In order to make HUD-1 closing statements more transparent for the parties involved, the Department of Housing and Urban Development (HUD) has made a number of changes that will take effect on January 1, 2010. HUD has tried to protect consumers, particularly buyers, during the course of dealing with their lenders and at the closing table. Here are some of the changes:
1) Mortgage brokers will need to calculate their commissions from their lenders (known as yield-spread premiums) as part of the loan origination fee. HUD hopes that by integrating the yield-spread premium into the origination fee, brokers will be less likely to place their customers into loans at the high end of the interest-rate spread.
2) Lenders will have to complete a new good faith estimate form, which will be three pages long as opposed to the current two-page form.
3) Origination fees and transfer taxes on the HUD-1 must be exactly as stated on the lender's good faith estimate.
4) Some costs from entities unaffiliated with the lender (ie. certain title company and inspection fees) can change between the good faith estimate and the HUD-1, but the change cannot be greater than 10%. Note that deals may still close if the discrepancy is greater than 10%, but all discrepancies will have to be reconciled and corrected within 30 days.
Sunday, January 25, 2009
Saturday, January 17, 2009
Loan Modifications -- How to Afford Your Monthly Payment
Many lenders will work with homeowners who are unable to pay their monthly mortgage. If you are having difficulty making your mortgage payment, you might want to consider trying to get a loan modification. Modifications come in many forms -- you might get a temporary or permanent payment reduction, an interest rate reduction, temporary abatement, extension of the payment period, or some sort of mixture of these options. However, the bottom line is that help may be available to you; most importantly, you may be able to keep your home.
Of course, getting your lender to negotiate their loan with you is not easy. Many lenders won't discuss the matter with you until you've missed a number of monthly payments. You may not want to get yourself in that situation for any number of reasons -- it will affect your credit, you feel it will tarnish your name, you are not comfortable intentionally defaulting, etc. Whatever your reason may be, some lenders have taken a hard-line stance on loan modifications, and they will not consider a loan modification unless you have already defaulted.
However, the good news is that more and more lenders are now trying to be proactive in helping homeowners before they default. For example, last month Fannie Mae announced that its loan servicers must allow "early workout" loan modifications for homeowners, even if those homeowners have never missed or been late on a mortgage payment. If your loan is owned by Fannie Mae and you are reasonably sure that imminent changes in your financial situation or income will case you to miss mortgage payments, you may qualify for a loan modification without having defaulted on your loan.
In order to take advantage of this, you need to find out if your loan is owned by Fannie Mae; Fannie Mae currently owns over 18 million loans nationwide. If it is, you should contact your loan servicer to get the ball rolling. Keep in mind that you will be required to provide a great deal of personal financial information. If your loan modification is approved, you will be placed on a four-month trial period. If you make your payments on time during those four months, your modified loan could become your permanent loan.
Other lenders are also demonstrating increased flexibility with respect to loan modifications. However, each lender is different and has its own set of rules. Before you default or can no longer afford to pay your loan, it is a good idea to contact your lender and proactively work to come up with affordable payment terms so that you can keep your home.
Of course, getting your lender to negotiate their loan with you is not easy. Many lenders won't discuss the matter with you until you've missed a number of monthly payments. You may not want to get yourself in that situation for any number of reasons -- it will affect your credit, you feel it will tarnish your name, you are not comfortable intentionally defaulting, etc. Whatever your reason may be, some lenders have taken a hard-line stance on loan modifications, and they will not consider a loan modification unless you have already defaulted.
However, the good news is that more and more lenders are now trying to be proactive in helping homeowners before they default. For example, last month Fannie Mae announced that its loan servicers must allow "early workout" loan modifications for homeowners, even if those homeowners have never missed or been late on a mortgage payment. If your loan is owned by Fannie Mae and you are reasonably sure that imminent changes in your financial situation or income will case you to miss mortgage payments, you may qualify for a loan modification without having defaulted on your loan.
