Green Mortgage Northwest

In the past, issues with valuing Accessory Dwelling Units (ADU’s) have been quite common. Refinancing an ADU is one of those black boxes that appraisers, underwriters and banks don’t know how to correctly handle.

Green Mortgage Northwest recently had a great success with a specific technique developed by Taylor Watkins, a local Portland appraiser, and Martin John Brown, with some funding from Portland Metro. It relies on the income valuation approach, which treats the ADU as an income-producing property rather than a shed, garage or other structure that doesn’t add much value to a property compared to a building that can potentially add hundreds of dollars a month to the owner’s cash flow.

At Green Mortgage Northwest, we contract with an Appraisal Management Company that is local. That allows us to request that certain green-educated appraisers be added to their roster of appraisers. Rather than bringing in someone from out in the suburbs to value a property in Hawthorne or Alberta, a local appraiser with a knowledge of green building and the latest valuation techniques can be called upon.

We can’t specifically request a certain appraiser to value ADU’s. However, here’s what we CAN do for green properties:

• We CAN request a green-educated appraiser. We have about five of them, including Taylor Watkins.
• We can also request that the appraiser calls to speak with Taylor regarding the correct way to value ADU’s and that the appraiser reviews the report Taylor put together. How much reading they do, we can’t control…
• It is a slight crap shoot because the mortgage broker can’t affect the valuation of the property or choose a specific appraiser. However, we just had a great recent victory with a ADU owner in Portland who runs www.accessorydwellings.org. The latest blog post goes into this process in detail (this is a synopsis).

A few best practices:

• Request a green appraiser when ordering the appraisal.
• Attach a few guides for the appraiser’s convenience along with some back history on the project.
• Let the appraiser know the property can be financed as either single family or multi-family, depending which nets the highest value.
• Make sure the appraiser knows this is a legal, permitted, habitable, ADU as defined by the City of Portland Bureau of Development Services. You can even link to Portland Maps to show the certificate of occupancy.

There is a necessary set up with underwriting to make sure expectations are clear regarding the type of property and other requirements. We’re here to guide you through that!

There is a lot of talk about HARP 2.0 and how it will help more people refinance. What is it?

HARP is a federal government program originally rolled out in March 2009. It’s goal is to help people with underwater mortgages (about 5 million people) with loans owned by Fannie Mae and Freddie Mac to refinance even if they don’t have equity in their homes.

HARP 1.0 had a loan-to-value ratio (LTV) that was capped at 125% of the home’s value. For instance, if the home was worth $200,000, the maximum loan was $250,000. This limited the scope of the program for many people who were in the hardest hit areas.

On Oct. 24, 2011, President Obama announced that HARP would be revamped to expand its reach. HARP 2.0 for LTV’s over 125% will roll out through Fannie Mae and Freddie Mac on March 17th, at which point wholesale lenders and mortgage brokers will start offering it.

Wasn’t HARP 1.0 good enough?

There were many restrictions to HARP 1.0 that made it difficult for people to use it. Private Mortgage Insurance was one of those, as there were restrictions by some lenders or mortgage insurance providers that didn’t allow going over 105% LTV. These are now no longer requirements under HARP 2.0. If you have mortgage insurance and a home that’s underwater, no problem!

What does the new HARP 2.0 program do for me?

New changes that can potentially benefit you include:

• You can refinance no matter how much value your home lost. Previous limits were at 125% of the home’s value; now, it doesn’t matter what your home appraises for!
• Eliminating appraisals! Most people won’t be required to get an appraisal.
• Lower risk-based fees for shorter-term loans such as 15 year fixed mortgages.
• The program is extended through December of 2013.

Can I get a HARP loan?

Not everyone can do HARP. One of the government-sponsored enterprises, Fannie Mae or Freddie Mac, must hold your loan. To check if it is, visit:

• Fannie Mae
• Freddie Mac

Then what do I do?

Give us a ring to see if the HARP 2.0 program works for you!

HomePath loans are great options for those buyers or investors looking to purchase a foreclosed home owned by Fannie Mae. Here’s the rundown:

Eligible Properties:

1. All properties designated by Fannie Mae at www.homepath.com as eligible are good to go
2. Primary residences
3. Second homes
4. Investment properties

*Notice that there are NO condos, cooperatives or manufactured homes allowed by Fannie Mae for a HomePath loan.

