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How to Close Smoothly During Peak Purchase Season

By Jake Perry (NMLS #231682), Fairway Independent Mortgage Corporation and Member, CCAR’s REALTOR®/Lender Committee

The time between May and September is typically the busiest time of year for Americans buying and selling homes. Some mortgage companies experience delays in underwriting that can lead to delays in loans closing. Even the best mortgage companies must closely manage and adhere to the timelines to avoid these types of delays.

How can REALTORS® help their lending partners ensure that timelines are met, delays are avoided, and ultimately customers are happy? The REALTOR®/Lender Committee has a few useful tips for CCAR REALTOR® members.

We recommend qualifying your borrowers as early as possible in the process. Sometimes, clients believe they can wait until they are actually ready to start making offers. However, we do not recommend waiting to qualify. Too often what the borrower believes about their ability to qualify, and the reality are very different. For this reason, we recommend having borrowers qualify sooner rather than later. A good rule of thumb is 120 days from the time a borrower is ready to go search is when they should speak to a lender and qualify. Credit reports are usually good for approximately 90-120 days. This time-frame allows lenders and borrowers to plan for delays.

REALTORS® should encourage borrowers to send their paperwork quickly. Mortgage companies are using technology to reduce paperwork and times, but both lenders and REALTORS® should prepare borrowers for documents related to income, assets, and credit to be sent to mortgage companies right away. Many lenders use various technologies to securely receive these types of documents. Borrowers need to be mentally prepared to send documents completely and urgently.

The property inspection and appraisal are important parts of the home purchase process. Many REALTORS® consider it a best practice to order inspection and appraisal at time of contract execution. Sometimes, REALTORS® prefer to receive the inspection before appraisal is ordered, as it can be a factor in repair negotiations. All parties should be aware that a delayed appraisal could lead to a delay in closing. In the summer months, the average turnaround time for appraisals is 6-8 days. In addition, the purchase contract has a box for CSS access to be checked. This box allows the appraiser to schedule the appraisal viewing.

The timelines required by TRID are more important than ever. Most mortgage companies require a loan approval prior to the Closing Disclosure issued, while some lenders require Clear to Close/Final Approval. Other lenders have other specific conditions beyond approval and prior to CTC that must be met. All lenders must send a Closing Disclosure to be signed three days prior to loan consummation. Business days (including Saturdays) count towards the three-day requirement. Regardless of the various requirements by lenders, you must work with a lender that has a good system in place to prohibit delays.

Finally, communication and preparation are imperative for a successful transaction for both REALTORS® and lenders. If problems arise, which they often do, REALTORS® and lenders should communicate with each other. For example, if delays occur due to repair negotiation, the REALTOR® must be prepared and open to a delay with the closing date. Many transaction milestones cannot occur until all parties have agreed to move forward, so there is a resulting impact to lenders. Although repair negotiations do not always lead to closing delays, it is often the case that REALTORS® need to communicate the possibility of a delay.

For these and other questions about lending, contact CCAR’s REALTOR®/Lender Committee at RealtorLender@ccar.net. And, if you’d like to join us, the REALTOR®/Lender Committee meets the second Tuesday of every month after the Plano Business Development Meeting (approximately 1 p.m.) in the CCAR Banquet Room.

What is a Residential Service Contract (Home Warranty)?

By Howard Zimmerman, Dallas Area Rep – Choice Home Warranty and Member – CCAR’s Affiliate Committee

What is a Residential Service Contract (home warranty)?
A Residential Service Contract (RSC) is a service policy that offers to repair or replace the major mechanical systems and appliances in a home. A seller can protect their home with a policy while their house is listed and a contract can also be offered with the sale of the home to the buyer.

What are RSC’s designed to do?
Their function is to reduce the policyholders’ repair and/or replacement costs of failed, covered mechanical items in their home.

How do RSC’s work?
Homeowners can either call the warranty company to place a claim or go online to do so when a problem occurs. The company will then notify a licensed and insured third-party contractor
to contact the homeowner to set an appointment.

After the contractor/technician diagnoses the cause of the failure, he/she will contact the warranty claims department with his/her findings. The claims department will then apply the technician’s diagnosis over the contract terms to determine if the claim will be declined or approved. When the claim is approved, the chosen level of coverage will determine the non-covered and/or out-of-pocket expense for the claim. As you can see, the technician’s diagnosis is a critical part of the claims process.

