Mortgage by Randymonthly update to our clients, colleagues, family & friends
By: Randy Mitchelson, May 2010
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In Issue 26 We Touch On:
Short Sale Tips
Hug A Greek, Save The World
IRS Rule For Charities
There are a lot of topics to write about each month. I try to focus on the ones that seem to be top of mind for the readers based on questions and comments. This past month, the subject of short sales has come up more than once. Many of the tidbits in this month’s newsletter address short sales from both sides, seller and buyer. Greece is still a hot topic but more specifically we need to concentrate on how events halfway across the world might affect our wallets here. Finally, we wrap with a tax tip impacting anyone that makes charitable donations.
The current newsletter and all prior newsletters are archived at the Mortgage by Randy blog. Bookmark it and share with your friends and family. You can make your own comments and feedback as well. Time for the news…
Mortgage Market: New Waiting Period For Buyers With Pre-Foreclosure History
Revised waiting period rules have been implemented by Fannie Mae affecting homebuyers who have had a short sale or other type of preforeclosure event. The waiting period commences on the completion date of the preforeclosure event, and may vary based on how much down payment the buyer is bringing to the table for their new purchase. Previously there was no waiting period policy in place for homebuyers with a short sale in their past. The revised waiting periods are:
20%+ down payment: 2 years
10%+ down payment: 4 years
Anything else: 7 years
Personal Credit: Requirements For Re-establishing Credit After Short Sale
Effective immediately, new credit requirements are in place for consumers seeking to purchase a home after a significant derogatory event such as a short sale or other pre-foreclosure event. After a bankruptcy, foreclosure, deed-in-lieu of foreclosure, or preforeclosure or short sale, the borrower’s credit will be considered re-established if all of the following are met:
1) The waiting period and the related requirements are met
2) The loan receives a recommendation from Desktop Underwriter (this is the software program used to submit a loan application) that is acceptable for delivery to Fannie Mae. If Desktop Underwriter is not being used, then the customer must meet the minimum credit score requirements based on the parameters of the loan and the established eligibility requirements.
3) The borrower has traditional credit. Nontraditional credit or “thin files” are not acceptable. Traditional credit is typically defined as a minimum of four credit references that have been established for a minimum of two years and have a history of use and on-time payments. Of the four references, at least one should be housing related (mortgage or rent) and one should an installment loan (car payment, student loan).
Economy & Financial Insights: Hug A Greek, Save The World
In the February 2010 edition of Mortgage by Randy newsletter the Economy & Financial Insights section reviewed what is happening in Greece. (see Opa! How the Greece Financial Crisis Might Affect You). Predictably, Greece has dominated the news headlines as the situation there deteriorates. What is happening in Greece is simple: Years of overspending resulting in unsustainable debt. To compound the problem, Greece is part of the European Union whose members share the same currency. Therefore, Greece can’t act on its own. It is beholden to its brethren European Union members to help resolve the situation. The leaders of the EU opted to help bail out Greece under the conditions that Greece make significant spending cuts. This resulted in cuts in Greek wages and other benefits which in turn led to the rioting and unrest we all saw on television.
Uncontrollable debt is not unique to Greece. Portugal, Ireland, Italy and Spain (the infamous PIIGS countries) are in similar circumstances. Since they are all using the same currency (the Euro), the stronger EU nations have no choice but to band together to try to minimize the damage. The efforts being undertaken to stem the crisis are the equivalent of a football being advance a few feet (it ain’t much). The efforts appear to be delaying the inevitable – default.
What does that mean for U.S. consumers? First, sovereign default (when a country defaults on their debt) is being categorized as the next bubble. We have just experienced the ramifications of millions of homeowners defaulting from the real estate bubble. A whole country defaulting is orders of magnitude worse, especially considering which countries we are talking about. Although we hear our elected officials say that the U.S. will not be involved in any European bailout, be aware of the story behind the story. The United States already is involved. The International Monetary Fund (IMF) is like the United Nations of banks. The United States plays a big financial role in funding the IMF. Billions of dollars are being tapped from the IMF to help cover the debt issues of Greece. Where does that money come from? Our taxes. More pressure on the IMF will require countries to pony up more funding for the IMF with the Unites States and its taxpayers bearing brunt.
Second, social and financial unrest, anywhere in the world, but especially in developed countries like the EU, creates uncertainty. Uncertainty is the enemy of Wall Street investors. Debt default by European countries will wreak havoc on our stock market and retirement dollars invested in mutual funds and other issues.
