While consumers across the nation hesitate in fear that the economy could worsen, causing home prices to drop once again, Texas homebuyers need not fear.

Jobs are the key to a healthy housing market, and Texas offers jobs.

According to Area Development Online, (http://www.areadevelopment.com/Gold-Shovel-Econdev-Awards/Q2-2013/Texas-Georgia-Alabama-Kansas-Gold-Shovel-2162511.shtml) Texas replaced all of its recession-hit jobs by December 2011. The state’s unemployment rate has been below the national average for more than 75 consecutive months, and by March 2013 had dropped to 6.4%.
At the same time, the gross domestic product in Texas was well ahead of the national growth rate, at 3.25% in 2012.

At a recent business event, Governor Rick Perry proclaimed that “Texas’ economy has become the envy of the nation.” That could have a lot to do with the 8,000 new jobs that have been created, thanks in large part to expansion in the energy sector, chemicals, and Internet Technology.

Texas is one of only 4 states to be awarded Area Development magazine’s “Gold Shovel” award. According to the magazine’s website, these annual awards are “a celebration of the kind of economic development success that should never be taken for granted.”

The other states honored with the “Gold Shovel” were Georgia, Alabama, and Kansas.

The Texas real estate market is hot, and the best way to have your offer accepted over others is to present a letter of pre-approval along with your offer.

We at Homewood Mortgage finance homes anywhere in Texas, and we promise low rates, low fees, and prompt service. So if you’re thinking of becoming a Texas homeowner, call us at 1-800-223-7409 or apply on line at http://www.mikeclover.com/ We’ll be glad to get you pre-approved and ready to submit that winning offer.

There’s no application fee, and no obligation.

P.S. If you’re not quite ready, select link to sign up for our weekly newsletter and rate updates.

Mike Clover
Texas Mortgage Banker
www.mikeclover.com

The Dodd-Frank Act, with its 2,000 plus pages, was signed into law on July 21, 2010 and touted as a consumer protection Act. In some ways that appears to be true. In others it appears to be a lender protection Act. We’re learning more as hundreds of pages of rules to implement the regulations are being written and released.

Title XIV of the Act, which covers the Qualified Mortgage Regulation and its accompanying Ability to Pay Rule, will go into effect on January 10, 2014. Lenders who write “Qualified Mortgages” will have some protection from liabilities and rules imposed elsewhere in the Act.

To an individual who was borrowing money to buy a home back in the 80’s, the Ability to Pay Rule will look like a return to the past. Back then, banks wanted to be sure that a borrower could repay the debt before they lent money. Now, the government is insisting that they do so – with some exceptions.

Pursuant to the Ability to Pay Rule, lenders must consider and verify, at a minimum, the following eight underwriting standards:

1. Current income or assets
2. Current employment status
3. Credit history
4. The monthly payment for the mortgage
5. The monthly payments on any other loans associated with the property
6. The monthly payment for other mortgage related obligations (such as property taxes)
7. Other debt obligations
8. The monthly debt-to-income ratio or residual income the borrower would be taking on with the mortgage

It sounds just like the old rules that were thrown out the window in the years leading to the mortgage crisis.

The Act does contain some consumer protection provisions. For instance, it limits the amount lenders may charge for upfront points and fees, as well as for the discount points that lower the interest rate.

A borrower’s debt to income ratio will be capped at 43% of his or her pre-tax income. While some believe this to be an ill-advised provision with regard to high end homes and high income borrowers, part of the provision will protect mid to low income borrowers. That is the fact that this ratio can no longer be computed using payments based on a “Low introductory interest rate.” The borrower’s debt to income must be calculated using payments at the highest interest rate possible under the terms of the loan.

Thus, while a borrower may receive an initial low rate on an Adjustable Rate Mortgage, his qualification will be dependent upon the payment after the loan re-sets all the way to the interest rate cap.

Calculating ability to repay based on low teaser rates was one of the toxic loan features that put people into homes they couldn’t afford – and led to widespread foreclosures. Interest only periods, negative amortization, balloon payments, and loan terms over 30 years are also disallowed under the new regulations.

However, as some analysts are quick to point out, exceptions, exemptions, and loop holes do exist. America may not yet have seen an end to bad lending practices.

If you’re planning to purchase a home in Texas, get in touch. I’ll search out the best loan for you and your circumstances. Once I have you pre-approved, I’ll furnish you with a letter to submit with your home offer – increasing your chance of being the winning bidder in the hot Texas real estate market.

Mortgage loan pre-approval should be the first step in any home buying plan.

