Richard's Real Estate Thoughts

Credit may be the biggest single factor in mortgage qualification. Certainly some loan officers fail to look beyond credit when they evaluate a loan application and may get caught at the end with another of the important details, but credit nevertheless does stand out as a primary approval factor.

In today's market with credit standards tightening and subprime programs unavailable, it is important that consumers, potential home buyers, understand the impact of their credit standing and what to do about it.

Most buyers learn very quickly about credit grading. I have many buyers contact me who already know their middle score. They might not know what the term middle score refers to, but they know the number.

The idea of credit scoring is that historic models of credit activity are used to predict default rates with individuals over the next few years. Credit scoring is intended not to punish previous credit difficulties, but to predict future credit difficulties.

Each industry has different models. The credit score given to consumers when they obtain their credit score, is not necessarily the same score that will be on a mortgage report or a report for a charge card or for a car loan. My guess is that defaults on these types of credit accounts are predicted by different historical models.

However, I think that the basic principles of credit scoring remain the same. I am not selling a CD series on the 7 steps for 700 scores. I am writing my thoughts on how credit impacts a mortgage loan approval and what principles can be applied to improve those scores.

Here is a link to FannieMae's pricing adjustments for credit scores. It is a little technical, but the point is made. To qualify for the best pricing, a borrower must have higher credit scores. In the past, if a borrower was qualified then the same rate was available regardless of the credit score. That is no longer the case.

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2007/0716.pdf

And this does not even address the impact that credit has on the approval itself.

Other posts have put out the templates for the components of a credit score, and I may do that again in another post. My point here is to put out some general principles for the consumer to understand what can be done to improve a score. These principles are based on my personal experience with my mortgage loan clients.

And be aware that it is a myth that it takes a long time for the score to change. The score changes immediately when new information is reported. The delay in a score change is the delay in getting the new information reported.

If a score needs to be changed quickly, then get the new information reported quickly. But be aware also of this. When the new information is reported, the new score will reflect the new information as well as any other new information about other accounts that has been reported. Many credit reporting companies offer rescoring services. Generally these are not needed. They can be expensive and should only be used after evaluating the goal and the time line.

Another warning, it takes a little knowledge and experience to be able to predict the impact that the new information might have on a credit score. It does not always have the intended consequences.

Here are some principles.

Credit scores give more emphasis to recent activity. Be careful when working with older references that have not updated in the last year.

Some borrowers do not have recent credit references which the scoring engines can evaluate. Especially for borrowers with credit problems in the past, they need to open new accounts and give the credit bureaus new history to evaluate. Otherwise the only credit that is available is the older derogatory credit.

Different types of credit are weighed differentlly. Finance company and department store charge cards are viewed more negatively than mortgages and bank financing. Major credit cards are viewed as good credit references.

Credit is evaluated on the number of trades, the type of trades, and the length of individual trades and the total length of person's credit history.

Public records have done their damage when  they are reported. Generally paying them has little impact on a credit score. Getting the record completely removed can have a significant impact on a credit score.

Credit card accounts can have a negative impact if the reported balance is high compared to the available high credit. If a card is maxed out, it is especially impactful if the card is also reporting a recent late payment. If you can increase the high credit, do so. If you cannot increase the high credit, you will need to pay the balance down. 

Getting the balance to 50% or 25% of the available high credit can bring a drastic improvement to the credit score. There is probably a good term for this like LTV and DTI, but I do not know what it is - maybe BTHC ratio (balance to high credit)???

Authorized user accounts are no longer supposed to impact a credit score, but I think that they still have some impact. I have been told that the new credit reporting models will no longer even report authorized user accounts. This is too bad, because authorized user accounts were the way my children started their credit files.

A good first step is to verify that information on your report is at least accurate. If there are inaccuracies, determine whether it is worth the effort to correct them, or whether correcting them will help or hurt the score. Sometimes updating an older reference with correct information can actually reseason the account and that may have a negative impact.

Another consideration is whether updating a reference might actually cause the company to renew collection efforts on an old unpaid account. That is a real consideration in many cases.