In order to take advantage of this, you need to find out if your loan is owned by Fannie Mae; Fannie Mae currently owns over 18 million loans nationwide. If it is, you should contact your loan servicer to get the ball rolling. Keep in mind that you will be required to provide a great deal of personal financial information. If your loan modification is approved, you will be placed on a four-month trial period. If you make your payments on time during those four months, your modified loan could become your permanent loan.
Other lenders are also demonstrating increased flexibility with respect to loan modifications. However, each lender is different and has its own set of rules. Before you default or can no longer afford to pay your loan, it is a good idea to contact your lender and proactively work to come up with affordable payment terms so that you can keep your home.
Sunday, January 11, 2009
Mortgages and Earnest Money
In today's real estate market, more and more contracts tend to fall apart, often because the buyer is unable to procure a mortgage on satisfactory terms, if at all. As the lending market gets tougher, I hear the following questions a lot from buyers: "Is my earnest money protected? Can I get my earnest money back?" I also hear the inverse from Sellers: "Can I keep the earnest money?"
A standard real estate contract will set forth various contingencies that the parties must meet in order to close. One of these contingencies is the mortgage contingency. For a detailed explanation of what a mortgage contingency clause is, click here. To see how the mortgage contingency affects your earnest money, keep reading!
If the buyer is unable to procure a mortgage commitment stating that the lender's various conditions have been met, and the buyer thus does not have a loan, then the buyer is entitled to a return of all earnest monies under a standard real estate contract (i.e. a realtor-form contract) if the contract had a mortgage contingency clause which protects the buyer and if the buyer notifies the seller that he has not obtained a loan within the mortgage contingency period. Each contract is different, but standard realtor forms for residential real estate in Illinois include such a mortgage contingency, and so long as the contingency is not crossed out when placing the offer, the dates and interest rates listed therein are key provisions in determining whether the buyer gets his earnest money back.
If the mortgage contingency states that the buyer is obtaining a loan for 80% of the purchase price for a 30-year fixed term with an interest rate not to exceed 6.5%, and the buyer is able to obtain such a loan, then technically the buyer is required to close, even if his interest rate might be a little bit higher than he wanted (i.e the buyer got an interest rate of 6.25% and he was hoping for 5.75%). Some contracts also allow the seller to find a loan for the buyer if the buyer is unable to obtain a loan on his own. In such instances, if a buyer's loan is denied and he notifies the seller in a timely manner pursuant to the mortgage contingency in the contract, the seller will have an opportunity to search for a loan for the buyer, though seller need not do so. If the seller chooses to try and is also unable to get a loan for the buyer, then he must return the earnest money as per the terms of the contract.
Keep in mind that in certain situations, the earnest money terms may be different because they may have been negotiated by the parties' attorneys as per their clients' needs, and the contract might have been written by the attorneys, instead of using a form contract. This is true in some residential contracts, and in many commercial contracts. If you are concerned about what the earnest money provisions in your contract might be, you should have the contract carefully reviewed by your attorney.
A standard real estate contract will set forth various contingencies that the parties must meet in order to close. One of these contingencies is the mortgage contingency. For a detailed explanation of what a mortgage contingency clause is, click here. To see how the mortgage contingency affects your earnest money, keep reading!
If the buyer is unable to procure a mortgage commitment stating that the lender's various conditions have been met, and the buyer thus does not have a loan, then the buyer is entitled to a return of all earnest monies under a standard real estate contract (i.e. a realtor-form contract) if the contract had a mortgage contingency clause which protects the buyer and if the buyer notifies the seller that he has not obtained a loan within the mortgage contingency period. Each contract is different, but standard realtor forms for residential real estate in Illinois include such a mortgage contingency, and so long as the contingency is not crossed out when placing the offer, the dates and interest rates listed therein are key provisions in determining whether the buyer gets his earnest money back.
