Monday, December 1, 2008

VA Mortgage Occupancy Requirements

VA loan occupancy requirements are easy to understand when you remember that this guaranteed loan was created to serve our veterans, and only our veterans. When this mortgage was first created it was welcomed by all as there were very few options available on the market.

As more options became available this guaranteed loan was used less and less because of the strict inspection and home repair requirements. Frankly, there were conventional loans on the market that were easier to get into and also offered zero down.

I guess those times are over and now this loan will become more requested and used. Qualification may not be so easy but those that do are truly blessed. VA and FHA may be the only zero down loans available in the future. Who knows?

Like I said, occupancy requirements are fairly simple. The qualifying Veteran must certify that he or she will occupy this home as their primary residence. Simple?

Well it is simple until you remember the life of a Veteran on active duty. In that case the occupancy of the veterans spouse will qualify until he is able.

We all know how complicated the government tries to make things so there are a few more things you need to look out for but it is easy to understand. The full details of VA Loan Occupancy Requirements can be read on this site.

Good Luck and Thank You for serving!

Sunday, November 16, 2008

Underwriter Accountability

I received a question from my FHA website two day ago and it took me several hours to cool off before I could answer it objectively. I certainly hope this is not becoming a trend in our mortgage industry. If anyone else knows of such a practice please let me know. The question follows.

  • I am not sure if you can answer this, but I really need advice for my wife. She has over 15 years experience in mortgage underwriting and is currently manager of a small companies underwriters.

    The problem that has arisen is that the owner has decided to force all the underwriters to sign a letter stating that they are financially responsible for any underwriting mistakes.

    For example, my wife fielded a question from one of her UW's about FHA guidelines. She answered it correctly, but come to find out the lender they are using is NOT following FHA guidelines for mortgage lates so her company has to find a new lender to purchase the loan. In this instance, the owner wants the underwriter to be docked the amount of money he "lost".

    This sounds so ludicrous to me and I am wondering if this practice is common in mortgage underwriting. Thank you

Below is my answer but be warned, in some areas it gets a little heated.

  • Kevin,
    I have put off answering your email because I needed to cool off and be calm. Your email really got me cranked up.

    Ok, first of all, ... no, this practice is not common. I don't know of any company that has ANYTHING like it or in that vain at all.

    Next, and this is a fact. In today's market very few lenders are following the guidelines to the letter. Most are becoming more conservative, especially in the credit area.

    As an example, Conventional guidelines requires 4 years expired on a bankruptcy. Many, many lenders now are asking for 5 or 6 years even though the guidelines only require 4yrs. FHA only requires 3 yrs and some lenders are saying 4, even though the guidelines only call for 3.

    Do you get the picture?? Lenders are running scared! The reality is that the underwriter has the power, ... and if their guidelines are stricter than FHA, or Fannie, or Freddie, it is the lenders prerogative. Fannie, Freddie, and FHA will not challenge that.

    So, a lot of lenders like yourself are having trouble getting their loans bought because no one is following the rules. And, no one is re-publishing the rules. Every one is just winging it and leaning towards the right.

    So, what you need to do is get closer to your lenders and get conversations going with the underwriters to make sure you are all on the same page so to speak. I expect by Feb. or March most of this will be ironed out. Maybe as late as a May.

    On a final note, I cannot advise you how to deal with your owners request for financial accountability. I don't have enough information about your company policies or hiring practice, or what-ever.

    However, I can give you my opinion of what I would do if my employer made the same request.

    I would explain that no one at this time can be held accountable for guidelines since no one is following them. Your Owner obviously is totally out of touch with what is going on in the market. (Probably too busy watching his accounting sheet trying not to file bankruptcy.)

    If he insisted on my compliance I would request a dramatic pay increase because my financials could not possibly cover even one loss. And of course, it was not part of my original employment requirement. I know that because I would have to be very rich to cover possible loss.

    If at this point my if employer was still wanting me to sign this ridiculous and non-enforceable document I would give him the bird and walk. Well, I would probably also use the big bad F words also.

    I can be that bold because I am probably much older than you and can survive without
    a job. If I were younger, I would just smile, not sign, keep working, and look for another job. I would not sign under any circumstances!!

