lose a $2,000 “closing incentive” if the buyer did not use the builder’s affiliated lender.
  • A $3,000 incentive is promised on the purchase price and $6,000 towards closing costs, if the buyer used the affiliated lender, which charged an interest rate that was 1% higher than the market rate and carried additional fees.

How can you make a difference? The REALTOR®/Lender Committee is encouraging you to contact your State Representative and Senator to ask them to support House Bill 2385.

As always, if you have a question or comment about anything related to lending, please contact us at realtorlender@ccar.net.

Chief Operating Officer, Steve Haid, Set to Retire

“I’ll miss my work family and the parade of members that come by my office every day. I’ll miss my conversations with the Team Directors who come to bounce ideas off me or just to talk over an issue they are facing. I’m pretty sure I’ll miss the fast pace that happens at CCAR every day.”

—Steve Haid

Since 2012, Steve Haid has served as CCAR’s Chief Operating Officer (COO). Prior to that, he served in various capacities for CCAR since 2004, including MLS Director, and the Director of Education, Communications, Member Services, and Information Technology. However, on March 31, Steve will say good bye to CCAR as he begins a new phase of life–retirement.

“I joined CCAR because I saw it as a great opportunity to stay in real estate, but in a management role,” he said. “I have been in management most of my adult life, except for the six-and-a-half years I sold real estate. I used to come to the Association offices periodically for committee meetings, events, and to pay dues. Every time I was there, the CEO at the time, Randy Wright, would try to get me to join the team in various capacities. Finally, when he offered me the MLS Director position, I jumped on board.”

Although Haid said the organization allowed him the opportunity to grow professionally and try new things, working with the various people he encountered was the best reward. “CCAR’s staff is amazing, and even when one person leaves, we hire another great person to join our family,” he said. “We now have around 7,500 members and Affiliates, and I have personally enjoyed working with many of them. I am blessed to have made many friendships in the real estate industry that will last far beyond my last day as an employee. Every day at CCAR is a new adventure, and it really is like being a part of a big family.”

Among his many accomplishments, Haid made the REALTOR® Store the principal source of non-dues revenue for CCAR and negotiated equipment leases and health plans that have saved the association money. “I think my most significant achievement is being a calm presence for our employees who often endure stressful situations,” he said. “All of our employees know that they can come to me with a difficult problem, and I will either talk them through it or completely take it off their hands. I believe my management style fits perfectly in the family culture that Mary Leidy, our Chief Executive Officer, has developed over the years, and it has been wonderful to be in that family.”

Upon retiring, Haid intends to travel to visit family members and become more involved at his church. He also plans to spend time woodworking and fly fishing, as well as playing music, singing, and performing in community theater.

All CCAR members are invited to join us on Tuesday, March 28 from 11:30 a.m.-1:30 p.m. in the CCAR Banquet Room, for a retirement luncheon to honor Steve’s career and wish him well on his new adventure. Please click here to RSVP for the luncheon no later than March 24.