What is QRM and Why Does the Industry Want You to Know More About It?

What is QRM and Why Does the Industry Want You to Know More About It?



"NAR supports a reasonable and affordable cash investment requirement coupled with quality credit standards, strong documentation and sound underwriting." - NAR President Ron Phipps

Last year Congress passed the most comprehensive regulatory reform that the financial services industry has ever seen. This reform bill was called the Wall Street Reform Act, but more commonly known as Dodd-Frank. The law set implementation of different portions at different times over the next 2.5 years. Much of the criticism of Dodd-Frank is centered around the fact that the law did not set forth the rules or requirements, but required the "regulators" to determine the rules that the industry must obey. Therefore, no one knows yet just what rules we have to follow.

The determination of these "rules" will not be made through votes in Congress, it will be the responsibility of the new regulator, the Consumer Finance Protection Board (CFPB), to determine exactly what those rules will require. Since the role of the CFPB has not yet been fully implemented, the current regulators (OCC, The Fed, FDIC, SEC, FHFA and HUD) weighed in on what their suggestions for these rules are. On March 29, 2011, the financial news relayed the announcement of one of the most important rule-making components of Dodd-Frank, the proposed rule for Risk-Retention and QRM.

Risk Retention
Dodd-Frank required securitizers and or originators of mortgage loans retain 5% of any loan/security they originate. This 5% must be held in a capital reserve account free from any other obligation. That means that ANY securitizer (and in certain circumstances originator), such as a small independent mortgage banker, large bank or wall street investor would have to set aside $5000 for every $100,000 loan closed. That does not seem like a big issue until you consider the volume and amount we are talking about. Let's say a company securitizes a group of 100 loans (pool of loans). If you assume a $200,000 average loan amount, that is $1,000,000 for each pool that the company would have to fund in a reserve account and stay in that account until the loan pays off. (There are several ways a securitizer can choose to hold the reserve, but this is the simple version.) If a $200,000 loan generates approximately $5000-10,000 in gross revenue, less expenses such as staff, commissions, servicing overhead, and loss mitigation etc, you have to ask yourself, "how do you generate the revenue shortage between the $10,000 retention requirement and what is left of the revenue generated on that loan?" That would shut down every small independent mortgage company within the first 30-60 days. Who does that leave to continue to offer options for mortgage loans? For those who remained, even the large banks would struggle to retain that capital reserve. As in any business equation, in order to cover that additional "cost" you must increase the profitability...read that to say, you increase costs to the consumer.

When Dodd-Frank was written, Congress was put under much pressure by the real estate finance industry to grant some protections or "safe harbors" to avoid this 5% requirement. The argument was made that certain loans DO NOT have the same risk to the market as others, thus do not need that additional "skin in the game" from the originator/securitizer. The Safe Harbor language was added as an amendment to Dodd-Frank, however, the exemption criteria was not determined in the law. It stated that any loan that meets the "Qualified Residential Mortgage" (QRM) requirements would be exempt from the risk-retention provision provided therein. This means that as long as the loan that is originated would be considered a "QRM" the lender does NOT need to hold 5% of the loan in reserve. The assumption was that regular loans like FHA, VA and FNMA/FHLMC loans (all the loans we now do in 2011) do not pose the risk that the stated income, negative amortization, balloons or interest only loans have posed in the past, therefore these loans would most likely be considered exempt.

The Devil is in the Details - QRM
We all know the saying about what happens when you ASSUME...and once again the point has been proven. As discussed, the law did not set up these parameters for what made the loan a QRM, the regulators have made their proposal and as an industry we have found out that our assumption of those exemptions was incorrect.

Proposed QRM Eligibility Requirements...
1. Purchase or Refinance of a Primary Residence, First Mortgage with a term no longer than 30 years - Not to include "bridge loans" "time shares" or "Reverse Mortgages"

2. A Borrower must not currently be delinquent on any debt and not been more than 60 days past due on any debt in the prior 24 months.

3. A Borrower may not have had within the preceding 36 months, a bankruptcy proceeding, had a property repossessed or foreclosed upon, or engaged in a short-sale or deed in lieu of foreclosure or been subject to a Federal or State judgment for the collection of any debt.

4. The loan must be fully-amortizing and not allow for payment terms that allow for interest-only payments or negative amortization.

