Part three of “I Survived Real Estate 2008” picks up with Bruce Norris introducing Philip Tirone who is author of the “7 Steps to a 720 Credit Score” and President of the Mortgage Equity Group. Philip brings to the table experience from the lending and consumer side of the equations.
Philip talks about people still wanting stated income and how much harder consumers are have to work to get financing. Banks are going after co-borrowers more aggressively and doing much more background checking.
Philip discusses the issue of consumers that owe much more on their home as a similar home in the same neighborhood because of the market at the desire to buy the new one and foreclosure on the current home. Philip says that lenders are catching on to this practice and has revised lending policy accordingly. As of August 1st, if a consumer wants to buy a home in the same neighborhood, it needs to make logical sense that the consumer needs the new home due to extra bedroom, more space, etc. And if the consumer has less than 30% equity, the consumer cannot accept rental income on previous home and must have 6 months reserves.
Philip discusses the top three lending strategies for investors. Many investors that have purchased for cash want to refinance. The best financing is available within the first 60 days. If buying in an LLC, Philip says a single member LLC will get an investor a better rate. Philip also says to go to portfolio lenders for loans. They don’t have the limitations that Fannie and Freddie currently have in place.
For sellers, Philip discusses the natural inclination for sellers to drop price if a property is not selling. Instead of dropping price, Philip thinks sellers should consider buying down the buyer’s interest rate. This could save the consumer a great deal of money and also support prices in the area. Philip also addresses buyers that don’t qualify because lack of down payment. If buyers don’t have down payment, FHA allows gifts for down payments. Philip says that although there is a seasoning rule for FHA, investors should make sure all due diligence is done up front so at the 90 day mark the loan will fund quickly.
Philip also says consumers and investors should manage their credit actively. 80% of people have an error on their credit report that could possibly hinder them from getting a loan. Philip says credit is really easy to manage and scores can swing 100 points. Using credit to your advantage isn’t as hard as many people think.
Bruce then introduces Annemaria Allen who is President of the Compliance Group who specializes in loan complains and is the representative for the California Mortgage Bankers Association.
Annemaria talks about the lending industry yesterday being full of unsophisticated borrows, greedy lenders, minimal loan compliance, and inflated home prices. Today, a complete overhaul is taking place. Lending has somewhat stabilized because subprime is gone and full document loans are back. She calls it “back to the basics” of underwriting. Annemaria says automatic underwriting isn’t used as much and lenders are doing much more due diligence.
Annemaria thinks home prices still are too high and that we haven’t seen the worst of it. The adjustable rate mortgages will cause more problems in the next year. HERA (Housing Economic Recovery Act) was signed into law by Bush in July. The Safe Act that passed seeks to protect consumers by requiring loan originators, lenders, and brokers will have to register with the system. Some of these news acts are several hundred pages long and are still being reviewed.
Regulation Z means more disclosures to consumers. It is supposed to capture all subprime and Alt-A loans. There will be more advertising restrictions and more disclosures.
California has 30 bills in legislature to help with current issues. Foreclosure prevention laws are being passed nationwide along with loan modification and servicing laws. The Non-Traditional Mortgage Guidelines are being adopted nationawide.
Annemaria feels it’s a little too late but the biggest solution moving forward will be consumers being more educated and for the industry to prevent fraud. Annemaria feels stronger standards in compliance and safety will prevent this from happening in the future.
Bruce then brings forward the CEO of the California Builders Industry Association of the Southern California, Richard Lambros.
Richard discusses real estate as a speculative investment and the cycles. Richard warns us not to think of it as a cycle because that means we can have no influence over the outcome. Total new home production is down and will produce the lowest number of homes in history. In the building industry, they say it’s a building depression. In three years, production has been cut by one third.
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