Angelo 's Blog

Consider this -

As has always been the case, people try to hide income from the IRS.  Liar loans became the mortgage of choice for these homeowners.  They claimed an income that was higher than they reported on their tax returns.  Yet, somehow they were able to make the payments for years - probably from those under-reported income dollars that they hid from the IRS.  Today, there is talk about forcing lenders to modify loans where the mortgage payment exceeds a Magic Ratio of their income.  But what income are they looking at to make this determination? 

My questions is - if LIAR felt that they had sufficient income (higher than their reported income) when the obtained the loan and were successful in making payments for a period of time, then why should we use their (under-reported) tax return income for a calculation that would reduce their mortgage payment now?

Recommendation:  Borrower should be required to release tax returns from the year before and the year that their existing loan closed.  if the income they claimed was __x___% higher than they reported, then assume that their current actual income is also ____x______% higher than they report.  Use this higher income to determine any qualification for CRAM down of the existing loan.  Otherwise, the LIARS who understated their income, will have the more honest (or less creative) taxpayers subsidising their mortgage payments. 

The bottom line is any alteration of the mortgage note that reduces its value will increase the risk for future investors in mortgage backed securities.  This risk will result in higher mortgage rates in the future.

Have a great day!

November 18, 2008 at 12:38 PM |

If you have not noticed, loan modification companies are now on almost every corner.  They are also the latest target of Illinois Attorney General Lisa Madigan. She is warning homeowners about companies that are offering to help them save their homes by negotiating a lower mortgage payment for them. 

Today, her office announced seven new lawsuits against businesses that she believes offered false hope to homeowners trying to keep their homes. (Actually, the problem is that they collected an up-fee before they did anything of value which is illegal for mortgage "rescue"  companies in Illinois.)  She's now filed 22 lawsuits against such companies.

> As soon as I have the list, I will add it to this blog.  SEE LIST BELOW IN THE COMMENT SECTION.

She suggests that homeowners contact their lenders, HUD certified housing counelors, other "free agencies" or her office for help. 

While those suggestions make sense and should be the first steps that homeowners take, some homebuyers will still pay a fee to have someone else do the work for them.  I guess this is another case where the State decides it is better to shut down a service rather than provide enforcable guidelines that will let companies help clients for a reasonable fee. 

The operative word is "insurance".  Refer to my earlier blogs for more details - Greedy Banks and Frozen Equity Lines. 

In the past, having less than 20% down gave you two options.  PMIor a second/equity line of credit.  The majority of the home buyers choose the equity line of credit for the flexibility and lower cash flow (interest only minimum payment) needs.  Now we see that the equity line alternative has some hidden traps.

In my earlier blog, I commented that banks are freezing equity lines of credit by taking advantage of some fine print that allows them to re-evaluate home values and adjust the line based on this value.  In many cases, equity lines were initially paid down by using savings that was being held for emergencies, or accumulated for college, under the belief that they can always write a check from the line when needed.  When the banks started freezing their loan balances, the emergency/college fund was no longer available. 

Now the decision to use an equity line of credit has to be evaluated purely based upon the pay-off expectations.  No longer is it a safe place to keep funds for the future.  Now, it seems that the fixed payment second mortgage or PMI are your safer choices.  Unfortunately,  banks are backing away from offering second mortgages and refusing to subordinate this second if you have the opportunity to refinance the 80% loan in the future - see my GREEDY BANK blog posting.

Bottom line, the PMI selection may be your best choice.  Many of my clients now are deciding to take PMI rather than take the second mortgage or equity line with he expectation that down the road, appreciated home values  and lower interest rates will allow them to refinance the package and drop PMI. 

Well we can hope.  Have a great day!

Last week I visited with the Lake County Board of Review.  It was a 15 minutes time slot that reminded me of how it felt when I was asking my father to borrow the car.  The assessor's web site identifies comparables.  They pick those that favor their positon, I pick those that support my position.  Guess what?  They win.  I also tried to present comparables that supported the fact that even if my home and others in the development were determined to be taxed consistently within the development, our development was being taxed too high relative to other developments in the township.  I explained how I made my selection and felt that I was playing by their rules yet they seemed to be changing the rules during the meeting if they were not going to accept my comparables.  I guess they did not want to hear someone question the system.   