If the mortgage contingency states that the buyer is obtaining a loan for 80% of the purchase price for a 30-year fixed term with an interest rate not to exceed 6.5%, and the buyer is able to obtain such a loan, then technically the buyer is required to close, even if his interest rate might be a little bit higher than he wanted (i.e the buyer got an interest rate of 6.25% and he was hoping for 5.75%). Some contracts also allow the seller to find a loan for the buyer if the buyer is unable to obtain a loan on his own. In such instances, if a buyer's loan is denied and he notifies the seller in a timely manner pursuant to the mortgage contingency in the contract, the seller will have an opportunity to search for a loan for the buyer, though seller need not do so. If the seller chooses to try and is also unable to get a loan for the buyer, then he must return the earnest money as per the terms of the contract.
Keep in mind that in certain situations, the earnest money terms may be different because they may have been negotiated by the parties' attorneys as per their clients' needs, and the contract might have been written by the attorneys, instead of using a form contract. This is true in some residential contracts, and in many commercial contracts. If you are concerned about what the earnest money provisions in your contract might be, you should have the contract carefully reviewed by your attorney.
Friday, January 2, 2009
Seller Preparation -- Documents Needed for a Short Sale
Short sales may be simple or complex, but they are almost always time-consuming. If you are considering selling your home through a short sale, there are certain things you can do to expedite the process.
First and foremost, call your lender. Most large lenders have a division or an outside company that is handling short sales for them; your lender should be able to put you in touch with the right people. Some banks will send you their forms, etc. right away, open a file for you, and then hold it until you have an offer. Other banks will want you to have a contract in hand before starting the process.
Regardless of which route your bank takes, you should assemble documentation to support your short sale right away. If your attorney is negotiating the short sale for you, he or she will want these documents up front so they are prepared for the bank when the time comes. You should have the following documents ready:
1. Completed application package from the lender, if available
2. Signed hardship letter explaining why you cannot afford the home and a short sale is necessary
3. Signed letter addressed to the bank authorizing your attorney to negotiate the short sale on your behalf
4. Copy of your last two months' bank statements for all personal accounts, including retirement and 401k accounts
5. Copy of your last two months' pay stubs
6. Copy of your last two years' income tax returns with W-2s
7. Proof that your property is listed for sale (i.e listing agreement)
8. Monthly budget showing all income and payments made on a monthly basis (if not already included in the lender's application package)
9. Financial statement showing all of your assets and liabilities (if not already included in the lender's application package)
10. Sales contract
Every page of every document listed above should have your name, as it appears on your mortgage, and your loan number or file number written on it. Short sales are time-consuming and buyers often back out because of the long wait. Anything you can do to expedite the short sales process will help you complete the process with less hiccups and as quickly as possible!
First and foremost, call your lender. Most large lenders have a division or an outside company that is handling short sales for them; your lender should be able to put you in touch with the right people. Some banks will send you their forms, etc. right away, open a file for you, and then hold it until you have an offer. Other banks will want you to have a contract in hand before starting the process.
Regardless of which route your bank takes, you should assemble documentation to support your short sale right away. If your attorney is negotiating the short sale for you, he or she will want these documents up front so they are prepared for the bank when the time comes. You should have the following documents ready:
1. Completed application package from the lender, if available
2. Signed hardship letter explaining why you cannot afford the home and a short sale is necessary
3. Signed letter addressed to the bank authorizing your attorney to negotiate the short sale on your behalf
4. Copy of your last two months' bank statements for all personal accounts, including retirement and 401k accounts
5. Copy of your last two months' pay stubs
6. Copy of your last two years' income tax returns with W-2s
7. Proof that your property is listed for sale (i.e listing agreement)
8. Monthly budget showing all income and payments made on a monthly basis (if not already included in the lender's application package)
9. Financial statement showing all of your assets and liabilities (if not already included in the lender's application package)
10. Sales contract
Every page of every document listed above should have your name, as it appears on your mortgage, and your loan number or file number written on it. Short sales are time-consuming and buyers often back out because of the long wait. Anything you can do to expedite the short sales process will help you complete the process with less hiccups and as quickly as possible!
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