As a whole, RSC’s do not provide coverage for:

  • Commercial properties, residential properties converted into a business, or commercial grade appliances.
  • Items that are not stated in the contract as a covered item.
  • Upgrade of existing covered items (i.e. changing from a 40 gallon to a 50 gallon water heater).
  • Items that do not have a mechanical failure.
  • Items that fail due to a manufacturer defect.
  • Design flaws and structural issues.
  • HVAC systems that are undersized for the home.
  • Reimbursement to a homeowner for services performed without approval.
  • Known, pre-existing conditions.

Why should REALTORS® tell sellers and buyers about RSC’s?
Disclosure is one of the fiduciary duties of a licensed Real Estate professional. REALTORS® are required to protect their clients from foreseeable risks by recommending they seek expert assistance for services that are outside the scope of the REALTOR®’s expertise. Making your clients aware that home warranty plans are available takes care of many foreseeable and unforeseeable risks.

Disclosure about RSC’s greatly reduces the risk that Agents or their Broker will be held liable for subsequent mechanical failures, should the client decide not to obtain a warranty.

“Do’s and Don’ts” of RSC’s:

  • Do recommend that your client have a licensed HVAC company perform a thorough inspection of the a/c system during the home inspection.
  • Don’t solely rely on the home inspection. Since most inspectors are not licensed HVAC technicians, plumbers, or electricians they are limited by law to performing visual inspections.
  • Do call for quotes on homes that are greater than five thousand square feet.
  • Don’t assume the other agent will order the policy.
  • Do give your client a copy of the contract and tell them to read it. It has exclusions and limits of liability like any other contract.
  • Do have your client check the “decline coverage” box if they choose not to purchase a residential service contract and keep this form in your file.
  • Do show and highlight the company’s phone number and website for placing claims.
  • Do tell your clients about the many benefits of residential service contracts.

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.

TREC Form 49.0: What You and Your Buyer Need to Know

By Alexandra Swann, Vice-Chair – CCAR’s REALTOR®/Lender Committee

On February 12, TREC introduced a new form to deal with the issue of buyer’s right to terminate—or ability to waive the right to terminate—when an appraisal comes in low. In rapidly appreciating markets, such as ours, appraisals can’t always keep up with housing prices. In multiple-offer situations, buyers often try to distinguish themselves by agreeing to pay over the appraised value of the house. For a while, we saw a lot of contracts with verbiage in the Special Provisions section of the contract essentially stating that the buyer agreed to pay a certain dollar amount over the appraised value. TREC has disallowed that practice, but to deal with the issue they have introduced TREC form 49.0 which clearly lays out the buyer’s rights and options for termination due to a low appraisal.

First, the new form is to be used in connection with the Third-Party Financing Addendum Paragraph B2. This is important because loan terms change when property appraisals come in low because the mortgage loan is based on the LESSER of the sales price or the appraisal. Form 49.0 amends the right to terminate provided in B2 as follows.

Option 1:
The borrower’s right to terminate, if the property does not appraise and the lender reduces the loan amount, is completely waived. For example, if the buyer signs a contract for a sales price of $300,000 and the house appraises for only $280,000, the buyer is still committed to purchase the home for $300,000. If the original loan were based off 80% loan-to-value, the original minimum down payment would have been 20% of $300,000 for a total of $60,000. However, since the appraisal is based on the LESSER of the appraised value or the sales price, the buyer would now have a minimum down payment of 20% of the $280,000 (appraised value) which equals $56,000. In addition, the buyer would need to bring the $20,000 difference to closing, making the total minimum down payment $76,000.

Option 2:
The borrower’s right to terminate, if the property does not appraise and the lender reduces the loan amount, is partially waived. The buyer can designate an amount that he/she will accept for the appraised value and if the appraisal comes in for that amount or higher, the right to terminate, based on the appraisal, is waived. For example, the buyer signs a contract for $300,000, but in Option 2 he/she agrees to waive the right to terminate if the house appraises for $290,000 or above. If the home appraises for less than $290,000 he/she can terminate. If the buyer were applying for 80% loan-to-value financing, based off a sales price of $300,000, the minimum down payment would be $60,000. If the home appraised for $290,000 the buyer would need to put down $58,000 (20% of the appraised value) plus the $10,000 shortage in value. The buyer could also opt to change the financing to say 10% down. In that case the minimum down payment would be $29,000 (10% of appraised value). The buyer would still need to bring the additional $10,000 to closing so the total minimum down payment now becomes $39,000.

