Question of the week: In lieu of a question this week below is a story I wrote about a real client and conversations we had a little over twenty years ago at this time. The names have been changed but the rest is true. As you can tell from the technology some things have changed since then. I like to read it every year or so to remind me of the impact our industry has on families.
It is a bit lengthy but I hope you enjoy it.
Is It Really Mine?
I really did not want to take the phone call. The dead air coming through the speaker on my phone told me the receptionist was waiting for me to tell her if she should put the call through or tell the caller I was somehow engaged and unable to take his call. George Dillon, what a nightmare. About three or four weeks ago we had closed the Dillon's loan and they had moved into their new home, their first home.
"I do not understand what the problem is, I have a job, I have money and all I want to do is buy a house. People do it all the time, why is there a problem?" Mr. Dillon, as he preferred to be called, even though he was my age, was close to yelling. We had only been in escrow for two weeks and were really close to submitting his loan to the underwriter for approval. He and his wife Nicki were almost in their new home. I had placed the call to Mr. Dillon because I needed just a few pieces of paperwork from him to complete the loan package; incidentally they were items I had asked for two weeks earlier when we had filled out the loan application.
"There is no problem, George," I responded, turning away from my desk and leaning back in my chair and putting my feet on the windowsill. As I looked out at the secretaries going to their cars for lunch in the lot outside I tried to remain calm. Having been in the business for five years I understood that people could be different when buying a home than they were "normally"; it can be a stressful process and it doesn't always bring out the best in people.
"As I mentioned when we filled out the paperwork I need your W2's from last year to complete the package. At this point they are the only thing that I need in order to submit your loan. If you could fax those to me today we could have approval as soon as tomorrow and no later than Thursday. The way your package looks we'll have you and the family in the home by Thanksgiving." Using words that create visuals helps keep clients focused on the ultimate goal-owning their own home. Home not house, and holidays as markers of time; they put the warmth in the transaction and clients can picture themselves at the head of their table, looking out at their proud parents and anxious children as they prepare to carve the holiday turkey.
"Well, why do you need that? Don't you trust me? We have been packing and Nicki thinks she already packed the taxes. I really don't want to go digging through boxes." Irritability and doubt seemed to be creeping into our conversation, from both sides. "Mr. Smith, you assured us our loan looked very good from the first time we met, now this. Before we started looking at houses Sam assured us that you were well qualified and could get us our loan, now I'm not so sure you or Sam are qualified. If you were I would not have to go digging through boxes."
Funny how he has always called me Mr. Smith and his real estate agent Sam, maybe because our conversations were about money, finances, topics he is not used to discussing with others-sort of like medical matters with a doctor.
"A couple of points..."
"I mean what difference does it make, I know my employer has sent back your form that verifies how much I make, how long I have worked here and even how much they paid me last year. Same for Nicki's company."
"There is no prob..."
"It is very nerve racking, I mean have you ever tried to pack a house with little kids running around? Plus work, plus worry about whether or not we'll even get the house? My wife is a wreck and she is beginning to wonder if it is even worth it."
I said nothing, merely crossed my legs, leaned further back in my chair and watched as a group from the company next door walked across the parking lot for what could have been a holiday lunch.
I watched them pile into two cars and waited for Mr. Dillon to be finished, he was almost through and when he was he would be ready to listen and we could finish our conversation.
"Are you there?"
"Yes, George," I swung my feet off the windowsill and turned back to my desk. "If you are finished let me say a few things and I'm sure I can clear everything up. O.K.?"
"O.K., now pick up a pen, if you have anything to say write it down and please wait until I am finished; I'll answer all of your questions. I know you are busy this time of year and the sooner we can get this cleared up the sooner you can get back to work and I can get you into your home. First, of course I trust you, however I am not the one lending you and Nicki $200,000. Someone who is never going to meet you is. Unfortunately in this day and age a lot of people lie and cheat and the result is often foreclosure which costs the banks an awful lot of money and makes it a little more difficult for everyone else." I paused to make sure he was still with me.
"Now this may not be fair but because of the potential for fraud they want to back up your paystub and your employers' verifications with your tax statements. Luckily we only need the W2s and not the complete returns. When we first met and we spoke about what type of loan would suit you and Nicki I did say your loan looks good. Now I say it looks excellent, however looking excellent includes your W2s for last year.'
'Do you remember when we met you gave me the 1991 forms and said you had to look for the 1992's?" I asked him.