Paying collection debts is seldom a good idea before closing on a loan, unless it can be negotiated with the collection agency to remove the debt. Remember paying a collection does not explain why it happened. Paying a collection because you want to get a loan approved does not really impress the lender. My recommendation is generally to submit the loan with an explanation, and let the lender tell you which they want paid. I focus on the explanation and try to make it explain something.

These are some principles that I have used to guide customers to credit restoration and loan approval. I take time to review each bureau thoroughly with them and to explain the impact of each trade.

After reviewing each trade and evaluating it impact, we set a credit goal and timeline based on their overall financial need and their resources. Each solution is different, but many things are possible when a person has knowledge of where they are and where they need to be.

My primary goal is loan approval - best terms, quickest loan approval, given the time and resources available. My secondary goal is a better informed consumer, who understands credit and its impact and who is better able to manage the credit rating.

I would love to hear from others with credit repair experience. Here also is an opportunity for credit restoration companies who want referral business from me to show their stuff.

Credit restoration can be tedious and tough. There are many cases when it takes a professional, and the potential gain is worth the cost.

For instance, with some lenders who might still do 580 score FHA loans, the loan pricing adjustment can be high.

It might change the monthly payment by $50 for $100,000 loan. How much is it worth to have a professional work to improve that score to save the $50 monthly in a payment?

How much time is it worth the new home buyer to commit to improving their score? Buyers should evaluate the benefit of the potential improvement, the likelihood of the potential improvement, the resources available to bring about the improvement, and the cost in money and time to accomplish the improvement.

It might make the difference between an approval and a denial. I am beginning a section on my website that will have a focus on credit repair information. 

Richard

 

You will find a mortgage professional here. Whether you want conventional, FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, credit guidance, mortgage or home or other information in Tennessee, Georgia, or Alabama, call me, Richard Smith:

This contest started at just the precise time that I started learning to enjoy Localism.

My top 5 for Chattanooga are a mix of events and places, historical, geological, and man made. Chattanooga is an exciting town that is just now enjoying the benefits of the imagination and vision of it's leadership starting about 30 years ago. We have undergone a complete renaissance from a city recognized for its pollution to a city known for its cooperation between goverment, business and community.

Chattanooga has been voted one of America's Top Family Weekend Getaways by Southern Living Magazine and 1 of 50 Best Family Vacations by Disney Family Travel.

I love Chattanooga. Here're some reasons why.

1. Tennessee Aquarium and the IMAX Theater.

These form the focus of the down town renaissance. Many other activities and businesses contribute to our vibrant downtown area, but the Tennessee Aquarium must be considered the top attraction. The IMAX Theater is an experience.

The Tennessee Aquarium is the second largest freshwater aquarium in the world. There are two basic themes. One is a River Journey following the path of a raindrop from high in the Appalachian Mountains to the Gulf of Mexico. One is an Ocean Journey.

The newest exhibit is a Penguin Exhibit.

 

 

 

Tennessee Aquarium, children at the River Journey entrance

(These YouTube videos are not my content. They can be discounted from the judging, or they can disqualify me. But they are good and I wanted to show them.)

Penguin Exhibit, taken from YouTube video

The aquarium is all about the animals. Here is a link to the Meet Our Animals page on the website.

Tennessee Aquarium - Meet the Animals website link

Tennessee Aquarium Seahorse Exhibit

The aquarium is also a major research and conservation center.

 

 

The IMAX Theater is part of the same ticket as the Tennessee Aquarium. It is a 3D movie experience.

Grand Canyon preview

Dolphins and Whales preview

 

Imax Theater in Chattanooga, TN

2. Ruby Falls

Ruby Falls is one of the area's caverns. It was formed 240 million years ago when the Tennessee area was under a shallow sea. Sediment collected at the bottom of the sea which formed the limestone making up Lookout Mountain.

Geology of Ruby Falls

 

 

 Photo take from Wikepedia artile on Ruby Fallls.

 

 

 

 

 

 

 

These photos are taken from the photo page on the Ruby Falls website.

 

 

You Tube video of the Ruby Falls water fall
(This YouTube video is not my content.)