Option 3:
The borrower is granted the right to terminate if the appraisal comes in below sales price. This doesn’t require the buyer to terminate, but allows the buyer to terminate or negotiate. The buyer could still pay the difference, seller could lower the sales price, or they could agree to meet somewhere in between.

For many buyers who are selling a home and moving up, paying an additional $20,000 or $30,000 to secure the right home may be feasible and well worth the extra cash out of pocket. For other buyers, especially first-time buyers, even an extra $2,000 or $3,000 may be a deal-killer. The secret to successfully navigating these various options is going to include candid discussions about financing with your buyer’s lender.

First, buyers need to understand that they may have to bring in extra cash, should the home not appraise for the sales price. They need to be prepared to provide their loan originator with proof of all cash assets. Realtors will need to be prepared to ask the buyer’s loan originator if he/she can afford to bring in extra cash to closing and if so, how much.

Before committing a buyer to an appraised value in Option 2, the REALTOR® will need to make sure that the buyer has a fee worksheet from the loan originator detailing how much cash is needed to close if the appraisal comes in low. Seeing total figures in writing, including closing costs, helps buyers understand more clearly what is required of them. A REALTOR® will also want to make sure that the loan originator has verified enough cash to close from assets that are available and liquid. This is especially critical if the buyer is purchasing an investment property. Investors will be required to document their funds needed for closing and, in addition, will need to document reserve funds. Any changes to the sales price or appraised value may require recalculation of the reserves to make sure that the buyer can still qualify.

Second, buyers need to understand ALL of their financing options. A buyer who is determined to put 20% down to avoid MI may need to rethink that strategy. To win a bid on the right house in a hot neighborhood, he/she may have to be willing to pay more than the appraised value, which simply may not leave enough cash for a 20% down payment. This is not terrible news; MI rates for well-qualified conventional buyers with high credit scores are extremely affordable now. The buyer needs to work with the loan originator to review options with MI and a lower down payment. With a little education, the buyer may find that an extra $50 a month in MI is all it takes to make the right home, in the right neighborhood, a reality.

The Texas Association of REALTOR® has an excellent “online townhall” webinar prepared by an attorney to help you understand and complete FORM 49.0 and all the new TREC forms. You can access it here.

For questions about how Option 2 of Form 49.0 affects your buyer’s loan, and for all other lending questions, email CCAR’s REALTOR®/Lender Committee at realtor-lender@ccar.net.

What You Need to Know: JP Courts and Evictions

By Sunny Mattern, Property Manager – CCAR’s Property Management Committee

Did you know that each JP court could have different rules and guidelines when it comes to evictions? Do you know what precinct your rental property is in? Collin County has five precincts: Precinct 1 covers the McKinney, Melissa, and Anna areas; Precinct 2 covers Princeton, Blue Ridge, and Farmersville; Precinct 3 has two courts covering Allen, Lucas, Plano, and Richardson; and Precinct 4 covers Frisco, Prosper, and Celina. You can look at a precinct map at www.collincountytx.gov.

Collin County now accepts civil filing electronically. In fact, at the Justice of the Peace in McKinney, if you intend to file in person, they provide a computer kiosk so you can then file electronically. The surrounding counties have not all adapted to filing electronically and may require some paperwork in person. Dallas County has five precincts, with five additional sub-precincts; please find the precinct map at www.dallascounty.org. Denton County has six precincts; the full map is available at www.dentoncounty.com. Tarrant County has eight precincts and the map can be found at www.tarrantcounty.com.

The fees to file eviction suits can also vary throughout the counties. Typically, the County Clerk’s filing fee is about $46 and the constable fee to serve the defendant court appearance notice is about $75 per person. If you have listed all parties to the lease on the Notice to Vacate, then you must pay the constable to serve that number of people with the court date. If you list the primary resident and “all occupants,” you can keep the filing/service fee to a minimum.