"Yes, but..." before he could go on I continued.
"So my needing them is not a surprise, we have needed them all along. No matter what lender you use they all want this same form. Now in a matter of two weeks we have progressed from you finding the house you and Nicki want to call home to being ready to submit you for approval. How long did you say it took your brother, twelve weeks? I'd say we are doing pretty good, and the reason is because you and Nicki have been so cooperative. We are at the top of the hill, I know it can be difficult, that is why we prepared so much before you even started looking at houses. Let's finish the race and you can relax, but not until we cross the finish line. There is no problem, unless we cannot get the W2s. Now to prevent you from going through boxes, is your payroll supervisor in or already at lunch?"
I hoped this would take some of the wind out of him and he would cooperate. As usual our calls start with him blowing off steam then being cooperative.
Mr. Dillon waited a moment before answering. "She's still here, I just saw her go into her office, why?"
"Most employers retain a copy of their employees W2s, put me on hold and pick up the call in her office, if she is not busy, and let's see." Anticipating the hold I resumed my position for watching the parking lot.
"Uh, o.k., hold on if I lose you I'll call you right back." As the elevator rendition of "Yesterday" filled my ear I hummed along.
"Don't Let the Sun Go Down on Me", violin version, was interrupted by Mr. Dillon's voice coming through a trashcan, I smiled as I swung back to my desk and he told me something I already knew.
"Mr. Smith, I am here with Ms. Clemens who handles our company's payroll." As many people who are unaccustomed to conversations on speakerphones are apt to do he was just shy of yelling.
"Hello, Mr. Smith how can I help you?" hearing her voice I pictured a woman who cut the company's first paycheck several decades ago.
"Dennis, please. Ms. Clemens, I am helping George and his wife purchase their new home, first I want to thank you for sending back our employment verification so fast. If only more employers were as considerate to their employees and responded as quickly my job would be a lot easier." A little butter always helps.
"Oh, thank you, Dennis. Well I remember when David, that's my husband, and I bought our home and how nervous we were. Ever since then I have always made those forms my first priority." I could feel the smile she was giving Mr. Dillon and the look that told him she was an integral part of his future happiness and she better be invited to the home warming. I bet she brings a broom with a ribbon on it.
"Terrific, Ms. Clemens..."
"Please call me Barbara." With that I knew we would get what we needed.
"Barbara, in order to finish processing the Dillon's loan package we need their W2s for 1992. George has indicated to me that they have already packed their tax forms and it might take a while to find them. I was wondering if you might have the employer's copy handy and could fax me a copy." While I was speaking I could hear movement in the room and what may have been a file drawer opening.
"I have a copy right here, we'll fax it right over." Ms. Clemens said.
"Great, George I'm going to call Nicki and see if we can't get a copy of hers today also. If so we submit your loan today. Don't worry about anything, you're going to get your home. Barbara thanks for your help. Good bye." I disconnected before Mr. Dillon had a chance to create further irritability.
That was pretty much the way every conversation with Mr. Dillon went from the beginning to the end of the escrow. His wife was very cooperative and always excited about the home they were buying, unfortunately it did not rub off on her husband. I thought of this now as my receptionist waited for my response as to whether I wanted this call. I would be leaving in a few days for Christmas and New Year's and was wrapping up some odds and ends. Basically, I was not real busy and had no real reason for not taking the call except a feeling my mood would be altered by the call if I chose to take it.
"Put it through."
My phone rang a few times before I picked it up, "Good afternoon this is Dennis."
"Hello, Dennis," I was shocked. He did not call me Mr. Smith. "This is George Dillon, how are you?"
"Uh, fine," I felt I was speaking to someone other than the Mr. Dillon I had seen only a few weeks ago repeatedly going through the settlement statement on his loan documents and asking the same questions. "How are Nicki and the kids? Everyone ready for Christmas?"
"Dennis, that is part of the reason that I called. This is not easy for me to say so bear with me." I pulled my chair up to my desk and listened intently, surely this conversation would be unique judging by his tone and the pause he took before continuing.
"I have been wanting to call you for a few weeks," he started and then a pause before, "Thanks for all you did. I realize now that I probably haven't been your favorite client and treated you pretty bad a couple of times and I want to apologize."
"Don't worry about it, buying your first home creates a lot of doubt and stress. I wish all my clients were as good as you and Nicki."