Mike Clover
Texas Mortgage Banker
www.mikeclover.com

The Dallas housing market is hot right now – and you’d think that Dallas real estate professionals would be thrilled. They would be, except for one slight problem: Too little inventory for too many buyers.

Agents report receiving 10 or even 20 offers on any new correctly priced listing. That’s extra work for listing agents as they help their clients sort through the listings to find the “highest and best” offer. And it’s sheer frustration for buyers’ agents.

Buyers’ agents report writing offer after offer for their clients, only to be rejected and have to start the search over again. And of course, the buyers themselves are doubly frustrated.

If you’re one of those frustrated buyers, you can increase your chances of having your offer accepted by following a few guidelines:

• Get pre-approved for your loan before you begin to search for a home. Carry that pre-approval letter with you so it can be submitted with your offer. Today’s sellers aren’t going to accept your offer if they aren’t certain you can follow through.
• If you’re buying with cash, keep your proof of funds handy for the same reason.
• Forget bargaining for a low price. Those days have passed. If your agent says the house is priced correctly, offer full price, or even a little more.
• Keep your offer “clean.” That means no frivolous contingencies such as 3rd party approval, waiting for a settlement, needing to sell your current house, etc.
• Don’t ask for anything that isn’t included. Do you want to give up the Dallas home of your dreams over a riding lawn mower?
• Don’t ask for seller concessions.
• Keep the time lines short for inspections.
• Set a closing date in accordance with the seller’s wishes. Most prefer to close quickly – but some need a longer closing date for personal reasons. Find out what they want and offer accordingly.
• See what else you can do to help the sellers. For instance, some may favor your offer over others if you’re willing to take the house with contents included. This is especially true if the house is part of an estate.

Remember that your offer includes both price and terms. In some cases, the terms will be more important than the price. So have your agent do a little research before you submit your offer.

If you’re thinking of buying a new home in Dallas, call me for pre-approval on your loan. You’ll not only increase your chance of having your offer accepted, you’ll know exactly how much you can spend on your new Dallas home.

Mike Clover
Texas Mortgage Banker
www.mikeclover.com

When shopping for a new home, one of your first steps should be to become pre-approved for your home loan.

Where should you go for that pre-approval? And where should you go for the actual mortgage loan?

To a small, independent Texas banker.

Here’s why:

1. Personal service. We’ll treat you like the real person you are – not like a number who needs to fit into a pre-determined square peg or round hole.

If we can’t get you a good loan until you make some improvements in your credit report, we’ll go over that report with you and counsel you on how to make those improvements.

Big bank employees are too uninvolved for that. If you don’t qualify immediately, their attitude is “next.”

2. More and better loan options. We have the ability to place your mortgage loan with any one of a large variety of banks offering different mortgage loan options. Once we understand your individual situation, we work hard to find the right program for you.

Your “Big bank” loan officer will see if you fit any of their bank’s loan programs. They won’t ever tell you that you could get lower fees and/or interest rates with a different bank.

3. Less red tape. Our loan processes are much more streamlined, so you’ll encounter less red tape and get your mortgage loan closed sooner.

The big bank doesn’t care how much red tape you encounter – and the loan officers don’t care if your loan closes on time – or at all.
4. Faster, better communication. If we come up against a problem that needs to be handled right away, or if we learn the underwriter requires yet another document, we’ll contact you right away.

That big bank employee will put it on the stack and “get to it when they get to it.”

5. Our income is tied to your success. Like your real estate agent, we don’t get paid unless you get a loan. That means we’ll help you present your financial situation in the best possible light, and we’ll go to bat for you.

Contrast this to a bank employee who takes home a paycheck whether or not you get a loan.

6. Our ongoing success is tied to pleasing you. Our success relies heavily on repeat customers and referrals from satisfied customers. It is in our best interests for you to be pleased with our service.

Big bank employees don’t care if you come back or not. They know that their employer is “too big to fail” – and it’s really no skin off their noses if the bank loses money.

7. You support Texas business. When you do business with your Texas Mortgage Banker, you’re helping to sustain jobs and keep the money in your own state. Most Big banks underwrite out of state or send out to centralized underwriting hubs in other states. We underwrite in-house.

And isn’t that something we all want to do these days?

Mike Clover
Mortgage Banker
www.mikeclover.com

After three decades of boom and bust in the economy, wouldn’t you think that the Fed would quit trying to manipulate things and just let the free market bring some balance back?

Nope, they’re not doing it. They still believe that manipulating our behavior is the best course of action.

It turns out that our real estate bubble was planned – it was a reaction to the stock market bubble bursting when business investors realized they had been pouring money into bad investments.