Some of the required documents for filing an eviction suit must be notarized. Such document is the Military Affidavit. The plaintiff in the suit must have knowledge of the defendant(s) military status. In addition, some County Clerks may want to see the written lease agreement and the Notice to Vacate that was given to the defendant(s) prior to filing.

After an eviction suit has been awarded to the plaintiff, the tenant has five days to appeal the judgement and/or move out. If the tenant does not abide by the court ruling, the landlord can then file for a Writ of Possession. This filing usually costs another $165 and allows the county sheriff/deputy to enforce the physical moving out of the tenants’ belongings. A good property manager will have current knowledge of the specific procedures and can help minimize the costs of getting a bad tenant out of your property.

Mortgage Abbreviations and Acronyms

By Scott Drescher (NMLS #168878), Highlands Residential Mortgage, LLC and Member, CCAR’s REALTOR®/Lender Committee

The mortgage industry is rife with abbreviations and acronyms. Some are obvious, but others are a little more esoteric. The REALTOR®/Lender Committee thought you might benefit from a short list of the most common or noteworthy. When the abbreviation is an acronym, we provide pronunciation in parentheses; when it is not an acronym, it will have no parenthetical following the abbreviation.

App:  Application – the form that an applicant uses to apply for a mortgage.

APR: Annual Percentage Rate – the total cost of the credit, expressed as a yearly rate. This is not the interest rate because the interest rate doesn’t include any other costs of obtaining the credit, which may include, for example PMI (see below) or MIP (see below).

ARM (arm): Adjustable Rate Mortgage – a mortgage that has a feature that allows the interest rate to rise or fall. It is not a “rising rate mortgage” as some people mistakenly believe. The rate is determined by adding a margin to an index.

CLTV: Combined-Loan-to-Value – a ratio of all of the mortgages on a property to the value of the property, which by definition is the lower of the sale price or actual appraised value.

CD:  Closing Disclosure – the form required by the government that must show the final figures for all of the terms of the purchase and mortgage.

CTC:  Clear to Close – three words everyone likes to hear that indicate full approval, the file has overcome all obstacles and the lender is ready to prepare closing documents.

DTI: Debt to Income (Ratio) – the ratio of a borrower’s monthly housing payment (PITI below and association dues) and minimum payment on all debt and child support/alimony to his gross income.

DU:  Desktop Underwriter – the automated underwriting engine provided to lenders by Fannie Mae for underwriting Fannie Mae-eligible mortgages. DU is also used for underwriting FHA mortgages.

FHA: Federal Housing Administration – the department of the federal Department of Housing and Urban Development that oversees the U.S. housing market. FHA insures the entire mortgage made for loans sold to Ginnie Mae (see GNMA below) by its approved lenders.

FHLMC (fred-ee mack):  Federal Home Loan Mortgage Corporation – Freddie Mac is the other of the two conventional enterprises created by Congress to increase access to mortgages.

FNMA (fan-ee may): Federal National Mortgage Association – Fannie Mae is one of two conventional enterprises created by Congress to increase access to mortgages.

FTHB: First Time Home Buyer – a home purchaser that has not had an ownership interest in a residence within the prior three years.

GFE: Good Faith Estimate – used to be the document that a lender was required to send an applicant within 3 business days of an application that showed the closing costs, prepaid items and rate lock terms. It has been replaced by the LE (see below).  One should never suggest a buyer get a GFE anymore.

GNMA (jin-ee may): Government National Mortgage Association – Ginnie Mae is the agency that actually guarantees the federally guaranteed mortgages insured or guaranteed to lenders:  VA, FHA and USDA (see below).

GSE:  Government Sponsored Enterprise – created by Congress to increase access to mortgages.

HELOC (hee-lok): Home Equity Line of Credit – a loan against a primary residence that generally is used to take cash out, although it could replace existing home debt. It is designed to borrow and pay back from time to time, like a credit card.

LIBOR (ly-bor): London Interbank Offered Rate – the most commonly used index for ARMs.

LE:  Loan Estimate – the replacement for both the GFE and Truth-in-Lending forms, requiring lenders disclose within three days of receiving a formal loan application the closing costs, prepaids, the interest rate and other information.

LP:  Loan Prospector – the automated underwriting engine developed by Freddie Mac for underwriting Freddie Mac eligible mortgages.  LP is also used for underwriting FHA mortgages.

