Archives for March 2009

The Wild Cards of Refinancing

Jokers In years past, refinancing was a fairly simple task.  Homeowners would contact me wanting to restructure their mortgage to either reduce their monthly payments or perhaps to take equity to improve their home or pay off debts.  Back then, a 680 credit score was considered decent (anything over 720 was great) and people had a good idea of what their homes would appraise for and if they didn’t, I could usually determine a value by obtaining sales comps from a title insurance company.  It’s just not so anymore.  Refinancing can be trickier because there are “wild cards” involved that may not be revealed until you are deeper into the transaction.

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Loving Spring

I've really enjoyed being out in my garden today doing very preliminary clean up from our winter.  We're not out of the woods with "winter weather" yet with lows tonight in the mid 30's.


Hopefully the colder than normal nights don't get the best of my peonies. 

I relish these productive days in the sunshine.  My grandparents were farmers in Minnesota…maybe that's were I get it from?

FHA Appraisals Tougher starting April 1st – No Foolin’

HUD is adopting Fannie and Freddie's reporting requirements for declining markets.  Per Mortgagee Letter 2009-09, as of April 1, 2009 appraisals for all FHA insured mortgages must include the Market Conditions Addendum.   Be preparared for second appraisals and limits to cash-out refinances if your property is determined to be in a declining market.   From HUD's letter:

"a declining market is considered to be any neighborhood, market area, or region that demonstrates a decline in prices or deterioration in other market conditions as evidenced by an oversupply of existing inventory or extended marketing times."

In addition to providing three recent comparables (properties similar to home being appraised that have recently closed in the area); appraisers are required to:

  • At least two of the three recent sales (comparables/comps) must be within the last 90 days of the effective date of the appraisal.
  • Include a minimum of two active listings or pending sales.  The appraiser must insure the active listings and pending sales "have reasonable market exposure to avoid the use of over priced properties as comparables."
  • Include the original list price, any revised prices and total days on the market.
  • Adjust active listings to reflect list to sale price ratios for the market.
  • Adjust pending sales to reflect the contract purchase price whenever possible or adjust pending sales to reflect list to sales price ratios.
  • Include an absorption rate analysis to determine market trends.
  • Known or reported incentives or sales concessions must be noted for any comp that's used on the appraisal.

To read the entire Mortgagee Letter, click here

New FHA Limits on Cash-Out Refi’s

If you're considering refinancing and you're interested in taking cash-out to pay off debts, make home improvements or to eliminate a second mortgage that you did not obtain when you purchased your home; you have more reason than ever to start now.

Effective on FHA case numbers issued on or after April 1, 2009; FHA will only insure cash-out refinances when the loan to value is 85% or lower than the appraised value.  Your appraised value is not based on what you feel your home is worth — it's based on what your neighbor's have sold their homes for in the past few months.

If you have owned your home for less than 12 months, FHA is limiting cash out refinances to which ever is lower: 85% of the appraised value or 85% of the original sales price. 

According to HUD's Mortgagee Letter 2009-08, this is currently a temporary requirement:

"Given the continued deterioration in the housing market, and FHA's need to limit its exposure to undue risk, this reduction to the maximum LTV for cash-out refinances is being instituted on a temporary basis while FHA further analyzes the housing and mortgage industry as well as its own portfolio to determine whether permanent measures should be taken."

Well, what are you waiting for?  You have two weeks as of today for FHA's expanded cash out guidelines of 95% loan-to-value with loan amounts up to $567,500 in King, Pierce and Snohomish counties.   If your home is located in the State of Washington, and you're interested in refinancing, you can apply on line (under Favorite Links).  By the way, I have been originating FHA mortgages for nine years and we have in-house FHA underwriters at Mortgage Master…as I mentioned, I can only help you if your home is in Washington.

Wacky Weather in Seattle

This morning at woke up to huge snow flakes coming down pretty heavy in West Snow 004 Seattle.  I'm 99% sure that our pork butts are cursed…let me explain.  Last December, when my husband's co-workers were planning a Christmas pot-luck…he volunteered me to make pulled pork.  You know, the kind that's been smoking for hours and melts in your mouth.  This type of feast takes days to prepare…and we did.  Smoking it for about 10 hours on our Big Green Egg.  We were up in the wee hours in order to have the pork done in time for the festivities only to have that snow storm hit.  Our family had pork butt for breakfast, lunch and dinner!  You can check out the recipe (and my cooking blog) here.