In 2002 economist Paul Krugman advised creation of a housing bubble to replace the Nasdaq bubble. He believed that the increase in household spending would offset dying business investment and bring order and balance to the economy. The Fed apparently believed the same thing, in spite of history telling them they were wrong.

In a report entitled “When Credit Bites Back,” Oscar Jorda, Moritz Schularick and Alan Taylor explain the results of an extensive study of the business cycles of 14 rich countries. The study, which dated back to 1870, found that excessive private credit growth predicts deep downturns and slow recoveries.

And excessive private credit is what we got. The Fed’s plan encouraged wanton borrowing and irresponsible lending – and we all know the result.

So now what do they plan to do?

They plan to continue today’s extremely low interest rates, perhaps for the next 5 or 10 years.

And banks, in their zeal to make more money, will once again take on more and more unwise credit risk. After all, the taxpayers (unwillingly) provide a safety net to protect them from their mistakes.

The Fed says we don’t need to worry – It now has supervisory and regulatory tools to prevent granting unsustainable loans. However, one governor on the Federal Reserve Board doesn’t believe it. Jeremy Stein’s take is that the Fed cannot possibly oversee and regulate all lending. He believes that the worst practices of the recent bubble years will return – and that if interest rates remain at these low levels we’ll go back through this cycle of destruction all over again.

We’re already seeing low down and no down loan programs offered in an effort to entice more people to borrow money. How long before those programs are once again offered to buyers who truly can’t afford to make their payments? And how long until home prices soar again? We’re already seeing housing shortages in many markets. It stands to reason that the fewer the homes available for purchase, the more the law of supply and demand will force prices upward.

They say that doing the same thing over and over again and expecting a different result is a symptom of insanity. Are the majority of members on our Federal Reserve Board insane?

References:
http://www.frbsf.org/publications/economics/papers/2011/wp11-27bk.pdf
http://www.bloomberg.com/news/2013-04-19/is-the-federal-reserve-insane-.html

Mike Clover
Mortgage Banker
www.mikeclover.com

Do you know what it means when a real estate buyer is “Pre-qualified?”

It doesn’t mean a thing.

To become pre-qualified, a buyer simply gets on the phone with a loan officer and tells his or her story. The loan officer will ask for income and expense estimates and ask questions such as “Have you ever filed bankruptcy?”

Then he or she will say something along the lines of “Based on what you’ve told me, you’d qualify for a loan of $X with monthly payments of about $Y.”

And there’s the catch: The qualification is based ONLY on what the borrower has said. And guess what? Some borrowers think they can somehow hide things like a low credit score, a past bankruptcy, or an obligation to make child support payments.

Not only that, most borrowers aren’t aware of the income items that a bank won’t allow them to use in their debt to income ratios, so they can innocently mislead the lender.

Your buyer needs pre-approval, not pre-qualification.

You can only be assured that your buyer can actually purchase a house at a certain price if he or she has been pre-approved. And even then, you have to make sure it was a complete pre-approval. Unless it was a thorough job, a pre-approval doesn’t mean anything more than a pre-qualification.

When prospective borrowers come to me at MikeClover.com for a pre-approval, I collect all the same information that I would if they had already found a home and were ready to buy. Then using my Unify CRM, I verify their information and use either Fannie Mae or Freddie Mac underwriting software to get the pre-approval.

With my pre-approval letter in hand, borrowers know that they will be able to get a home mortgage loan – as long as nothing changes.

And things can change. That’s why along with the pre-approval letter I give clients a list of things NOT to do before their mortgage loan is final. Any one of these things could upset the balance and cause denial of the loan.

That list includes:
• Don’t be late on any payments
• Don’t quit your job
• Don’t co-sign for anyone
• Don’t acquire any new debt
• Don’t transfer large sums of money ($200 or more) to your account from unknown sources.

If you’re the buyer, come and see me online…If you’re getting ready to search for a home in Texas, visit me at mikeclover.com and complete my on-line form to begin the pre-approval process. With my pre-approval in hand you can search with confidence, knowing that when you find “your” house, you’ll be able to make the purchase.

Mike Clover
Mortgage Banker
www.mikeclover.com

In Texas and across the U.S. the real estate market has turned upside down. Now, instead of “everything” being for sale, hardly anything is available, especially for entry and mid-level home buyers. Our inventory is down 26% from the spring of 2012 – and 2012 was down from 2011.

We’ve suddenly flipped from a buyers’ market to a sellers’ market.