While the assessor was professional, the board seemed to be exhausted from days of 15 minute pleadings and seemed to shut off listening. They were quick to say "this meeting is over" - thanks dad.

Next step - spend time preparing for a presentation at the state level.  Before long you will be able to place an "over/under" bet in Las Vegas on our final results.  Wish us luck!

BANKS REFUSE TO HELP HOMEOWNERS!

GREED again hurting the housing market

If it doesn't cost the bank and doesn't increase their risk, then why are the banks refusing to help the housing industry?

Market conditions are beginning to offer many homeowners an opportunity to refinance their first mortgage to a lower payment or safer mortgage loan.  For those that have a second mortgage or home equity line of credit, the lender in the second position must agree to subordinate (stay in second place) to the new first mortgage.

 If this were to happen, the homeowner would have a lower first mortgage payment making it easier for them to afford their home and most agree that the risk to the second mortgage holder would be reduced.

 This should be a WIN! WIN!  But it isn't. 

Agreeing to subordinate is currently optional!  In most cases, the second mortgage lender refuses to subordinate.  They want out!  They want to force the homeowner to pay them off!  If the homeowner cannot obtain a new second mortgage or pay the mortgage off with savings, the bank refuses to help and the homeowner continues to pay a higher payment on their old mortgage.  The bank says no one can make us help - too bad!

 My suggestion -

Force the banks that depend on the Treasury, Fed or State for their charter to subordinate second mortgage loans and equity lines of credit if the new first mortgage improves the homeowner's financial position. 

The replacement loan would have to meet certain conditions.

1)     If the current first is a fixed rate loan, then the new loan balance should be no higher than the current principal balance and also be a fixed rate loan resulting in a lower monthly payment.

2)     If the current first mortgage is an ARM then the new loan must again have a balance that is no higher than the existing loan and either be:

A) A fixed rate loan with a lower payment than the ARM has or is expected to have within the next 6 months.

B) An ARM that results in a lower payment than the ARM has currently or is scheduled to have within the next 6 months (calculated at the current index value plus margin).

If the new loan is an interest only loan, then the term must be at least 5 years and may not have the potential for negative amortization.

NO appraisal, NO credit report, and NO ncome documentation should be required by the second mortgage lender because the objective is to maintain or reduce the risk due to the first mortgage with all other things affecting the risk of the transaction remaining the same.

Is there a politician or journalist out there that cares?   Please contact me if you have questions or need some hard facts. 

 Have a great day! 

IDFPR COMPANY FINES, REVOCATIONS AND SUSPENSIONS

September 2008

1)     UAM CORPORATION, Irvine, CA, License No. MB.6759328 was fined $5000.00 for using unregistered loan officers

2)     BRINKMAN MORTGAGE GROUP, INC. , Hickory Hills, IL, License No. MB.6759195. was revoked for failure to comply with regulations of Illinois Licensing Act.

3)     CARTERET MORTGAGE CORPORATION, Centerville, VA, License No. MB.0005435, license was revoked for failure to comply with License Surrender requirements.

4)     EXPERIENCED MORTGAGE PROFESSIONALS, OF ILLINOIS, INC. Wood River, IL, License No. MB.0006730, license was revoked for failure to comply with License Surrender procedures.

5)     FIRST STAR FINANCIAL CORPORATION, Schaumburg, IL, License No. MB.6759248 was fined for $500.00 for advertising violation

6)     LENDING SERVICES, INC., Norridge, IL, License No. MB.0006973, license was revoked for violations of the licensing act and using unregistered loan officers.

7)     PATRIOT MORTGAGE COMPANY, Warrenville, IL, License No. MB.0005981, was fined was $500.00 for exam violations

8)     REGAL MORTGAGE, INC., Lisle, IL 60532, License No. MB.0000997,  license was revoked for violations of the Licensing Act.

9)     WESTLAKE MORTGAGE CORPORATION, Chicago, License No. MB.6759266, license was revoked for license surrender procedures.

10) BEST MORTGAGE SERVICES, INC.,  South Elgin, IL, License No. MB.0006821, license was revoked for violations and possible fraudulent practices.