MBS: Mortgage Backed Securities. These are the investment instruments that are bundled by Fannie Mae, Freddie Mac, and Ginnie Mae for sale on Wall Street.

LO: Loan Officer – the individual who takes the actual application for a mortgage. An LO may be a licensed mortgage banker or broker, or he can work for a depository institution, be registered but not be required to be licensed.

LPMI: Lender Paid Mortgage Insurance – private mortgage insurance paid by the lender instead of the borrower. This is accomplished by the lender increasing the mortgage interest rate.

LTV: Loan-to-Value – the ratio expressed as a percentage of the mortgage to the value, which is the lower of the purchase price or the appraised value (when purchasing) or simply the appraised value (when refinancing).

MIP: Mortgage Insurance Premium – fully insures against loss for a lender, similar to PMI (see below) but is required for FHA mortgages. With FHA mortgages there is an upfront MIP payment, that is usually financed, as well as a monthly payment.

N/O/O: Non-Owner Occupied – signifies that the mortgagor uses the mortgage for an investment property.

O/O: Owner Occupied – signifies that the mortgagor uses the mortgage for a primary residence.

PITI (pit-ee): Principal Interest Taxes and Insurance – the combined total of all of the housing expenses listed, paid on a monthly basis, including mortgage insurance.  When not clearly stated otherwise, PITI includes any homeowners association fees.

PMI: Private Mortgage Insurance – partially insures against loss for a lender, charged on conforming mortgages that are over 80% LTV (see above).

RESPA (res-pah): Real Estate Settlement Practices Act – the federal law that regulates the sale and purchase of residential real estate.

TIP (tip): Total Interest Percentage – the amount of all the interest if paid in full over the term of the mortgage without prepayment at any time divided by the original loan amount.

TLTV: Total Loan-to-Value – another name for CLTV (see above).

TRID (trid):  TILA/RESPA Integrated Disclosures – the rules that govern the disclosure of the LE and CD.

USDA RHS: United States Department of Agriculture/Rural Housing Services – a program for guaranteeing rural mortgages, guaranteed by the federal government.

VA: Veterans Administration – guarantees the top portion of the mortgage made for loans sold to Ginnie Mae (GNMA) by its approved lenders. However, VA mortgages are only available to members of the military, honorably discharged veterans of military service and the unremarried spouse of a member of the military who passed away as a result of service in the military.

VOD: Verification of Deposit – a form that sent to a bank/credit union/savings bank/investment company to verify the amount of funds in accounts and to provide an average balance over a specified, usually 60-day, period.

VOE: Verification of Employment – a form that is sent to an employer to verify income in all its forms (gross earnings, bonuses, commissions, etc.), hours worked, continuance expected and more. Many times a VOE will be done followed up verbally by the lender just prior to closing.

VOM: Verification of Mortgage – a form that is sent to a lender to verify the amount and timeliness of the payment of an existing mortgage. This is normally used when a mortgage is not being reported properly and for privately held mortgages that don’t report to the bureaus.

VOR: Verification of Rent—a form that is sent to an applicant’s landlord to verify the amount and timeliness of the payment of rent.

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

Property Management and the Code of Ethics

By Sunny Mattern, Property Manager – CCAR’s Property Management Committee

Did you know that if you offer to manage property for a fee and don’t know anything about property management, you might be in violation of our Code of Ethics? You may already have a relationship with the investor or homeowner who wants to lease their property, but do you have the property management expertise to accept such a relationship? Does your Broker know and allow you to enter into property management contracts?

Fiduciary duty is a major part of a Property Manager’s job when dealing with security deposits, collection of rents, and offering placement fees. TREC and the Texas Property Code have specifically lined-out rules and regulations on how to deal with these monies. The number one disciplinary action taken against real estate agents is in regard to disputes over misappropriation of funds.

Integrity and competency are just as important. The rules and articles of the Property Code are always being amended and improved to better serve the public. If you, or your Broker, do not know the most current regulations, you could both be in trouble. TREC’s Broker-Lawyer Committee has just revised the most commonly used forms in leasing and property management. Do you know what revisions were made?