    Good Lord, what are we coming to?

    Good Luck!

Monday, October 27, 2008

Mortgage Crisis - How did we get here?

This video moves very fast but it covers the facts on how we got in this financial mess. You may not like what you will see here, ... but it is all true. You can google it.

So ... watch it twice. Send it to your friends.

There are so many lies out there how can anyone know what is real.

This is real.

Jerry and I are in the mortgage business and we have watched it unfold.

If for some reason this video does not play here, you can watch it at:

Wishing you the best.


Friday, October 17, 2008

FHA - Debt To Income - Rental Income

FHA now requires 25% equity in a property before rental income is considered income, in the debt to income ratios. What that means to you is that if you have rental property your LTV on that property must be 75% or less. If not, that mortgage payment will be a liability used in your debt to income calculation for the loan you are applying for.

Sounds heartless doesn't it? I think Fannie and Freddie require 30% equity so an FHA underwriter may and can use 30% instead of 25%.

If you read the Mortgagee Letter dated September 19, 2008 (MORTGAGEE LETTER 2008-25) I think you would agree that they have some pretty sound reasoning behind this new guideline.

I don't normally do this but this Letter is short so I have copied it below so you don't have to "link hop" around the Internet to get the information. At the bottom I have included the link to the letter in case you need it for reference.

September 19, 2008

SUBJECT: Converting Existing Homes to Rentals—Underwriting Instructions

Through this Mortgagee Letter, the Federal Housing Administration (FHA) takes steps to immediately respond to an unscrupulous practice arising in the housing mortgage market that poses a risk to FHA, FHA-approved lenders, and consequently to FHA’s ability to help new homeowners.

Recently, FHA and others in the mortgage industry have observed an increasing number of homeowners who have chosen to vacate their existing principal residence and purchase a new residence. This has been occurring as some homeowners, given the rising price of fuel, are relocating to homes nearer their employment, or are taking advantage of other home buying opportunities arising in the marketplace.

Due to FHA’s concern that some home buyers in these transactions may attempt to provide misleading information regarding the rental income of the property being vacated to qualify for the new mortgage, FHA is instituting underwriting guidance designed to assure that the home buyer can make payments on the full debt service of both mortgages. Consequently, beginning with case number assignments on or after the date of this Mortgagee Letter and until further notice, the underwriting analysis may not consider any rental income from the property being vacated except under circumstances described in this Mortgagee Letter. The exclusion of rental income from property being vacated is being instituted on a temporary basis while FHA further analyzes this situation to determine whether permanent measures may need to be taken. This will assure that a homeowner either has sufficient income to make both mortgage payments without any rental income or has an equity position not likely to result in defaulting on the mortgage on the property being vacated. In either case, this guidance is directed to preventing the practice known as “buy and bail” where the home buyer purchases, for example, a more affordable dwelling with the intention to cease making payments on the previous mortgage. Although the property being vacated will not have a mortgage insured by FHA, surrounding properties may and, thus, FHA may be indirectly negatively affected should that property result in a foreclosure.


Rental income on the property being vacated, reduced by the appropriate vacancy factor as determined by the jurisdictional FHA Home ownership Center (see may be considered in the underwriting analysis under the following circumstances:

· Relocation's: The home buyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance. A properly executed lease agreement (i.e., a lease signed by the home buyer and the lessee) of at least one year’s duration after the loan is closed is required. FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence the first month’s rent was paid to the homeowner.

· Sufficient Equity in Vacated Property: The home buyer has a loan-to-value ratio of 75 percent or less, as determined by either a current (no more than six months old) residential appraisal or by comparing the unpaid principal balance to the original sales price of the property. The appraisal, in addition to using forms Fannie Mae1004/Freddie Mac 70, may be an exterior-only appraisal using form Fannie Mae/Freddie Mac 2055, and for condominium units, form Fannie Mae1075/Freddie Mac 466.

The guidance in this Mortgagee Letter applies solely to a principal residence being vacated in favor of another principal residence. This Mortgagee Letter is not applicable to existing rental properties disclosed on the loan application and confirmed by tax returns (Schedule E of form IRS 1040).