5. The payment terms may allow for a fixed or adjustable interest rate, but would not allow for "teaser rates" and would not allow for pre-payment penalties.

6. Purchase loans would require a 20% downpayment and borrower payment of closing costs from acceptable sources.

7. Rate and Term Refinance loans would require a 75% loan-to-value ratio.

8. Cash-Out Refinance loans would require a 70% loan-to-value ratio.

9. A borrower's income must be fully documented and the proposed housing payment cannot exceed 28% of this income and all other debt including the proposed housing payment cannot exceed 36%.

10. The total points and fees charged on the loan cannot exceed 3 points.

11. A loan could not be assumable.

12. If a loan is originated and guaranteed by the United States government, ie-FHA, VA, USDA, Fannie Mae and Freddie Mac (only while they are held in conservatorship of the federal government)

Overview of Proposed QRM by the MBA


Real World Consequences on Our Market
No one should fault the idealism to which the regulators have used to create these proposed requirements, the intentions are well grounded. The problem lies in the fragile nature of the housing market today. Investors do not have the confidence yet in the private label security market and although these rules try to off-set some of the risk, the near term results in this economy is disastrous.

In today's market, what happens if a customer wants a "jumbo" loan, we are bound by the individual requirements of each individual investor that offers the program. The down payment requirements are more restrictive, the credit score requirements are higher and the interest rates can be upwards of .5 - 1.0% higher than that of a comparable "conforming" loan. If you look at the dramatic drop in sales in the price range from $600,000 and up and the stagnation in that market, at least some of that stems from the stringent and costly lending environment for Jumbo loans.

You can also look at the underserved markets and see the complete shutdown of lending in the under $100,000 price point. Based upon the definition of points and fees in the proposal, the costs involved with closing a loan would automatically exceed the 3 point fee limit thus pushing it outside the QRM requirement. These loans would typically be forced into the realm of FHA, but the Administration has indicated their expectation of more stringent guidelines for FHA to limit the volume of business that FHA will accept including increasing the down payment requirements.

What about the second home and investment market? If the QRM exemption only supports primary residences, would there be a market for these other types of properties? Will it become cost prohibitive enough for the would be real estate investor to consider another type of investment?

What Can Be Done
As I described, this is a "Proposal" that is out for "Public Comment." This process allows you to be heard. This is the only opportunity to voice the grave concern to its impact on our market. I would strongly encourage you to make your comments to the regulators. How many times have you asked, "Who do they get their information from?" Or have you thought, "what were they thinking?" Don't rely on someone else to take a stand. NAR can't do it alone, mortgage lenders can't do it alone. I can't do it for you. The only way for us to make an impact is for the regulators to hear from all of us in volumes. Each comment represents a segment of the market. Pass this around, get your colleagues involved tell your friends. The more they hear, the more they pay attention. As it stands, QRM is not a what if...it is a "how bad is it going to be."

Your opportunity to comment is available until June 10, 2011.

How to Comment
http://www.regulations.gov/
Under the "More Search Options" tab click next to the "Advanced Docket Search" option where indicated, select "Comptroller of the Currency" from the agency drop-down menu, then click "Submit." In the "Docket ID" column, select "OCC-2010-0002" to submit or view public comments and to view supporting and related materials for this proposed rule.

Report From Washington, DC

Once again, it was a very successful trip to educate our Congressional delegates to the concerns of the housing market in Arizona. As the topics get tougher and the stakes get higher, it was great to see the increased support from more of the professional leaders in our local market.

We were able to meet with Rep. Jeff Flake, Rep. Trent Franks, Rep. Ben Quayle, and Rep. David Schweikert as well as representatives from Rep. Gosar, Rep. Grijvala, Rep. Pastor and Sen. Kyl and Sen. McCain. We were also pleased to be able to stop in to Representative Gabrielle Giffords office to offer our honest and most sincere hope for her speedy and full recovery.

I wanted to thank those below who made the commitment to our industry of their time and money who made the trip. from left standing - Ted Theiste - Wallick and Volk, Rod Hill - AmeriHome Mortgage, (Rep. Schweikert) Amy Swaney, CMB - Citywide Home Loans, Kelly Powers - CNN Mortgage, Bob Kennedy - Homeowners Financial Group, Bill Rogers - Homeowners Financial Group
from left kneeling - PJ Harrigan, CMB - Franklin American Mortgage, Kelly Mueller - Alliance Financial Resources, Jamie Korus - Alliance Financial Resources, Cody Pearce, CMB - Cascade Financial Services, George Dover, CMB - Cascade Financial Services

Washington is a city of Southern efficiency and Northern charm - John F Kennedy

Do You Know What the Administration's Plan for Housing is this Year?