Property Management is a specialized section of real estate. Although your real estate license allows you to provide these services, you may need to check with your Broker before accepting such relationships. Many brokerages do not allow their sales agents to provide property management services. Any agent new to this type of transaction should do their due diligence and research before they begin. In addition, CCAR’s Property Management Committee is available to any REALTOR® to answer questions and provide expertise.

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.

2017 in Review

Gifts That Keep On Giving, Version 2017

By Scott Drescher, Highlands Residential Mortgage and 2017 Chairman, CCAR’s REALTOR®/Lender Committee

2017 was a positive year, despite individual struggles that some of us may have endured. The CCAR REALTOR®/Lender Committee can point to improvements in the mortgage landscape practically every year, even those that were marred by over-regulation after the market crash. However, this year we received gifts, from Fannie Mae in particular, that will keep on giving throughout 2018, as well as some improvements in other parts of the industry. Setbacks? Sure, there are always a few setbacks, too, but the positives outweighed the negatives. In case you missed any, here are some of the ones we believe stood out.

At the beginning 2017 (and it seems soooooo long ago now), FHA was poised to lower the mortgage insurance premium for new mortgages, but it was quashed. That was a disappointing start to the year, but it turned out not to portend a bad year for home buyers.

Mid-year, Freddie Mac explicitly shut down 1% down payment mortgages that were the 3% down payment mortgages with lenders rebating 2% of the sale price to go toward the down payment. The problem for both agencies is that lenders were not following their guidelines, particularly when it came to not charging a higher rate to use premium pricing to pay for the rebate. Since lenders only net less than .60% (according to the 2016 report from Mortgage Bankers Association), it would mean that lenders who follow the rules would have to pay over three times the profit from other loans to fund the losses from just one, 1% loan – a bad idea for any business.

Qualifying buyers for North Texas’ ever higher sale prices is an ongoing challenge since prices began to rise after the recession. The Agencies (Fannie Mae and Freddie Mac) made it a little easier in 2017 in four ways. First and the most important by far, they raised the maximum debt ratio 50% for down payments less than 20%. Second, the Agencies both will allow one year’s tax return for self-employed borrowers when the borrowers have owned their business for at least five years. Third, non-mortgage debts paid by others will not be counted in the debt ratio of borrowers even if the payer is not a borrower on the debt. Fourth, Fannie Mae will allow more flexibility in using a lower payment for student loan payments than old way of using 1% of the balance that was calculated prior. These changes could all allow for substantially higher sale prices than before.

Another improvement that may occasionally create some headaches or even busted closings is the removal of liens and judgments from credit reports. This puts greater emphasis on the fraud guard reports lenders use because they are designed to pick up public records. Similarly, the title commitment may have them, too. Lenders who don’t order the reports early in the process are just asking for trouble.

As for double-edged swords, the news that the Agencies expanded appraisal-free mortgages to purchase loans could help avoid both value and condition potential problems. However, your REALTOR®/Lender Committee was quick to point out that it would preclude allowing a home buyer to renegotiate the purchase price due to a low appraisal (that he might have been counting on getting) or lender-required repairs (that he was hoping to require). The value of a REALTOR® as the option arises is never more evident than when a buyer needs the wise counsel regarding saving the appraisal fee or not.

In further automation upgrade news, Fannie Mae rolled out Day 1 Certainty. This allows lenders who use it to retrieve income and asset documentation from institutions who participate, eliminating the need for income and asset documentation that comply from being hunted down by buyers. Not only has this shortened the turn times in processing slightly, but it has also allowed for fewer questions and problems that arise when underwriters unintentionally see things that were better left unseen.

Probably the best news for REALTORS® in markets with rapid appreciation is that loan limits increase along with prices. For our area, the new conforming single family limit is $453,100, and the FHA single family limit is $386,400. This humble writer started in real estate when the conforming SFR limit was $191,250.

Of course, the biggest news of the year (testing to see whether anybody is really paying attention), was when Beyoncé and Jay-Z took out a $52 million mortgage to buy a house in 2017. As the highest paid celebrity couple, it’s unlikely they cannot afford the mortgage payment.  Although it is probably not a 30-year fixed, guessing at the payment using that as a guide puts the monthly at $263,476, but you should not have fear for the wealthy couple – they must have an interest-only adjustable rate mortgage because the payment was reported to be under $150,000 per month, making it much easier to pay, I’m quite sure.

Onward and upward, friends!