APPRAISAL NEWS - Last night I watched C-Span and Director of Federal Housing Finance Agency   James Lockhart responded to a question as follows:   "the appraisal agreement(restricting mortgage brokers from ordering appraisals) is being reviewed and implementation of the resulting policy will be delayed several months beyond January 1, 2009." 

There is still some hope that the mortgage brokers will still be able to offer better and faster turnaround.   

NO-Doc NEWS - Rep Brad Sherman suggested that  "no doc loans at best are taken by people that cheat on their taxes and since Fannie and Freddie are more closely a part of the federal government, they should not  be rewarding a tax cheater." 

While his perception is partially correct, it appears that the "baby is being tossed out with the bath water". 

Guess no-doc is still dead in the (bath) water.

Have a Great Weekend!

If you are looking for something new and exciting to do this weedind, take the kids to see the ski jumping (and more) in Fox River Grove ( September 20 and 21).  Check out www.norgeskiclub.com for details and directions.  Get there early(1 PM Saturday, Noon Sunday) and see the top ski jumpers of the nation compete for points used to qualify for the US Olympic team.  Best of all, you will not be standing in snow and freezing.  Instead enjoy great food, beverage, and a bonfire.  Pleanty of Photo OPS so bring your camera!  See you there!

I recently received notice of a 21% increase in my Lake County IL 2008 real estate tax assessed valuation.  In 2007, I along with many of my neighbors, were facing a similar increase and protested to the Lake County Board of Review.  They agreed with our position and rolled back the 2007 increase.  Now, with a year to do their homework and modify their mechanics, the assessor's office found a way to increase the assessment again.  This time, we have the ability to protest in another way and that is "MATTER OF LAW".  The following is the meat of our protest and I thought some of you might appreciate the sections that are copied below.  Wish us luck!

The Lake County Board of Review rules for 2008 set forth a set of "reasonable rules for the guidance of persons doing business with the Board and for the orderly dispatch of business."  The rules include an Appeals Based upon Matters of Law, which states:

 "Prior Board of Review Decisions.  Owner occupied residential property assessment appeals based up on prior year Board of Review decisions should contain the Notice of Finding from the Board of Review from the general assessment year or from the subsequent year where applicable.  Aside from substantial cause, prior year decisions on owner-occupied residential properties should be carried forward until the next general assessment year, subject to the Chief County Assessment Officer's equalization.  Cases based solely on this reason will be set for review only after a review by the Board or its staff."[i]

 Furthermore, Illinois Property Tax Code Article 16 Division 2 Section 16-80 "Reduced assessment of homestead property." states:

"Sec. 16-80. Reduced assessment of homestead property.

In any county with fewer than 3,000,000 inhabitants, if the board of review lowers the assessment of a particular parcel on which a residence occupied by the owner is situated, the reduced assessment, subject to equalization, shall remain in effect for the remainder of the general assessment period as provided in Sections 9-215 through 9-225, unless the taxpayer, county assessor, or other interested party can show substantial cause why the reduced assessment should not remain in effect, or unless the decision of the board is reversed or modified upon review. (Source: P.A. 88-455; 89-126, eff. 7-11-95; 89-671, eff. 8-14-96.)."

[i] Lake County "2008 Rules of the Lake County Board of Review"

http://www.co.lake.il.us/elibrary/publications/boardofreview/2008%20board%20of%20review%20rules%20for%20internet.pdf

AIG bites the dust.  Many are wondering "what does this mean to the Real Estate Industry?"  As I see it, 30 year mortgage rates were traditionally around 200 - 250 basis points above the yield on the 10 year treasury.  If this pattern had followed, mortgage rates would have been below 6% most of this year at the treasury yield sat around 3.80%.  However, because of uncertainty (credit crisis), mortgage rates were around 6.5%.  Now that the US Government has stepped in to reduce the risks with the bail out of Fannie and Freddie, and other financial companies, I believe that mortgage rates will drop down below 5.75%.  This along with the Stimulus Bill that was signed a few months ago should result in more first time buyers coming in to the market.  With their actions, hopefully, we will see a carry through to other buyers and sellers to start a recovery.  Have a great day!

What do you think?