Today, we're planning on having family over to celebrate my birthday.  We're making that same pork butt recipe on the BGE…and what do I wake up to?  SNOW!  I can see it's all ready turning to rain here and I hope elsewhere in King County where my family is driving from, it's safe and dry!  Snow in the middle of March? 

Next weekend, we're going to make pulled pork again.  This time it will be for my husband and his co-workers when they finish doing The Big Climb benefiting the Leukemia and Lymphoma Society.  The team from The Talon Group will climb 69 flights of stairs in the Columbia Tower to honor their co-worker, Dawn Appel who is battling leukemia.  To make a tax deductible donation, supporting the efforts of Dawn's Army click here.

Who’s Vilifying Who, Mr. Dimon?

In a speech to the US Chamber of Commerce, Jamie Dimon, CEO of JP Morgan Chase made a statement that caused my jaw to drop.  From Bloomberg:

"My biggest mistake, probably of my whole career, was not closing down our mortgage broker business sooner." 

He says that mortgage broker business had a loss rate two to three times higher than loans originated directly by the bank.

Here is what you need to know:

  • Mortgage brokers originate mortgages.
  • Banks, like Chase, underwrite and fund these mortgages.  They also create many of mortgage programs that are not performing today.   In fact one program that Chase had "back in the day" allowed 103% loan to value for credit scores above 700.  Chase was also big into second mortgages up to 100% loan to value.  Banks also employ(ed) heavily incentized wholesale reps to call on mortgage brokers–begging for loans to be sent to them. 

So if a mortgage broker takes a loan application and submits the loan to Chase, it is Chase who makes the decision on whether or not the loan is acceptable to approve and fund.   If JPMorgan Chase suffered double or triple the losses on loans provided to them by mortgage brokers, it was Chase's wholesale division (for mortgage brokers) that was the real issue with exception to cases of pure fraud.

Locally we had a classic example that made the front page of the Seattle Times.  The report claims that six immigrants (one is a hot dog vendor) were prequalified to purchase Bellevue high-end condominium units with the developer's preferred lender, JP Morgan Chase Bank.  There's a lawsuit pending over the lost earnest monies of $174,050.

"In one case, the lawsuit says, a Chase broker listed a prospective buyer's income not at the actual $2,147 a month, but at $12,500. Chase's underwriter "red flagged" the document as suspicious, the suit alleges, but the applicant still was prequalified for a $724,000 condo…."

Note: I contacted writer of the Seattle Time's article to ask she correct the term "broker"…the correct term in the above paragraph would be "loan originator" or they often like to call themselves banker/broker or bankers


"Other plaintiffs are…Diana Shakhnazaryan…and her mother, Svetlana Kocharyan, both of whom fled Azerbaijan and gained political asylum here about 10 years ago. In 2006, Kocharyan worked on an assembly line and her daughter had a part-time job washing hair in a Kirkland beauty salon. Together, they made $3,659 a month, court documents say.

Chase prequalified them for a 95 percent mortgage for the purchase of a $922,600 condominium, giving them a $7,198 monthly payment, including condo dues."

In the same article, luxurious Bellevue Towers preferred lender, JP Morgan Chase, approved a student with an income of $3,600 a year and says he was told he prequalified for a $634,000 condominium.

Back to Jamie's presentation yesterday…in one breath, Jamie Dimon says:

"When I hear of constant vilification of corporate America, I personally don't understand it…I would ask a lot of our folks in government to stop doing it because I think it's hurting our country."

And then he turns around and vilifies mortgage brokers just a few moments later. 

Fact is, now that Chase has purchased WaMU, they don't need mortgage brokers anymore.  They have plenty of exposure with Washington Mutual's existing locations.  Banks, like Chase, have used mortgage brokers as their sales force and now with their massive market-share, they just don't need them anymore.  But why wrongly tar an industry…I thought we were beyond that…at least I believed Jamie Dimon was. 

I'll wrap this post up with another quote from Jamie yesterday:

"If we act like a dysfunctional family and we don't finish these things and we're forever debating them, I think this will go on for several years."

Well that's one point I can agree with, Mr. Dimon.  Why can't we all just get along?   

Small Tweaks to Mortgage Porter

Some links have been moved and I'm now using Video-email….check it out!

Spring? Forward

With this morning's snow and potentially more on the way, it's funny to think about Spring with our wacky weather.  I remember hearing one of my neices last year refer to our Spring as Swinter.   Let's hope it's not like last year…I'm ready for a "real" Spring…and so are my Bleeding Hearts.


Don't forget to "Spring Forward" and set your clocks ahead one hour before you to sleep tonight.