"Let me finish. Seeing the way you were with our daughters when we met together I thought you would appreciate this. When we got moved into the place we took the kids to my sister's so they could be out of the way while we got situated. When we had their rooms fixed up and the rest of the house pretty much in order we brought them home. It was the first time they had seen the inside of the house and they went tearing around looking at everything. All of a sudden I heard a scream from the hallway and Sarah, you know our four year old? Anyway she was standing in the doorway looking happier than I had ever seen her in my life." Mr. Dillon paused for a moment and I heard his voice start to crack as he continued.
"So she's standing there just beaming and looks at me and says 'Is it mine Daddy? Is it really mine?'
You see, she had seen her bed and dresser and stuffed animals and they were all hers, none of her older sister's stuff was in the room. She was born in our apartment, the one you saw us in, and had never had her own room. I started to cry as I told it was her room and no one else's."
At this point, knowing the little girl with her black hair and big brown eyes, I started to choke up a little myself. Not knowing what to say, or being able to, I kept quiet and waited, knowing Mr. Dillon had more to say.
"Dennis, I felt more like a father at that moment than at any time in my life. When the girls were born I was happy but worried about how I would be as a father and provider. That moment when my daughter asked me if that was her room answered my doubts. Anyway, after last night I knew I had to call and tell you. When we were in the apartment we would drive through the streets and see the lights at Christmastime. Sarah doesn't really remember much about Christmas and the lights and all but Marie does. Yesterday my sister and brother-in-law came over with their two kids and brought some presents to put under our tree and I heard Marie talking to her cousin. She was telling her how she lives in Christmas Land because all the houses have lights and Santa Clauses and reindeer and other decorations and that this year she knows they will get presents from Santa Clause because Mommy and Daddy got a house from Santa Clause with a chimney so he could come down it to give her his presents. I guess to a six year old you get more presents if you have a chimney than if you don't. I wish Santa Clause would make the payment though"
At this point Mr. Dillon gave a chuckle and cleared his throat, as I did mine. "Dennis, this will be a Christmas we will never forget. Nicki and I were talking last night after the girls were in bed and we had a fire lit and the tree all lit up that this was the way we pictured our lives should be when we first got married. Well, we just want to thank you for your help and to wish you a Merry Christmas. I hope you and your family will be as happy on Christmas as we will be, have a great Christmas."
Picturing the little girls as he told his story, and their house all decorated for Christmas, and knowing how hard it was for him to relate this to me I gave him the only response I could.
"It already is."
Have a question? Ask me!
Remember, with Dennis it's not just a mortgage, it's your complete financial picture.
With our long story some quick highlights on the economy instead of details. Big news was Fed Chair Yellen saying the Fed will retain its near zero rates for banks through the first quarter, possibly first half, of 2015-which had immediate result of stocks going up and bonds down (pushes rates higher). Supporting low rates continuing was the Consumer Price Index (CPI), aka inflation, for November which saw prices drop 0.3% for the month, mostly due to the fall in gasoline prices. Taking out food and energy prices and CPI increased 0.1% for the month and is up 1.7% for the year. Even without the volatile petroleum prices inflation is well below the Fed target. This news is all beneficial for low mortgage rates.
Rates for Friday December 19, 2014: Despite a choppy week with the Fed announcement and CPI numbers, plus the tension growing from North Korea's hacking of a major corporation, we are just hanging onto to last Friday's rates. We may see some bouncing through the holidays but should stay within our current range from the past several weeks unless some major event occurs.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.625% Flat
30 year high-balance conforming 3.75% Flat
30 year FHA 3.25%*** Flat
30 year FHA high-balance 3.625%*** Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs.
I hope Santa puts something nice in your stocking!
Have a great week,
Question of the
week: When we closed
on our home this summer you said our taxes would be around $6500 a year and our
tax bill shows we only owe $2000 for the first installment, which is it?
Answer: One of the more challenging
aspects of purchasing a home to explain, and for home buyers to retain amongst
the massive amount of information put to them in the process, is the
supplemental property tax.
With so many new home buyers this past year here
is a recap of how supplemental taxes work.
Property taxes are based upon the purchase price
of a property with the value of the property being split into the land value
and the value of improvements on the land, i.e. you house. In California the
tax year is from July 1st to June 30th and property tax
bills are mailed in October with the first installment being due by December 10th
and the second installment being due April 10th. The first
installment (due December 10th) covers taxes from July 1st
to December 31st and the second installment (due Aril 10th)
covers from January 1st to June 30th.