"In politics, nothing happens by accident. If it happens, you can bet it was planned that way." - Franklin D. Roosevelt

You may not have had the opportunity to read the Obama Administration's Report to Congress, "Reforming America's Housing Finance Market" to prompt you I have included the link HERE

It is no secret that all of us in the real estate industries are in for some challenging times. It is also no secret it is going to continue to challenge even the best of the best. In the Report's 32 pages the agenda for our future is revealed. It's position for Fannie Mae and Freddie Mac were not a shock, however the other items discussed were certainly eye-opening.

The highlights are...
1. Plans to decrease the conforming loan limits
2. Need to Increase "Guarantee Fees" (the fee paid to any loan sold to FNMA/FHLMC)
3. Larger down payment requirements for FNMA/FHLMC loans (10% down)
4. A decrease in the FHA loan limits back to the HERA requirements (115% of current median home value) which are set to expire on October 1, 2011
5. Consolidate FHA, VA and Rural Housing into one housing unit
6. Full implementation of Dodd-Frank's consumer protection provisions (including LO comp, risk retention and underwriting standardization)
7. Requirement of originators and securitizers to retain risk (5%)
8. Shift from homeownership to affordable rental housing
9. Coordinated moves to restrict FHA's loan to value ratios and increased customer cost in preparation to shrink FHA's presence in the market
10. 3 options to wind down FNMA/FHLMC


If one or more of these proposals are to take root, how will your business be impacted? How will your customers be impacted? Will our fragile economic market be able to weather the storm of increased down payment requirements for ALL loans, maximum government loan amounts rolled back or the continued increase in costs to credit?

I hope you wil become educated and aware of the changes being made, adjust your planning and by all means, let your informed voice be heard, not through empty complaints but through targeted advocacy, grassroots movements and old fashioned tenacity.

Report From the Front Line

My husband and I were honored to host Arizona's own real estate advocate, Congressman David Schweikert at a private reception at the home of Bill Rogers in Scottsdale on Friday. Representative Schweikert has been named to the powerful House Financial Services Committee, and the Vice Chair of the Capital Markets Sub-Committee, an unheard of feat by a freshman delegate.

He once again wowed some of Arizona's toughest industry critics through his knowledge, passion and experience as a real estate agent and investor. His frank and open discussion about what he would like to see happen in the committee was impressive, especially when coupled with his desire for input from those in attendance for solutions and options.

Many in attendance were pleased to hear of the Representative's support of the March 11, 2011 Letter to the Federal Reserve requesting the delay of the April 1st deadline for Loan Officer Compensation. We were also interest to hear his impression of how the next few weeks would play out with the Fed.

Overall it was a tremendous evening for those who committed the time and money to attend.

Ha Ha

Its a fine line between numerator and denominator.

Foreclosure losses picked up by taxpayers, investors

From the Arizona Republic 01/30/11
Catherine Reagor

In a historic wave of foreclosures, countless thousands of Americans have given up their homes, unable - or unwilling - to pay the mortgage. Plunging values left their homes worth far less than the amount of their loans.

Many borrowers let banks take the houses back, believing the lenders would simply resell them at a loss. Some borrowers even did so out of spite, angry that lenders wouldn't help them refinance or adjust their payments.

But in many cases, banks lost little or nothing on those foreclosures.

Instead, the biggest losers have been market investors and the American taxpayers.

Most foreclosures now are on loans that were issued by banks but backed by government-owned Fannie Mae and Freddie Mac. Created to boost U.S. homeownership, the Federal National Mortgage Association and the Federal Home Mortgage Corp. buy mortgages from banks and now own half of all mortgages.

It's a system that was built to encourage banks to make mortgages and keep being able to make more. But the system also means that when homeowners stop making mortgage payments, the lenders who issued the mortgages don't take the biggest loss.

"Fannie and Freddie losses are passed onto taxpayers," said Anthony Sanders, a former professor of real estate and finance at Arizona State University, now with Virginia's George Mason University.
Those federal entities' losses are expected to near $400 billion before the foreclosure crisis ends.

