Patty Manzi’s Tri-Valley Real Estate Blog

There is now a new name for people who voluntarily default on their mortgages.  The ’selective defaulter’ is someone who has a stable income and can more than afford their mortgage payments & monthly expenses, but because their home has lost value and is worth less than is owed on the mortgage, the homeowner decides to default voluntarily and walk away from the home & mortgage. 

I can think of many other things in our lives that lose value and we as a society dont give it a second thought.  But when our home loses value we dump it and run?   This is very puzzling to me.

When we buy a new car it loses value the day we drive it off the lot because it is now a ‘used’ car, but we keep making our monthly payments and drive it until it falls apart.  We spend thousands of dollars on electronic equipment (computers, TV’s, PDA’s),  and rooms full of expensive furniture.  These things lose their value, but we dont stop paying for them and dump them on the local street corner because of it.  I have heard people complain that they couldn’t get $50 dollars for their coffee table at a garage sale so they kept it because it ‘was expensive’ when they first bought it, but they will turn around and walk away from their HOME because their equity has devalued.  Personal property almost never increases in value no matter how long we keep them, but our real property – our homes –  eventually do if we hold on to them long enough.  That’s why real estate is called an investment.  Just like the stock market, the prices go up and down.  If we stay in for the long-term, at some point we will see a return on our investment.

For some there is a belief the banks need to be responsible for the loss of value in their homes, and this is just not true.  Just like credit card companies and auto-loan companies are not responsible for the devaluation of our personal property and vehicles.  On the contrary, consumers have a responsibility to follow through on our financial commitments.

I do understand there are many people who are upside down on their mortgages that truly cannot afford their monthly payments due to a financial hardship like the loss of a job, or the death of a spouse.  In those cases walking away from one’s home and morgage is unavoidable and not really a choice.  For those people loan modification programs, HAMP programs, HAFA programs,  short selling the home, or ultimately foreclosure are all valid and viable choices.

The HomePath financing program is a program designed to move REO homes.  The benefits of this program include:

• Low down payment and flexible mortgage terms, including fixed-rate & adjustable, at as little as 5%.
• Borrowers with less than perfect credit may qualify
• Available for owner occupied properties, or second home investments
• The down payment of at least 3% can be funded by the borrowers own savings, a gift or grant, or a loan from a non-profit organization, state, local government, or employer.
• No mortgage insurance required
• No appraisal required

Whether you are looking to purchase Pleasanton Real Estate or a home in another city, be sure to consult with your mortgage professional to determine your best options.  If you dont have a mortgage professional, contact a Realtor for a referral.  For more details on qualifications of this program visit HomePath.

Happy New Year! 

Along with the hope of prosperity, the new year also brings with it some new and exciting changes in our state and federal laws.  One important change will be new license requirements for anyone conducting mortgage loan activities.

As of January 1, 2010 new license requirements go into effect for anyone conducting residential or commercial Mortgage Loan Activities.  Any person engaging in mortgage loan activities must report to the Department of Real Estate their intent to arrange or service loans secured by real property, by January 31, 2010. 

Also, any person conducting licensed activities as a Mortgage Loan Originator (MLO) is now required to have the following:

• An endorsement on their Real Estate License
• Register with the Nationwide Mortgage Licensing System & Registry (NMLS&R)
• Satisfy the requirements to obtain an MLO license (including new qualification assessments, federal & state exams, and background checks).  NO EXCEPTIONS OR EXEMPTIONS for existing licensees.
• The MLO endorsement must be issued by January 1, 2011 on the real estate license.  (Endorsement applications for qualified MLO registrants must be submitted by September 15, 2010 to be issued by January 1, 2010.

Failure to comply can result in the assessment of penalty fees of $50 per day for the first 30 days, and $100 per day for every day thereafter up to a maximum of $10,000.

Senate Bill 36 (SB36), signed into law October 2009, was enacted to identify licensees conducting mortgage activities and bring California into compliance with the federal Secure and Fair Enforcement Mortgage License Act (SAFE Act). 

Under the SAFE Act all Department of Real Estate (DRE) licensees who conduct MLO activities must meet the following requirements to qualify for the MLO endorsement:

• Take and pass the National and California Unique State component of the SAFE written exam.
• Complete 20 hours of pre-license education.
• File an online MLO license endorsement application and license enrollment fee on the NMLS&R.
• File  a NEW set of fingerprints using a NMLS&R live scan vendor.
• Authorize NMLS&R to obtain a credit report on the applicant.