Depending on when you purchased your home the
tax bill prepared and mailed in October may not be reflective of what your
actual property taxes are but instead show the taxes due based upon the
previous owner’s tax obligation.
In the instance for our question of the week the
client purchased the home and closed at the end of August on a $525,000 home.
The prior owner had purchased the property in 1998 for closer to $300,000,
which is the $4000 tax bill our client received in the mail—the obligation
based on the prior owner’s taxable value.
Sometime in January you will receive a supplemental
tax bill that will be broken into two installments (due the last day in
February and June 30th) that will cover the difference between the
amount owed in taxes based upon your purchase price and the amount billed based
on the prior owner’s tax basis. The bill will be prorated based on when you
purchased the home and the new tax rate is to apply; for instance if closing
was August 31st then the supplemental bill will cover ten months of
differential between the old and new tax rates (September through June).
The total of the supplemental tax bill our
client will receive and the tax bill received in October will be near the
initial estimate of $6500 per year.
It is important to note if your taxes are being
impounded, i.e. collected every month by the lender as part of your monthly
mortgage payment, the lender will not pay the supplemental
bill. The lender will pay the taxes based on the bill mailed in October by the
county, any supplemental taxes are your responsibility to pay.
Taxes can get a bit complicated, if you have any
questions on your tax bill please do not hesitate to contact me. If you want to have a tax bill next year,
which means you will have to purchase a new home to receive that tax bill,
please call me so we can begin the process of getting you preapproved and ready
to purchase your new home in 2015.
Have a question? Ask me!
Remember, with Dennis it’s not just a mortgage,
it’s your complete financial picture.
economic news to end the week. Yesterday the Census Bureau released retail
sales figures for November which showed a big leap from October to November
with sales rising 0.7% for the month, stripping out auto and gas sales and the
increase was 0.6%. This news caused Mortgage Backed Securities to drop on the
news (higher rates) as investors saw the news as support for the Fed raising
interest rates in the nearer term rather than the further term.
yesterday was topsy today was turvy as the November Producer Price Index
data was released that showed prices in the month declined 0.2%, led by cheaper
energy costs to run plants and power vehicles. Taking out energy costs and the
PPI number was flat month over month. Year over year the PPI increase is up
only 1.4%. This news is rate friendly as it shows an absence of inflation, with
little to no inflation there is less pressure for the Fed to raise interest
one set of data points to higher rates and the other set of data points to
rates remaining at current levels. With data such as GDP growth, higher
consumer sentiment, improving employment and growing retail sales and very
importantly the Fed having stopped printing money to purchase mortgages in
October we should be seeing rates on the rise. Instead for the past month we
have seen Mortgage Backed Securities prices slowly climb to recent peak levels
in mid-November and previously seen in the spring of 2013. Counter-intuitive to
most economic theory, a growing and strengthening economy should have higher
rates not lower, our recent rate market seems to be less concerned with
domestic issues than global and that is a primary cause for our continuing low
Friday December 12, 2014: After last week’s little bounce in interest rates
this week we see them drift back down their lows last seen in May 2013 (and two
weeks ago). The environment is for rates to remain very low, this low for long
I’m not sure but surely below 4.00% on the conforming rates for perhaps another
30 year conforming 3.625% Down 0.125%
30 year high-balance conforming 3.75% Down
30 year FHA 3.25%*** Flat
30 year FHA high-balance 3.625%*** Flat
Please note that these are base rates and adjustments
may be added for condominiums, refinances, credit scores, loan to value, no
impound account and period rate is locked. Rates are based on 20% down (3.5%
for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no
points and credit towards closing costs.
Drought or deluge seem to be the options for weather
in Southern California, and we are definitely experiencing deluge the past few
days. Thankfully we replaced our roof over the summer and no longer are worried
about where to set the buckets up in our family room when it sprinkles, much
less brings down the rain we had last night.
I love a great big storm and last night got up in the
dark early morning to check on things, got to make sure the new roof is
leak-proof, and loved looking out at the wind and rain coming down in torrents.
Though my thoughts did run to when I would be able to get a Christmas tree and
not have a big ball of wet mess to drag into the house.
Hoping everyone is able to safely navigate their way
in the stormy weather.