Many other mortgages that have failed were even riskier than the ones bought by Fannie Mae and Freddie Mac. Those were packaged by the financial industry and also resold to investors. When those loans fail, investors lose.

And many of those losses could end up hitting taxpayers, too. Big investors included government pension funds and other public agencies."If the federal government begins bailing out pension funds," Sanders said, "then the taxpayer pays for that, too."

A report from a federal inquiry into the financial meltdown, issued last week, concluded that those investments were bundled and sold even as housing prices declined - and that investors were let down at many steps along the way.

Regulators who could have seen the failures didn't understand the system, the report found. And a top investment-rating agency labeled the packaged mortgages with the top, AAA-grade, rating without reviewing the quality of the mortgages themselves.

"It has become musical chairs for mortgages and foreclosures," said Jay Butler, director of realty studies at ASU. "Whoever ends up holding the mortgage at the end holds the bag for the loss. Unfortunately, taxpayers will end up with the biggest tab."

Since 2008, nearly 150,000 homes have been foreclosed on in metro Phoenix. Housing analysts are concerned that the housing market is only halfway through the foreclosure mess.

While foreclosures continue, banks have drawn public ire, being quick to accept federal bailouts but slow to respond to federal plans meant to help struggling homeowners.

"I understand why some people want to walk away, but we should all understand who ultimately pays the bill for foreclosures," said Amy Swaney, former president of the Arizona Mortgage Lenders Association and Arizona manager of Citywide Home Loans. "Most foreclosures end up costing us all."

New Year, New Clients and New Loan Officers?

I LOVE the start of a new year. There is something so cleansing and fresh about the beginning of January that I will start considering that it is its own "season." You know in Arizona you have several important seasons..."In Season", where hotel prices and traffic jams remind us daily that we live in a resort community. "Boot-Wearing Season", where I finally get to give my high-heeled pumps, sandals and mules a few days off during the week and bring out my high-heeled boots, you know, to protect my calves from the near freezing 60 degree weather. An now we have, "The Season of Our New Year", where desires and goals are re-born like babies with unlimited opportunities and potential.


I love everything about "The Season of Our New Year." I love that we spend time reviewing the previous year, ranking those things that have impacted, inspired or identified with us the most. But more importantly, I love that we take the time to envision what our lives will be in the future; who we want surrounding us, what we want to accomplish and who do we want to be. We may have hit speed bumps last year, we may feel as if we have had failures in the past or maybe we just started to hit our stride, but in the Season of Our New Year, it is a blank canvass, a tabula rasa for us each to decide what is to come. What an opportunity. I plan on huge successes in 2011 and for me that means that those I surround myself with will be reaching huge successes as well. I just love how that works!

Here is to an amazing 2011 and to the start of the Season of Our New Year.

Bankruptcy Filings in AZ Rise 24%
What Obstacles Will Your Clients Face in 2011?

The Wall Street Journal wrote this week that the number of Americans filing for personal bankruptcy topped 1.5 million in 2010 which is up 9% from 2009 nationwide. This is the highest level since 2005 when a revamp of the Bankruptcy Code took place. The Journal also reported that most of the uptick was accounted for in the Pacific Southwest with California increasing 25% and Arizona up 24% from 2009.

That fact begs the question that I get asked almost daily, "so how long until I can qualify to buy a new house?" My answer, almost unwaveringly begins with, "Well, what kind of loan or house are you looking to get?"

The rules regarding bankruptcies are divided into different categories of FHA, VA, FNMA/FHMLC and Portfolio Lenders. Then they are subdivided in groups of what type of bankruptcy was filed. In all cases, we must determine the cause and significance of the derogatory information, verify that sufficient time has elapsed since the date of the bankruptcy and confirm that the borrower has re-established an acceptable credit history.

In discussing bankruptcies we almost always discuss the term extenuating circumstances. FNMA/FHLMC define the term as are nonrecurring events that are beyond the borrower's control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.

If a borrower claims that a bankruptcy was the result of extenuating circumstances, the borrower must provide documentation that can be used to support and confirm the event (such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.) and documents that confirm the inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.).