Program Details

1. No appraisal required
2. No mortgage insurance required
3. Low down payments (minimum 5%)

This is a GREAT program for anyone looking to aggressively shop foreclosed properties. And not just that, but HomePath and Fannie Mae are offering the following incentives on top of the above:

1. 3.5% incentive for buyers who purchase and close between January 28, 2010 and April 30, 2010. The 3.5% can be used for:
   • Closing costs
   • Purchase of new Whirlpool® appliances
   • A mix of closing costs and appliances, up to a maximum of 3.5%.

*Sorry investors, only owner-occupied primary residences are eligible for the 3.5% closing costs credit.

Say goodbye to FHA anti-flipping requirements for a year. In an effort to expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties, HUD has announced a temporary waiver of the 90-day flipping rule. The waiver takes effect February 1, 2010, and lasts for one year. Unless the powers that be decide to extend it even longer…

The waiver is limited to those sales that meet the following conditions:

1. All transactions must be arms-length, with no identity of interest between the buyer and seller or any other parties participating in the sales transaction, including:

• Seller must hold title
• LLCs, Corporations and trusts must be established in accordance with state and federal law
• No evidence of previous flipping within 12 months
• Evidence that property was marketed openly, such as via MLS, auction or for-sale-by-owner.
• The waiver is limited to forward mortgages and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

2. If the sales price of the property is 20% or more above the seller’s acquisition cost, the waiver will apply only if the lender meets the following conditions:

• Significant work has been done to the home (documented by a second appraisal verifying that legitimate repairs and rehabilitation have been done to substantiate an increase of more than 20%); or,
• In cases where no work has been done, the appraiser must provide explanation to support the increase since the prior transfer; and,
• A property inspection must be provided to the buyer prior to closing. (The lender may charge the borrower for the inspection.) The inspector does not need to be FHA approved, but must have no interest in the property, must not receive compensation other than from the lender and may not be involved with the repairs recommended from inspection.

For complete details, visit the HUD website at http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf

Many of you have heard that FHA condo spot approvals are now going away. While this isn’t entirely true, there are some big changes coming and they start February 1st – next Monday!

Here is an attempt to describe the changes and the impact they’re going to have:

Lenders will no longer be doing spot approvals. Instead, there are two options, both based on criteria put forth by the U.S. Department of Housing and Urban Development (HUD):

• DELRAP Approval (Direct Endorsement Lender Review and Approval Process)
• HRAP Approval (HUD Review and Approval Process) and

The big difference is this: for DELRAP, I work with the bank and their builder approval group to get an approval, which takes a couple weeks. For HRAP, it goes to HUD, this can take a month or two…if you’re lucky. And with all the new projects that will now need approval, the HRAP times will most likely increase.

Details:

DELRAP Review Eligibility and Process Requirements Process

• Brokers still have the option of working directly with HUD for an HRAP review for projects requiring a project approval (read: slow approval, harder to get)

OR

• Brokers can work with their bank’s account executive (AE) to get a DELRAP approval through the Builder Project Approval Group (BPAG). Once all required documents are received, BPAG will complete the DELRAP review or, if necessary, forward to HUD for a HRAP review and approval. BPAG will determine DELRAP eligibility based on a few additional bank overlays (underwriting rules) defined below.

Note – If an extension or recertification is requested on a project not originally processed as a DELRAP through BPAG, a full review of the project documents will be required.
BPAG DELRAP project reviews will be completed within about two weeks of a complete submission. Compared to the month-plus timeline for HRAP, which is likely to increase, that is pretty good!

DELRAP Eligibility

The following are ineligible for a DELRAP review and must be sent to HUD for an HRAP review:

1. Anything identified on the builder certification, appraisal, or other documentation obtained pertaining to environmental hazards.
2. Any unobstructed view of an oil refinery, propane distribution center, large gasoline storage tank(s), etc. Note – projects next to a gas station are eligible for DELRAP.
3. Superfunds (dumps or landfills) identified on the EPA Web site that have ongoing maintenance.
4. Project is located on wetland or national wetland and insufficient documentation approving the project’s location.
5. Historic districts and insufficient documentation approving the project’s location.
6. Budget without at least a 10% line item allocation for capital replacement unless a reserve analysis is obtained.
7. Fidelity bond coverage not in the name of the association, i.e. Management Company provided fidelity bond coverage.
8. Manufactured home projects.
9. On a case-by-case basis, any project within a potential noise issue that does not have sufficient mitigating factors.

My take on all of this: FHA condo financing is about to get tougher. If the project is not currently approved by HUD/FHA, it’s going to be difficult to get FHA financing.

Realtors – make sure you know whether a condo is FHA-approved before taking a client using FHA financing out to see it. You don’t want them to form an attachment to a property they can’t buy and set their expectations based on that.