Nation-wide, February reports showed an average 4.7 months’ supply of homes for sale, and some markets are reporting as little as 30 days’ supply. Six months is considered a healthy balance.

What does this mean for the future? Is it a good sign, or a scary one? It depends on who you are.

Some are concerned about one of the reasons for the lack of supply. Large investors have been buying bank-owned properties in bulk directly from the banks. We heard of one subdivision in which 40% of the homes are now owned by one investment company and are being held as rentals. Agents fear a resulting erosion of home values as subdivisions become filled with “temporary” residents.

For buyers, the situation in some communities is almost grim. Anyone wanting to purchase a home is apt to enter a bidding war against several other buyers – some of whom are investors with cash in hand. It’s not unusual for a well-priced, properly presented home to receive multiple offers within hours of being presented to the market.

Buyers who haven’t awakened to the new reality are sorely disappointed when writing low offers and losing out on the homes they want. Real estate agents are working harder than ever, as even realistic buyers make attempt after attempt at home buying, only to be out-bid.

Sellers and future sellers are happy – as this situation is bound to push prices upward. In some communities, homes that were underwater are now at break-even or even back in an equity position.

But… as sale prices increase, there’s a hurdle to cross. Unless the buyer has cash, the house will have to appraise for the higher purchase price. And after being blamed for the last “bubble and bust” appraisers aren’t likely to let prices inflate too quickly. Thus, the increase is expected to be gradual.

Home builders are breathing a cautious sigh of relief. With a shortage of resale homes, their new homes are in demand.

However, building materials have gone up in price even as house prices have fallen back to 2002 and 2003 levels. Builders must be very careful and cost-conscious to avoid losing money on new home construction.

Is the shortage of homes for sale good or bad for the economy? It all depends on who you are.

Mike Clover
Homewood Mortgage,LLC
www.mikeclover.com

Everybody talks about toxic loans – but where did they come from and why are there so many of them?

It all started when some in government decided that everyone had the right to own a home, regardless of their income status. That was followed by Congress urging banks to relax their underwriting standards a bit.

Before long we had government programs allowing zero down, and soon after that the qualifications for obtaining a loan almost disappeared.

We had no-doc loans, low-doc loans, and stated income loans. These were wonderful for self-employed people who routinely write off every possible expense for income tax purposes. Even though they could afford the payments, their financial statements looked like they couldn’t even afford to rent a room.
But then those loans were offered to people who weren’t self-employed – or employed at all.

And along came teaser rates and Adjustable Rate Mortgages. Lenders were allowed to “qualify” buyers based on zero or 1% interest. The promise was that since home prices were rising so fast, and since the borrower would no doubt be earning a higher income in 3 years, they could refinance before their new “sub-prime” rate of 7 or 8% kicked in.

As we know, that didn’t happen. A loan on a $150,000 home at 1% carried a principal and interest payment of $482. When the interest rate on that loan suddenly jumped to 7.9% the payment jumped to $1,090 per month – plus taxes, insurance, and mortgage insurance. Even worse, in some cases the interest the borrower hadn’t been paying was tacked on to the end of their loan, so at the end of 36 months, they actually owed about $170,000 – with a new payment of $1,270 plus.

With underwriting standards that allowed about 50% debt to income – once the rate reset, the new loan payment equaled ALL of their income – or more.

So – the banks knew that these low income borrowers wouldn’t be able to keep up with payments that size. Why did they make the loans?

Because there was no risk.

As soon as the loans were made, they were bundled in with other loans and sold as mortgage-backed securities. In some cases, they were sold as “A-paper,” which the banks knew they were not. That’s why some of the higher-ups from Countrywide were stripped of their positions – if not their bonuses.

These kinds of deceptive and fraudulent loan practices are the reason behind the new regulations and the new, tighter underwriting standards. And while it would be nice to think these standards will be the cure-all, the effect remains to be seen.

They may be too stringent – locking people out who DO have the ability and the desire to pay. At the same time, the regulations come with exceptions that could easily open the door to the same kind of toxic loans that are in trouble today. Four or five years from now we can look back and see whether the provisions of the Dodd-Frank Act were beneficial or if they came with unintended consequences that harmed the housing industry.

We know why the banks went along with the plan. It was all gain and no risk. As for why the government encouraged it – that we may never know.

Mike Clover
Homewood Mortgage,LLC
www.mikeclover.com

Since the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 passed, all of us in the real estate industry have been waiting to see how it would affect us.

Will the new regulations help or hurt a consumer’s ability to purchase a home?

On January 10, 2013 the Consumer Financial Protection Bureau issued much-anticipated revisions to Regulation Z and gave us a partial answer to our questions.