Below are the current required waiting periods for each category of loans:

FNMA/FHLMC: Chapter 7 or 11
4 year waiting period from the discharge or dismissal date
2 Years from discharge date - Extenuating Circumstances

FNMA/FHLMC: Chapter 13
2 years from the discharge date
4 years from the dismissal date

FHA: Chapter 7 or 11
2 years from the discharge date
1 year from the discharge date - Extenuating Circumstances

FHA: Chapter 13
12 months into the payout period with all payments on time AND written approval from the court. MUST be manually underwritten

VA: Chapter 7 or 11
2 years from the discharge date
1 year from the discharge date - Extenuating Circumstances

VA: Chapter 13
12 months into the payout period with all payments on time AND written approval from the court.

Portfolio Lender: All BK Types
Lender Specific

In all circumstances, if a housing related incident, such as a short sale, foreclosure or deed in lieu occurs in conjunction or within of the bankruptcy, you must reference that housing related event individually to determine the time frame for purchase.

Who Will Surround You This Year?
Possibly Fewer Loan Officers than Last Year!

As 2011 begins, there are noticeably fewer participants in our industry. The regulatory and legislative changes in our industry have been cumbersome and made for a tedious process for many. December 31st also closed out the renewal process for licensees and thus we have seen more and more individuals dropping out of the business altogether. The Nationwide Mortgage Licensing System (NMLS) reports that of over 230,000 national tests administered there is still close to a 20% failure rate.

If you are interested in who you and your clients are working with you can view license information online at http://www.nmlsconsumeraccess.org/

Ha Ha
Did you hear about the guy who sent ten puns to friends, in the hope that at least one of the puns would make them laugh.

Unfortunately, no pun in ten did.

AZ Central Examines "Flopping"

Phoenix real estate strategy of 'flopping' examined
Manipulated short sales resold for quick profits

by Catherine Reagor - Nov. 14, 2010 12:00 AM
The Arizona Republic

As more houses in metro Phoenix go on the market for short sales, some investors have begun buying and reselling them quickly for a profit, using strategies that some in the housing industry say could be unethical or worse.

The deals work in a variety of ways, but all involve the same basic strategy. An investor persuades a lender to agree to a short sale, buying a house for less than what the lender is owed. But the investor has another buyer lined up who is willing to pay more.

The bank, usually unaware of the other waiting buyer, accepts a lower price from the investor, who then quickly resells the home - for a higher price - to the waiting buyer.

The deals, which have become more common as short sales have increased, are now drawing the attention of real-estate and financial regulators.

Most lenders object to such deal-making because, had they been aware of the other waiting buyer, they would have taken the higher price. Banks take a loss on short sales, and the deals can make their losses greater.

Real-estate professionals disagree over the nature of the deals. Some insist they are a smart way to make a profit in a tough market. Others call them unethical at best and question whether investors violate the law if they conceal information from a lender.

Many real-estate market watchers agree that the deals have negative impacts. Neighborhood housing values suffer because, while the second sale might be for the home's true market value, the first sale represents an artificially low price.

In the industry, the deals have been dubbed "flops."

In a rising market, investors "flip" houses, buying them and then reselling for a profit as overall values rise.

"Flopping is the opposite of flipping," said Amy Swaney, Arizona Regional Sales Manager for Citywide Home Loans and a past president of the Arizona Mortgage Lenders Association. "It is the art of profiting off the devaluation of property rather than an increase in value of a property."

It is impossible to know how many homes have been "flopped" since short sales began to be widely accepted by lenders in the past year.

But a key indicator is how quickly short-sale homes are resold. An owner who buys in a short sale and sells the home again within a few days most likely had the second buyer lined up in advance.

In the past year, nearly 20,000 short sales closed in metro Phoenix. Of those, at least 1,000 were flops, according to an analysis by Tom Ruff of the real-estate research firm Information Market. A few examples: a Tolleson home sold for $90,000 through a short sale and then was flopped within 20 days for $106,000; a northwest Phoenix home was purchased first through a short sale for $28,500 and then resold through a flop within two weeks for $50,000; and a Scottsdale house sold via short sale for $90,000 and then for $122,000 through a subsequent flop less than a month later.

The Arizona Department of Real Estate, mortgage giants Fannie Mae and Freddie Mac and the FBI are all investigating flopping deals.