For complete information on this, visit HUD’s press release on the topic.

FHA has a problem. There is a Congressionally mandated reserve amount for covering bad loans that is fast approaching. 17% of FHA loans are in foreclosure, compared with 13% of the entire market. Thus, FHA’s cash reserves as a percentage of their loan portfolios has declined below acceptable levels. As a result, change is coming:

1. FHA will hire first Chief Risk Officer in almost 75 years.
2. FHA will increase audited financial net worth requirement of approved FHA lenders by 4x – from $250,000 up to $1 million.
3. FHA will increase minimum credit score standards.
4. FHA will enact New requirements for ordering appraisals. Not quite HVCC-strict, but closer.
5. FHA will now require income verification on Streamline FHA refinances.

What does this mean? Those buyers on the brink of qualifying might lose their ability to buy a house due to credit restrictions. I would also expect to see tightened loan guidelines beyond just credit – big losses usually points to stricter standards.

The good news: Premier Mortgage isn’t going anywhere and can still do FHA loans. Our FHA appraisals still only take a few days…AND I can still qualify buyers who are close to debt-to-income limits using the PDC’s Mortgage Credit Certificate program. If someone can’t quite afford a home, let me know and I’ll see what we can do.

If you are interested, check out the full HUD press release.

Note: These changes won’t take place until January 1, 2010, so there is some breathing room still. Then again, that’s only 3 short months away.

Everyone is STILL talking about HVCC, the new Home Valuation Code of Conduct, and how it affects appraisals. Fannie and Freddie put this into effect earlier this year and the negative repercussions have been striking, especially in extremely depressed markets with lots of foreclosures and short sales.

The issue is low valuations and the new rules guiding appraisers in both price-depressed and rebounding markets.  Out-of-town appraisers appointed by an Appraisal Management Company come in for a quick assessment (or don’t even go to the property and handle it online) and then dish out low valuations. Their comparables are often poor-condition short sales, distressed properties or just plain unrelated area or style-wise. A ranch home should not be compared to a vintage Victorian!

What would push you to default on your mortgage, even if you could afford to pay for it? According to new research from the University of Chicago’s Booth School of Business and Northwestern University’s Kellogg School of Management, a surprising number of Americans are doing just that.

I recently received an official copy of Earth Advantage’s certified home performance study, which so far had only been a press release on their website.

For a breakdown of how much more green homes in Portland and Seattle are selling for, here is a full copy of the report. For a synopsis of the report, read my blog post on green home valuation.

Keep in mind that I am in no way affiliated with the production of the report, I just want to educate all you green buyers, sellers, developers and Realtors with some cold, hard facts!

Banks are still dealing with fallout from the subprime mortgage crisis, and this post covers a few of the most recent changes stemming from that. Many of them dictate a transaction’s closing date, so make sure you know how the new laws work. Below is a synopsis of the recent changes.

First up is the Home Valuation Code of Conduct (HVCC), which was recently adopted by Fannie Mae and Freddie Mac. When you hear HVCC, think “appraisals.” Effective May 1, 2009, appraisers are “shielded” from the influence of 3rd parties who have an interest in the transaction.

The new process for ordering appraisals involves an independent third party who acts as a broker between the lender and the appraiser. Also, the borrower must receive the appraisal at least 3 days prior to the loan closing (unless they sign a waiver, which I see happening frequently if time is crunched).

Another recent act is the Housing and Economic Recovery Act (HERA), which, effective July 30th, 2009, changes requirements about when disclosures and initial fees can be charged to the buyer.

A summary of these two acts:

1. The earliest any transaction can close is 7 business days after initial disclosures are sent to the buyer.
2. Upfront fees cannot be collected until 3 days after initial disclosures are issued. This means appraisals will have to wait at least 3 days after the initial loan application.
3. The borrower must get a copy of their appraisal at least 3 days prior to close.
4. If the Annual Percentage Rate (APR) increases more than .125% compared to the initial Truth in Lending (TIL) disclosure, the borrower will need to sign a revised form at least 3 days before closing…and a TIL disclosure isn’t considered “received” until 3 days after mailing, so it’s really a week!

Any of the following can impact the APR, so watch out for them:

• Unlocked rate
• Change in loan amount
• Closing date change
• Change in the loan product
• Changes to fees

The biggest thing to take away? 10 day closes are NOT going to happen any more – negotiate for at least a 30 day close, and probably closer to 45 days. The positive side to all this is that it is getting rid of the lending practices and shenanigans that got us here in the first place, which I definitely see as a good thing.