The new “Ability-to-Repay” rule that accompanies the Qualified Mortgage regulation will go into effect on
January 10, 2014 – and with it will come uncertainty and confusion.

At first glance, it appears that we will be reverting to the underwriting guidelines of the past. The basic principle is to assure that borrowers have the ability to repay their mortgage loans. The publicized reason for the new rule is to protect consumers from the risky lending practices that caused the crisis.

The real reason may be to protect banks – so they can sell their loans as “Qualified Residential Mortgages” and avoid liability.

Under the new rules, lenders must verify the consumer’s ability to repay both principal and interest over the long term. In other words, borrowers can’t be qualified based on an introductory rate.

Lenders will not be able to offer no-doc and low-doc loans, but will be required to verify ability to pay following eight underwriting standards:

• Current income or assets
• Current employment
• Credit History
• The monthly payment for the mortgage
• Monthly payments on other loans associated with the property
• Other mortgage related obligations – such as property taxes and HOA fees
• Other debt obligations
• Debt to income ratio (not over 43%)

This is, of course, not good news for self-employed individuals who write off every possible expense for income tax purposes. Borrowers with good credit, stable employment, good income, and a minimum of other debt obligations should have no trouble obtaining a mortgage loan under the new regulations.

The good news – teaser rates can no longer entice unsophisticated borrowers into a loan they have no hope of repaying after the rates reset. This is where the “consumer protection” comes in.

The not-such-good news – the new Appendix Q to Regulation Z sets forth pages upon pages of HUD-based underwriting guidelines that dictate, among other things, how the debt to income ratio should be calculated. To give an example of how detailed these guidelines are: rent from boarders may be considered as income; rent from roommates probably will not.

As with all things governmental, along with confusion and contradictions, the regulations are filled with loopholes and exceptions. In addition, along with announcement of the Ability-to-Pay rule, the CFPB issued a proposed rule that would amend the ATR Rule before it even goes into effect.

Stay tuned. More rules – and changes to rules – will be announced as we make our way through 2013.

Mike Clover
Homewood Mortgage,LLC
www.mikeclover.com

When the Dodd-Frank Act was signed into law in July 2010, it contained 848 pages. From there, the regulations it proposed had to be made into “rules” that the financial industry would follow. These rules would be released over time.

So far the rules and regulations have grown to 8,843 pages, and the regulators have only addressed 30% of the Bill.

The first of the rules regulating the housing market, the Ability to Pay/Qualified Mortgage (QM) rule has now been released, and while some believe it will help stabilize the housing market, others have reservations.

The 43% Debt to Income limit (DTI) is overly inclusive because it includes jumbo loans. These are loans made to high income individuals who can well afford a higher DTI.

The rule calls for a three percent point and fee limit – which is also overly inclusive because it includes compensation for loan officers plus affiliated fees. In addition, capping fees at three percent could cause banks to reject low balance loans as “not worth it.”

The Avalanche is coming…

Seven more rules are scheduled for release by January 21, and more will come by mid-year.

Already, various rules and regulations are overlapping – causing confusion and doubt in the banking industry. The fear is that these regulations will make mortgage lending too restrictive, and result in a housing market in which only the very wealthy may apply.

Many analysts fear that first time buyers and the middle class will be cut out of home ownership.

A second “unintended consequence” of these regulations is lenders leaving the credit markets. When it simply becomes too cumbersome to abide by the regulations, banks will invest elsewhere.

At a time when America is facing a severe debt crisis and should be cutting expenses, American taxpayers have now paid an untold number of regulators to write 8,843 pages of regulations – with at least twice that many still to be written.

But that doesn’t seem to be enough spending. Since all this leads to confusion, the Mortgage Bankers Association has called on the White House to create yet another regulatory agency – a “Housing policy coordinator.” This agency would be charged with evaluating the downstream effects and unintended consequences of the regulations being put forth.

While some regulations were in order to prevent the kind of abuses that led to the housing crisis, the “cure is beginning to look more harmful than the disease.”

Will the new regulations help or destroy the American Dream? We’ll find out as new mortgage lending regulations are imposed over the next six months.

For now, Dodd-Frank appears to be a monster that, once fed, will continue to grow beyond all reason.

Sources: http://www.ibtimes.com/dodd-frank-rules-nearly-9000-pages-its-less-one-third-finished-726774

http://www.mortgagenewsdaily.com/01162013_stevens_housing_policy.asp

Mike Clover
Mortgage Banker
HomewoodMortgage,LLC
www.mikeclover.com