"Short-sale flopping is one of our real-estate industry's biggest issues right now," said Judy Lowe, Arizona Department of Real Estate commissioner. "We are all looking at the legality and ethics of these deals. And it varies by flop because it appears every deal is done a little differently."

The art of the deal

Short sales slowly have grown more common as more homeowners in the region face losing their homes to foreclosure.

In some ways they are more attractive to lenders and sellers. A short sale does less damage to the seller's credit record than a foreclosure. And a lender typically is paid more money in a short sale than it could make on the home after foreclosing, partly because it has to incur costs related to taking back the home before reselling it.

But as short sales have expanded, so have the strategies some investors appear to use to make a profit. Investigators and industry professionals describe several common approaches.

- Price high, then sell low: A real-estate agent lists a home for a short sale but knowingly prices the house too high so it sits on the market for several months. As the homeowner edges closer to foreclosure, the agent recommends reducing the offering price. A buyer appears who is willing to pay less than the reduced price. The lender is persuaded to accept the deal, arguing that the home has been on the market for so long because it is overpriced and that foreclosure is imminent. The lender agrees, and the short sale is completed.

But the new buyer already has a plan to resell the house and often already has a second buyer lined up ready to pay more. The key to the arrangement is the price-setting. The high price keeps other potential buyers away and sets the lender up to be more agreeable to a low offer at the end.

The agent can receive a quick two commissions on the same property.

The lender gets less for the house than it otherwise might, and the seller may be damaged, too. The more time that passes before the sale, the more damage is done to the seller's credit from missing monthly payments.

- Steering the deal: A third party working with the seller to help facilitate the deal or a real-estate agent representing the seller ignores higher offers for a short sale. An investor buys the property without the lender ever knowing what other offers the home might have drawn. The investor then quickly resells the property for a higher price.

If a third party was in on the flop to steer the deal away from the open market and to the investor, the agent often doesn't know. If the agent was in on the flop, the agent may have received an additional payment from the investor.

The deals rely on finding a second buyer, usually another investor, willing to pay more after the short sale. In some cases, the second buyer doesn't even know that an investor is orchestrating a short sale before reselling. In other cases, buyers are looking for deals but are reluctant to deal with the paperwork hassle and uncertainty of a short sale. A flop allows them to pay a low price for the home, while the interim buyer deals with the short-sale technicalities.

The deals also require people to coordinate the arrangement and sometimes conceal information. Arizona regulators are concerned that loan officers, appraisers and real-estate and escrow agents could be acting unethically and even illegally, and some may be getting caught up in these deals without realizing it.

Many in Arizona's real-estate and lending industries are against flopping.

"I hate flop deals," said Kevin Kaufmann, a Phoenix real-estate agent specializing in short sales with Keller Williams Realty. "The deals look like a great way to make fast money, but they aren't usually in the best interest of the seller who is dealing with financial hardships and facing foreclosures."

Investigators also are watching for another type of short-sale deal that is a short-sale version of a fraud scheme used in boom times.


A buyer or buyers use a "straw buyer" to purchase a home. The buyer uses fake identification and financial information to obtain a mortgage and then never makes payments, triggering foreclosure proceedings. Immediately before foreclosure, the people running the scheme offer to buy the home in a short sale. The lender isn't aware of the connection between the original buyer and the short-sale buyer. The people in on the deal buy the house for a low price and can resell it.

A pair of Connecticut real-estate agents were convicted on fraud charges for a flopping scheme earlier this year. Both agents admitted to providing their own appraisals for the homes, acting as straw buyers to purchase homes through short sales and then reselling the homes at higher prices.

Industry concerns

Homes listed for short sale are at a record high in metro Phoenix, so the potential for more flops is significant.

In an effort to stop potential short-sale fraud, Fannie Mae and Freddie Mac recently issued warnings that homes it approves for short sale can't be resold within at least 30 days.

Mortgage research firm CoreLogic estimates that lenders will lose at least $50 million from the deals nationally this year.

The FBI has identified the deals as one of the nation's top mortgage scams now, but they are difficult to investigate and prove.

State regulators talked to the real-estate industry about foreclosure and short-sale schemes at a conference held by the Arizona Real Estate School in September.

Lauren Kingry, superintendent of the Arizona Department of Financial Institutions, said because there are so many different ways flops are handled, it's difficult to determine if the deals are illegal.