Third, it is likely that market forces will devalue the Euro against the dollar. If you plan on a European vacation in the next year, good timing for you! It will be more affordable. From a business perspective, this is not so good. The devalued Euro will make American exports more expensive in Europe. If you own stocks or mutual funds including companies heavily dependent upon European sales then you may want to reconsider your investments. Who holds the most Greek debt? European banks. Default will put these banks in danger of insolvency (note: many Euro banks are still struggling from their exposure to the asset bubble in the Unites States – they bought tons of those bad mortgages).
Needless to say these are not fun times in the land of the mythical Gods, but remember that this mess is symptomatic of a larger crisis looming in Europe.
Question of the Month: What Is The Best Approach To Buy A Short Sale?
There are deals to be had in the short sale market for homebuyers. However, it is easier said than done. The process demands patience, perseverance and the emotional fortitude to handle rejection, negotiation and redundant demands for documentation of all types. To be a winner in a short sale purchase, it helps to follow these steps:
1) Get pre-approved. Visit a licensed mortgage professional and get pre-approved. You can’t get to first base negotiating a short sale without it.
2) Do your research. Study other houses for sale in the neighborhood of the short sale property you’re considering. Calculate cost per square foot so that you can get an apples to apples comparison and ensure that you submit an appropriate offer for the short sale.
3) Review the BPO. The short sale process usually involves a Broker Price Opinion (BPO) which is like an unofficial appraisal performed by a realtor and submitted to the lender behind the short sale.
4) Contribute to BPO. Your objective is to get the lowest possible BPO. Provide property damage information to the realtor, neighborhood crime statistics and info about registered sex offenders in the area.
5) Organize your docs. The bank will inevitably require documentation from you such as proof of income, proof of funds to purchase, bank statements, etc. Have this ready to go upon request.
6) Visit tax assessor. Once a short sale is finalized, work on the tax assessor to lower the value of the property and give you a break on the taxes. You might save as much as 20% on the tax bill.
Giving Back: Supporting Our Communities – New Tax Law Affects Which Charities We Give To
An IRS tax rule goes into effect May 15, 2010 that requires all tax-exempt charitable organizations to submit an annual report. Previously, thousands of organizations that had budgets under $25,000 were exempt from submitting any reports to the IRS. Charitable organizations that fail to submit their report on time will have their tax exempt status revoked. This means that consumers, like you, that give money to charities should double check if the charity has indeed complied with the IRS or has been revoked. Otherwise you may lose out on claiming the tax deduction for your charitable gift.
Rest assured, the charities that are near and dear to our heart, namely the Larry Mitchelson Scholarship Foundation and the Michelle’s Angels Foundation are compliant with new IRS filing rules.
Need volunteers? Do you have a fundraising event upcoming? Do you have a personal web site where you are raising donations for your cause? Submit the information to randy@mortgagebyrandy.com by the 5th day of each month and we will do our best to include your information in the next issue.
Susan and I are celebrating our 15th wedding anniversary this month. We are headed to Denver to join up with college friends and I am especially excited about returning to Coors Field for a Rockies game versus the Dodgers. This Memorial Day, please remember to take a moment to remember someone that has made the ultimate sacrifice for our country.
Randy
Mortgage by Randy newsletter, Copyright 2010 Randy Mitchelson. All Rights Reserved.
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Randy Mitchelson is a licensed mortgage professional. All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Randy Mitchelson. Recommendations may change and readers are urged to check with their financial advisors before making any decisions. Opinions expressed in these reports may change without prior notice. Mitchelson can be reached at 239-851-6738.
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You have permission to publish this article electronically or in print as long as the following is included:
Randy Mitchelson, of Estero, Florida, is a business professional, entrepreneur and author with over 15 years experience in financial services. Mitchelson has served in leadership roles for Global & Fortune 500 firms like Bank of America, KeyBank and CIBC.
As a member of National Association of Mortgage Brokers, Randy has earned the Lending Integrity Seal of Approval. He educates both individuals and groups about credit scoring by conducting personalized credit report reviews, action plans and one on one consultations. He is author of the free monthly newsletter, Mortgage by Randy as well as the Daily Dollar newsletter. A licensed mortgage professional, Mitchelson also founded Trinity Home Financing, LLC.
He is owner of Estero, Florida based National Web Leads, LLC, an internet lead generation service matching consumers with lenders for auto, cash advance and other financial products. Through its network of partners, National Web Leads delivers innovative Web 2.0 performance marketing solutions to advertisers and affiliate marketers.
Mitchelson earned his BS and MBA at Rensselaer Polytechnic Institute in Troy, NY. He is a founding member and Finance Chairman of the Southwest Florida Regional Technology Partnership Inc. and Vice President for the Michelle’s Angels Foundation Inc. He is married to Susan, a Pharmacy Supervisor in the Lee Memorial Health System in Fort Myers, Florida.
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