Question of the
week: If my wife is
not on title to our home and I die does she have to pay off the mortgage?
Answer: This week’s question comes
from Doug, one of our partners at Stratis Financial, who was double checking
information for a client engaged in a refinance transaction. The scenario is
our client was refinancing their mortgage as husband and wife, however the wife
is not a U.S. citizen but a permanent resident and her green card had expired a
few weeks ago. The renewal process has
been slow and she has not yet received her renewal card. As a result the lender
cannot approve her for the mortgage application.
Fortunately the husband, who is a U.S. citizen,
qualifies for the refinance on his own, as a result Doug set up the application
package for the husband only to be on the loan and the husband and wife to
remain on title. The husband brought forth our question of the week, if he were
to pass away before the mortgage was paid off could the lender call the
Most mortgage notes have what is known as a due
on sale clause, under this clause if there is a transfer of title from the
current title holders to new title holders who are not currently on the title
to the property the lender can call the note due, i.e. it must be paid off in
full now. As an example, John and Jane are on title to their home as joint
tenants and both are on the mortgage. The get divorced and John deeds his
interest to Jane. In this instance the mortgage would not be callable on the
due on sale clause as Jane is still on the title and mortgage. In two years
Jane deeds the property to her brother Jack. At this point the mortgage company
could call the loan due and demand it be paid in full as Jack is not on the
mortgage, nor was he on the title when the mortgage was approved and funded.
Our client’s concern is that the last instance
above may occur with his wife should he die with the loan outstanding, that the
lender will enact the due on sale clause.
Our common experience in the industry is that we
have never heard of a lender calling a loan due after one of our borrowers has
passed away and while we thought that would be the case in this circumstance we
were not certain enough to pass along the information to the client.
I reached out to friend and Long Beach attorney
Greg Burnight with the question and his response put our client at ease and he
is moving ahead with his refinance.
Greg provided us with information from the
Garn-St. Germain Depository Institutions Act of 1982 that essentially allows a
surviving spouse to continue to pay the mortgage left behind by a deceased
spouse—whether on the loan or title to the property at the time of the spouse’s
death under certain circumstances.
If the spouses own their home as joint tenants
surviving spouses are free to assume the outstanding mortgage(s) at no costs
(so don’t let a lender try to impose assumption fees) under the law. As well if
a home is inherited by relatives the
mortgage may also be assumed and retain the mortgage in the deceased borrower’s
name, provided they reside in the property.
This expands the right of retaining the mortgage
to children of a deceased parent, so long as the child(ren) inheriting the
property make the property their primary residence.
While I can be critical of many of the laws our
state and federal governments pass, and often am, here is an instance where
government intervention is for the well-being of all. Prior to the passing of
the Garn-St Germain Act spouses whose were not on mortgages could be, and not
infrequently were, forced to pay off mortgages with no ability to qualify for a
new mortgage or having to take a mortgage with less favorable terms in order to
retain their homes. This Act allows for grieving spouses to not have the added
emotional burden of being forced to sell their homes in order to satisfy a
clause in a mortgage note.
The circumstances above highlight another reason
to have your property ownership within a family trust. And as always we
strongly suggest obtaining your own legal and accounting counsel when needed
for matters involving legal ownership, transfer and tax obligations.
That was the professional reaction when the Labor Department announced the
employment data for November. With expectations of job growth in November to be
somewhat in line with October’s job growth (initial 214,000 new jobs revised to
243,000) and a consensus of 230,000 new jobs being added in November to the
economy everyone was shocked when actual number of new jobs in November to be
321,000 jobs. Not too great on the consensus estimates, only off by 40%. In
fairness the number was completely unpredictable given the other data in the
month of November including weekly unemployment claim filings.
reacted quickly to the news with Mortgage Backed Securities (MBS) opening
down significantly from yesterday’s close (lower price means higher rates) and
stock markets opening higher. As the trading day has progressed there has been
large swings in MBS prices with investors using the data to speculate on if the
news pushes up the time frame for the Federal Reserve to raise interest rates.
factors are part of the decision by the Fed governors on raising short term
rates, but for quite some time the commentary from the Fed has been that a key
factor as to when to begin raising rates is the health of the employment
markets in the economy. The sudden spike in new hirings in November seems to
peel away a layer of two of resistance as to when the Federal Funds Rate will
be increased by the Federal Reserve.
economic data for the week is pretty much a whisper in a storm compared to
today’s announcement, but investors stay in business by moderating the shouts
and hearing the whispers. And the whispers are that Europe is not doing well
economically and that despite our slowly strengthening economy we are no longer
number one. The International Monetary Fund’s recent data for the world economy
shows that China is now the number one economy, the first time since Ulysses S.