"Though many Valley attorneys say flopping is completely legal as long as it's disclosed, it's still a growing problem for the real-estate market and lenders," Swaney said. "Some deals may skirt the law, but that doesn't make them ethical. We as professionals in the industry have to watch out for our clients, whether they are homeowners, buyers or lenders."

She said some Valley escrow agents are turning away deals that require them to process the documents on a short sale and then a second sale of the same home for a higher price within days of each other.

Some groups involved in the deals say they disclose the planned resale up front so they aren't defrauding the lender or acting unethically. Some mortgage servicers may be agreeing to the deals to avoid a foreclosure. But big lenders say they are opposed to flopping.

"I am telling people flopping homes they must give full disclosure to lenders," said Phoenix real-estate attorney Scott Zwillinger. "If banks don't know about all the deals involved, then a flopper is committing fraud. That's the bottom line."

Even if deals do take advantage of lenders, public sentiment is not necessarily on the banks' side. With banks awash in criticism of how they have handled foreclosures and refused to modify loans for many needy homeowners, consumers are less likely to be outraged at a deal that takes advantage of a lender.

But in some deals, taxpayers - not lenders - may be the ones taking a loss.

For mortgages that are federally backed, lenders can seek some federal funds to cover their losses on short sales.

So if a flopping deal drives down the selling price, the lender may seek more money from the federal backer to cover the loss. It is unclear how much money lenders have been paid to recover losses in short sales.

"Flopping may be legal if all the deals are disclosed to everyone involved, but they make me furious," said Ruff, the real-estate analyst. "The money flopping deals are costing lenders ultimately is money the taxpayers are going to have to cover on mortgages that are government- backed."

Read more: http://www.azcentral.com/business/realestate/articles/2010/11/14/20101114phoenix-real-estate-short-sale-flopping.html#ixzz15JxvLIGs

BIG Changes for AMY, FNMA and FHA

As you can see there have been some changes in my world...as Sheryl Crow croons, "A Change Will Do You Good." I could not agree more! I am so excited to announce my change to Citywide Home Loans, a Utah-based mortgage banking firm that is agressively moving into the Valley.

Citywide is one of the most dynamic mortgage banking firms in the country and is very happy to make this entrance into Arizona. As a correspondent lender, we are able to offer an array of products, make-sense underwriting and quick turn-times. Citywide wants to facilitate strong lending choices to our local real estate market.

Combined with my team's knowledge, experience and proven success in the Valley, Citywide Home Loans will be who YOU and YOUR CLIENTs will want to know!

I look forward to speaking with you soon about how this change can positively assist YOUR business.

FNMA Makes BIG Change
Source of Down Payment Options Expanded

This change, positions FNMA loans to directly be able to compete with conventional loans. In addition to the flexibility of private mortgage insurance options quality, higher loan to value, conventional loans may start making a comeback in to our market.

For loans originated AFTER December 13, 2010, Fannie Mae WILL NO LONGER require a conventional buyer to have a minimum or 5% of their own funds into the transaction! Fannie Mae will allow the use of gifts, grants, employer assistance, Community Seconds®, and other sources to comprise the borrower contribution across all LTV ratios for the purchase or limited cash-out refinance of one-unit principal residences.

FHA Changes Mortgage Insurance Lenders Change Credit Requirements
Mortgage Insurance Changes:

After October 4, 2010, new borrowers may have noticed that their FHA mortgage insurance payments were different. All loans will now have an Up Front Mortgage Insurance Cost of 1.0% and a monthly amount as indicated below:

For LTVs = or < 95%: Annual Premium is .85%
For LTVs > 95%: Annual Premium is .90%

Although the upfront cost has dropped, the increase in the annual premium will increase the monthly payment costs for borrowers making it more difficult to qualify.

Lenders Require Higher Credit Scores for FHA Borrowers:

In October, we also saw most mortgage lenders increase their minimum credit score for FHA borrowers from 620 to 640. The change is most likely attributed to FHA's increased focus on loan quality and Lender performance ratings.

AAR Forms Changes Ahead!

When I approached the Arizona Association Realtors' (AAR) Risk Manangement Committee with proposed changes to the LSR and purchase contract to address the massive amounts of legislative and regulatory changes that had occurred in the past few years, I knew it would be a daunting task.