It is important to note that if the property being vacated had a mortgage insured by FHA, eligibility for a second FHA insured mortgage can only occur under the exemptions described in handbook HUD-4155.1 REV-5, paragraph 1-2.

If you have any questions regarding this Mortgagee Letter, call 1-800-CALLFHA.


Brian D. Montgomery
Assistant Secretary for Housing-
Federal Housing Commissioner

As you can imagine this will have a large impact on investors. Leave your comments.

Thursday, October 9, 2008

FHA Secure - FHA Rescue Program - HR 1424

There is a lot of confusion about the FHA Secure, FHA Rescue program, and the Hope For Homeowners program. Our politicians like to use mirrors and smoke to confuse us. They change the terminology between one bill to another, and from the house to the senate. There is a secret code that "we the people" do not have! I don't know about you but I am tired of the smoke and mirrors!

The Government works for us and upon our command they should be transparent!! Let me not go here.

I have gone through the guidelines for the "Hope for Homeowners" mortgage and I don't think any thinking person would want this loan. We have been sold down the road. You can read the Hope for Homeowners Guidelines here.

After reading the H4H guidelines it made me think that the FHA Secure loan is really a much better deal but it expires on December 30, 2008. Not many people will qualify for this loan but you should try for it first because The H4H loan was designed by the devil and I would personally pass on it.

FHA Secure - FHA Rescue guidelines.

We Will Pull Through. Hang in there.

Friday, October 3, 2008

Bail Out - What is wrong with this picture?

This is a great video about why/what, ... you know the bail out of all the crooks on Wall Street.

Enjoy. Be sure to leave your comments.

Incase the video has been moved, you can find it here.

Thursday, October 2, 2008

HR 3997 - HR 1424

I don't know how you feel about all this economic bail out stuff but it really gets me angry. I'm not going to share my opinion because it doesn't matter. However, I think everyone should read the bill and develop their own opinion based on facts, not media hype.

I did some research and have links below of the pdf files so you can read it for yourself, or download it and read it later. I would like to say that in my opinion all bills going up for vote should be available to the public BEFORE they vote. Unfortunately, that is not the case. Maybe we can change that.

IF you want to just download the files to read later you only have to right click with your mouse and select "save target as", then tell it where you want it saved on your computer. I usually just put the stuff on my desktop.

This link is to the pdf file on HR 3997, the Emergency Economic Stabilization Act of 2008 that was voted on in the house of representative on the 28th. This is the original version. HR 3997

This is HR 1424 which is the revised version of the bill (HR 3997) and was actually passed. HR 1424

This link is a one page summary of the Act. One Page Summary

This link is for the section by section summary. It is much better than the one page summary. section by section summary

This stuff is worth the read. Post your thoughts.

Wednesday, September 24, 2008

VA Mortgage Guidelines

Who ever would have thought our economy would have come to this all because of the sub-prime mortgage guidelines (or lack there of) our government forced onto our Lenders in the name of: equality for minorities. It all sounded really good and honorable didn't it. There was no malicious intent to destroy our economy and redistribute wealth toward a more socialized economy. Or was there? ... I don't know and I'm getting really tired of hearing about. It's like the old spilled milk thing. Let's get over it and move on.

Now that we are here, for what ever reasons, the VA Mortgage seems like a great options for people who need a zero down payment mortgage. It is a great loan but, ... not everyone qualifies.

Let me go further here. Just because you are a Veteran doesn't mean you can get this loan either. Vets get confused with this because of the terminology.

We are told one of our benefits is a Guaranteed VA Loan. It is the word Guaranteed that confuses us. It does not mean that because we are a Veteran we are guaranteed a VA Loan. It means that The Veterans Administration will Guarantee the top 20% of a mortgage to the Lender if a Veteran qualifies for the loan. This removes the lenders risk so they will finance your home with zero down payment. That is really a big deal.

Just keep in mind that you still have to qualify for the loan based on the underwriting guidelines. You know, ... good credit, income, and DTI. There are still a few gotchas you need to be aware of to get this loan. We will go over a few of them in our next post.

As for now, you are the deserving ones. 100% LTV is hard to find in today's economy.