Grant occupied the White House that the United States has not had the world’s
is generally not known for snap decisions or knee jerk reactions, well
except for the Qualitative Easing policies of the past six years in my opinion.
As such today’s employment data will certain be noticed but absent continued
growth of an equal measure in the coming months the November numbers could be
considered a one-off spike in hiring. We will know more in early January when
December’s job report is released.
Friday December 5, 2014: After small gains through the week today’s market
activity wiped out the gains from this and last week. Perhaps an over-reaction
to today’s news, but once the momentum starts investors don’t want to be left
behind. We should see a calmer market next week and perhaps a drift back down
in rates. “Perhaps” being the key word and as always I recommend locking your
rate through your escrow period.
30 year conforming 3.75% Up 0.125%
30 year high-balance conforming 3.918% Up
I hope everyone had a wonderful Thanksgiving, I
finished the last of our leftover turkey yesterday…now confused what to do for
There are only three more Fridays in 2014, make the
most of them!
Question of the
week: No question this
week as the Answer Man takes a break for Thanksgiving.
economic data recap:
The first revision for 3rd quarter
Gross Domestic Product was an upward revision, surprising those who make up the
“consensus” who had predicted a downward revision. The initial estimate was
3.5% growth, the revised estimate was 3.9% growth in the economy and 1.4%
increase in the price index. This data would create environment for higher
Durable goods orders for October showed slight
increase after dropping in September, however the “core” index (taking out
orders for transportation orders) the index was negative. This data is
favorable for lower rates.
Initial unemployment claims spiked last week
with 313,000 filings, the highest number since September. This is favorable for
Personal income and spending both saw slight
increases in October, income up 0.2% and spending up the same amount. Year over
year personal income is up 4.1% and spending up 3.6%. This data is slightly
favorable to higher rates but somewhat muted vis-à-vis the overall economic
Friday November 28, 2014: While markets are open today trading tends to be
light as the big decision makers are taking a long weekend and leaving the
junior varsity in charge of trading with the orders “don’t do anything drastic.”
Mortgage Backed Securities are higher than last Friday and rates are down for
30 year conforming 3.625% Down 0.096%
30 year high-balance conforming 3.75% Down
I hope you all had a wonderful Thanksgiving, we sure
did. Tonight is a big night as Long Beach Poly High ranked #5 in California and
#18 in the nation takes on St. John Bosco, ranked #1 in the state, #5 in the
nation and defending champions—of their CIF division, CIF Southern Section, California
and national champions. The game has been described as the biggest matchup in
America so far this year and we are excited to be going. Kickoff is at 7:30 at
Cerritos College, but tickets may be scarce. Go Jackrabbits!
Question of the
week: Why do I have
to provide documentation on the $3000 birthday check my grandmother gave me?
Answer: With all the
new buyers entering the real estate market, and some old buyers purchasing for
the first time in many years, it is time to revisit the issue of gift funds and
unusual deposits on your bank statements.
As I have written in the past, and try to remind
everyone a couple of times a year, for the past several years the number one
issue that slows approvals, documents and fundings is verification of
funds. It used to be verifying funds to
close, now it is verification of all funds in mortgage applicants’ bank
accounts whether needed for closing or not.
More so than ever Fannie Mae, Freddie Mac and FHA have
tightened down on asset verifications and have been sending loans back to
lenders due to what they deem inappropriate verification of funds and assets,
i.e. deposits. Because of this lenders
are tightening down even more so on what they require for asset verification.
Adding an extra layer of tightness for lenders are the
anit-money laundering rules in place that require financial institutions, from
stock brokers to credit unions to mortgage lenders, to report suspicious bank
activity to FinCen, the Financial Crimes Enforcement Network of the Department
of Treasury and to the Department of Homeland Security.
What is suspicious? It is a bit subjective but large
and frequent cash deposits, routine deposits just under the IRS $10,000
reporting threshold or large deposits that seem out of character for the rest
of the profile of the depositor. So mortgage lenders are not just worried about
Fannie Mae or Freddie Mac kicking back a loan but also worried about an audit
by the Federal government and possible penalties for violations of the
anti-money laundering statutes.