Entering their meeting was the equivalent of walking into a Real Estate All-Star Game. You had some of the most highly-respected and accomplished real estate minds from across the state gathered to determine the "winning plays" for this challenging market. Even though I felt like I was the third string bench warmer trying to suggest a new play in this huddle of pros, their team welcomed the insight and addressed the need to adapt to the new environment in which we all play.

Last week the new "playbook" made its rounds throughout the committees and related industry groups for final review and acceptance before the proposed release date which is expected sometime in October or November.

I wanted to address some of the key changes and edits that have been made and to give some background to the new forms.

If I Hear "the LSR is Not Worth the Paper it's Written on One More Time..."

Then why am I killing myself every Saturday rushing to finish the grocery shopping, or leaving the pool with the kids early so I can get home to call a proposed client who didn't seem to have the foresight enough to think..."Hey I have scheduled an appointment to look at real estate this weekend and since every media outlet on the planet is talking about how tough the mortgage industry is right now, maybe I should contact someone to see if I can get a loan."

Why am I spending another couple of hours explaining to clients that "yes it is really important that we don't guess how many hours you work per week" or "yes, even though you will rent your current house, we will still have to qualify you with both house payments."

If the Lender, the borrower or even the real estate agent does not understand that accuracy is important in the qualification department...then your right, the LSR is worthless. If speed is all that is important, there already is a place for the borrower to write in that THEY think they are qualified! You don't need me! And that was the beginnings behind the initial form changes.

Pre-Qualification Form...This Year's New LSR

RESPA changes made this year interesting for everyone, including AAR's management team. After numerous phone calls and emails, regarding the issue of what is on the LSR, it has been determined that changes would need to be made. The biggest change is the introduction of a new Pre-Qualification form, at this point, creatively penned the Pre-Qualification Form. I personally wanted to name it the Buyer Financing Form, but no one seemed to think having to request a "BFF" was as entertaining as I did!


The Pre-Qual creates a shift from what the industry has become adapted. It no longer bases any information off a particular property address and looks more to what the borrower qualifies for in monthly payment. This switch is to focus awareness on how certain property characteristics, such as taxes, HOA or flood insurance may affect a borrower's ability to qualify.

The "Pre-Qual" is not just to be based on what the borrower tells us, the lender, that they qualify for, but will inform all parties how the lender determined it. It will also specifically identify what documentation the lender had available to make the determination.

Pursuant to Section 2d of the Contract...

As RESPA requires buyers to have the opportunity to "shop" for their loan, the new requirement will give the buyer a certain number of days to finalize who their lender will be and will require them to identify that lender in the contract. If the identified Lender is not the one who completed the Pre-Qual form, a new Pre-Qual completed by the new lender will be required.

A big change will be that the Loan Status Update is now incorporated into the new LSR. This will be a change for many that have never used the old LSU form. Since I sat on the committee over 5 years ago that created the Loan Status Update, I know that its primary purpose was to educate all parties as to what steps had to occur before the buyers could get the keys to their new home. That purpose has not changed. Added regulations and legislation as well as current market conditions have created the need to reeducate our clients and ourselves as to the new logistics of financing.

There were also several changes made to the financing section of the contract as well as other minor amendments throughout. It will be interesting to see who will embrace these changes and who will not.

I thought W. Edward Deming put it best when he said, "It is not necessary to change. Survival is not mandatory."

Once the forms have been approved by the Risk Management Committee and the Executive Committee of AAR, they will be released. Keep your eyes out for that announcement.

Ha Ha Ha!
There was this guy and he had a girlfriend named Lorraine. One day he went to work and found that a new girl had started working there. Her name was Clearly and she was absolutely gorgeous.


He became quite smitten with Clearly and after while it became obvious that she was interested in him too. But this guy was a loyal man and he wouldn't do anything with Clearly while he was still going out with Lorraine.

He decided that there was nothing left to do but to break up with her. He planned several times to tell Lorraine but he couldn't bring himself to do it. Then one day they went for a walk along the riverbank when suddenly Lorraine slipped and fell into the river. The current carried her off to never be heard from again.

The guy stopped for a moment and then ran off smiling and singing........

"I can see Clearly now. Lorraine has gone."

I firmly believe that it is important to be constantly involved in the changes in our industry. For your clients best interest it is important to be represented by someone whose experience speaks for itself. Please let me know if I can be of assistance to your next customer.
Amy