The SAFE Act prohibits the licensing of an MLO for the following reasons:

• An applicant has ever been convicted of a felony involving fraud, dishonesty, breach of trust, or money laundering; or convicted of any felony in the 7-year period prior to applying for an endorsement.
• An applicant has eve had a MLO license revoked in any governmental jurisdiction, or
• An applicant has demonstrated lack of financial responsibility by showing disregard in the management of his or her own financial condition.

Further information can be found on the DRE website at www.dre.ca.gov, or by calling the DRE Licensing Section at (877) 373-4542.

I talk to lots of people about buying homes.  Not long ago I was talking to a newlywed couple and they mentioned they wanted to buy a house and they were saving for a down-payment.  I then asked them what else they were doing to prepare for the home purchase.  They looked at me with a most quizzical expression and asked “What do you mean”? 

While a down-payment is a necessity, it takes much more than a down-payment to buy a home.  Buying the home is the goal and to accomplish this goal you must have an ‘Action Plan’ to get there!  What do I mean by action plan?  I mean there are many steps that must be taken along the way prior to the home purchase.  For example:

• Do you know what your credit score is?  This is an important factor in obtaining a loan.   You must have a minimum credit score to qualify for a loan.  Your credit score is based on your payment history (on time & delinquent) and how much debt you have. 
• Have you seen a copy of your credit report? This is very important.  You can download a free copy of your credit report every year from each of the three credit bureaus.  This report contains a list of your creditors, balances, payment history, and personal information.  It is a good idea to get this report and verify that the information is correct.  There could be outdated or incorrect information on your report that negatively affects your credit score.  You can contact the credit bureau directly to dispute or correct information.  This may take some time so factor that into your timeline of your action plan.
• Have you spoken with a lender about how much house you can afford now? Another very important step.  A lender will meet with you and get a picture of what your financial status is and advise you of where you need to be prior to purchasing a home.  The lender can also advise you of what documentation will be required to qualify for a loan (pay stubs, tax returns, employment verifications, etc.)
• Have you educated yourself about down-payment assistance programs that might be available to you? Your lender can assist you with this information.  There is also a great organization called the Tri-Valley Housing Opportunities Center.  The Tri-Valley Housing Opportunity Center  (TVHOC) provides home-buyer pre and post purchase education, income and asset development education, information regarding private sector lender programs, and funding sources – helping match those in need with programs and services that benefit them most.

After performing these tasks, you may find out that you may have some financial work to do before you can buy a home, and you can establish a time line (action plan) for accomplishing this goal.  Or you may find out that you are financially ready right now.  Either way it is worth the effort to be educated, informed, and prepared.

I was asked the other day about why someone would need to get ‘pre-approved’ for a loan before looking for a home.  Here’s why:

If you are serious about buying a home, your next step is to get a ‘pre-approval’ from a reputable Lender.  By doing this before looking at homes, you’ll save yourself time, energy, and frustration. 

The pre-approval will:

• Determine how much home you can afford:  Helps you avoid buying less home than you can afford, or being disappointed if you don’t qualify for as much as you had hoped.
• Shows what your total investment will be: You’ll know approximately how much money you’ll need for your down payment and closing costs.
• Lets you know what your monthly payment will be: You’ll have a very close estimate of what your monthly principal, interest, taxes, and insurance (PITI) will be.
• Identifies the loan programs you can qualify for:  With a wide variety of loan programs available, it is important to know which types you qualify for and which will best suit your needs.
• Strengthens your offer: Sellers may be more inclined to accept realistic offers when they know that you are serious and have taken the time to be interviewed by a lender and are pre-approved for a loan.

When you are pre-approved by a Lender, you’ll receive a Pre-Approval letter to give to your Realtor®.  This letter should state that the Lender has checked your credit, your credit score, verified your income and employment history, and your monthly debts and obligations.

Choosing Your Lender

When you buy a home, one of your primary concerns will be finding a lender who can provide the financing YOU need.  So how should you shop for a Lender?  Most real estate agents have a network of reputable professionals they can refer you to.  Calling around and asking for interest rate quotes is NOT always the best way to select a Lender.

Competitive rates are important, but when you consider the fact that most Lenders get their money from the same sources (and therefore have essentially the same rates to offer), you must look at some other factors before choosing a Lender.  You need a Lender who works with you and your real estate agent as a team and has the same goal – to get your loan approved and closed in a timely and professional manner. 

Meeting With the Lender

When you meet with the Lender you choose, be prepared to provide the following information:

1. Your residence history
2. Your employment history & income
3. All outstanding debts, loans, credit cards
4. All bank accounts – savings, checking, and investment accounts
5. Real estate you currently own
6. Personal property you own

Remember finding a Lender you can trust is just as important as finding an experienced Realtor®.  You want to make sure that your needs are going to be met professionally and represented throughout the entire process of buying your home.  Ask for, and check references.