As part of the approval process your loan application
package will need to include verification of funds to close and/or
reserves. Verification requires two
months bank statements (all pages please) or in some cases a Verification of
Deposit (VOD) which has current balance and the two month average balance.
Trouble arises when on the bank statements there are
deposits that are “unusual” and exceed what are considered “significant”
amounts by underwriters, in some cases as low as $500, in other cases deposits
totaling one-third or more of your monthly employment income. “Unusual” is a deposit that is not funds from
your normal pay check or direct deposit from employer. If using VODs if the average balance is below
the current balance the underwriter may request a statement to see why, what
deposits have been put into the bank to increase the current balance above the
two month average.
So to prevent being delayed, or even in some cases
unable to be approved, due to deposits into your bank account(s) that are above
and beyond your normal income deposits:
Before depositing any check that is not from your
employer copy it, source it and be prepared to explain it. I repeat this again and again for clients and
we get tripped up consistently on verification of funds and deposits into
One more time, if you are considering purchasing a
home or refinancing at any time in the near future make sure you have copies
and can source every deposit into your bank accounts. If you cannot then you will run into
headaches with your loan approval in the future.
If you have any questions concerning depositing funds
not derived from your regular employment please contact me to discuss how these
funds may be properly documented and used for your mortgage transaction and not
derail your transaction.
had plenty of significant economic data. Monday started off with Industrial
production in October and it was down 0.1% from the prior month after a 1%
increase in September. Industrial production is important economic indicator as
it reflects into the job markets and overall economic growth, a low or negative
growth number tends to create lower interest rates.
are always important. Tuesday the Producer Price Index (PPI) for October
was released showing a 0.2% increase in prices wholesalers pay for goods and
services, year over year PPI is up 1.5%. Take out volatile energy and food
prices and the growth was 0.4% for the month reflecting the drop in petroleum
prices around the globe. Thursday the Consumer Price Index (CPI) was released
reflecting what you and I pay for goods and services and it showed no change in
prices from September, taking out energy and food costs and CPI rose 0.2%,
again showing the impact that lower gasoline prices have in our basket of goods
we buy each month. Low and flat numbers for CPI and PPI tend to push rates down
as it delays increases in rates from the Federal Reserve and can indicate a
importance to most readers are existing home sales. For October sales
showed another month of increases in sales gaining 1.5% after a 2.6% boost in
September. Sales in October 2014 of existing homes were up 2.5% from last
October, the first time this year sales have topped 2013 sales. The median
price shrank in the month indicating some slack in demand with the median price
dropping 0.4% for the month following a 4.3% drop in the median price in
September, year over year the median price is up 5.5% from October 2013. Regionally
the West saw a decline of sales of 5% from September and 3.4% from last October.
Improving home sales puts upward pressure on interest rates as they reflect
stronger consumer confidence and stronger economic activity.
Friday November 21, 2014: Technical trading information kept rates from
dropping a bit further than they maybe should have this week but drop slightly
they did from last Friday after a bit of an increase on late Tuesday and into
Wednesday. Next week is a short week which should make it a bit volatile as
traders move positions ahead of spending the Thanksgiving holidays in the
30 year conforming 3.721% Down 0.029%
30 year high-balance conforming 3.875% Down
The question of the moment this time of year is, of
course, “are you staying home or going somewhere?” We will continue our
tradition of staying home for Thanksgiving and I will be spending the day in
the kitchen with old movies on as I prepare our Thanksgiving meal, the menu for
which has changed only slightly over the years—and that is on the dessert side.
Barbecued turkey, homemade rolls, sausage cornbread dressing, green beans and
mashed potatoes for dinner and typically pumpkin cheesecake and apple pie for
dessert (note not “or” but “and,” it is Thanksgiving afterall). This year we
have guests from abroad, Sweden and Scotland, and our Scottish visitor will be substituting
trifle for our cheesecake.
Whether you are going somewhere or staying home my
families—the Smith family and the Stratis family—wish you a wonderful Thanksgiving,
knowing it will be spent with those you love and enjoy and are thankful are in
your lives; as I am thankful you are in mine.
Have a great week and happy Thanksgiving,
Dennis C. Smith, California Bureau of Real Estate Broker #00966315; NMLS #296660
Stratis Financial Corporation, California Dept. of Real Estate Broker #01269597; NMLS #238166