Other local caverns are Raccoon Mountain and Lost Sea Caverns.

 3. Chattanooga area parks

When we moved to Chattanooga, the thing that impressed me the most initially was the care and the number of local parks. The Riverwalk itself is one large park, but I am treating that as part of the Tennessee River attraction.

There are several major parks in Chattanooga. All of them receive abundant use. Here are photos of Coolidge Park, which was developed on the site on the old Naval Reserve Center, where I actually drilled for several years in the 1990's.

The park is named after one of Chattanooga's WWII heroes, Charles H Coolidge. His son and family still live in Chattanooga. 

(all remaining photos and videos are mine) 

Coolidge Park, on the Tennessee River in Chattanooga

 

 

 

 

 

 

 

 

 

Other major parks include Chester Frost Park a great camping area on the Tennessee River, the Nature Center and Reflection Riding wonderful respites in the mountains.

4. Tennessee River

The Tennessee River itself is one of the top 5 attractions for Chattanooga. For many it is the boating that makes the Tennessee River so much fun.

We have sponsored collegiate rowing regattas, speed boat races, and up the river a bit, on the Ocoee, we even witnessed the 1996 Olympics for the whitewater slalom. The Ocoee River is a fun white water rafting river.

 

 

 

 

 

 

 

 

Boating on the Tennessee River at different ends of the Chattanooga area. The photo on the left is in North Chattanooga, near a marina. The photo on the right is downtown, at Coolidge Park.

The river is also the focus of the Chattanooga River Walk.  This is a 14 mile tour used by walkers, runners, bike riders, picnickers throughout the year, but mostly in the spring, summer and fall. It is a beautiful walk along the river from the dam in the north city to the Coolidge Park downtown. It consists of small park grounds and boat ramps, ponds, wooded areas and small water inlets.

I love the River Walk. When I do my once or twice a year 2 hour run, it is always on the Riverwalk. My wife and I love to stroll it. And frequently we meet friends along the way. 

  

 5. The events of Chattanooga.

It is the events that round out the excitement of Chattanooga. The Riverbend Festival is the biggest of the area events. Known as Chattanooga's Homecoming, it is in its 28th year. This year's festival just finished last week. I put 9 different posts on my blog to try to give some sense of the event.

Hundreds of musical performers play on several different stages, The main stage is sponsored by CocaCola and features a top talent from R&B, Country, or Rock music, each on various nights. There are 5 stages that have outstanding performances each night from 6 to midnight through out the 9 days. Many known performers play here, many not so well known but excellent. Every year several local performers are featured.

This year was especially good with Mark Farner of Grand Funk Railroad and the Ohio Players coming. The main stage acts were Black Crowes, Anthony Hamilton, America, Rodney Atkins, Little Big Town, ZZ Top, Josh Turner, and Burton Cummings of the Guess Who.

The event also includes a nationally recognized 10k road race. And for the last couple years it has also featured the construction of Habitat Home.

Please look over my previous blog posts for more information. Here are some photos from this year's Riverbend Festival that I did not put in my blog posts.

 

 

 

 

 

 

 

 

Water Park video, taken during the Riverbend Festival, boat gathering for concert.
 (my video)

YouTube, Mark Farner of Grand Funk Railroad video of performance at Riverbend Festival, playing Bad Time. (my video - you can tell it's mine by the poor quality. I'm working to improve that.)

Some of the other major events that we have in Chattanooga are:

Pops in the Park. this is coming up in two weeks. The Chattanooga Symphony and Opera perform a Fourth of July celebration annually in Coolidge Park.

Night Fall. This is a free weekly concert series on Friday nights throughout the summer. It is a great deal of fun and very well attended. It is out in the open, right in the middle of downtown. Families can attend.

Winter Days. Not to let the winter months be outdone, Chattanooga holds a series of winter events. This series takes place on 4 different days and includes a parade, and some seasonal concerts.

Not making my top 5 include the world famous Rock City, with its grand view, the Incline Railroad, hang gliding, the Bluff View Arts District, the Hunter Museum, the Creative Discovery Museum, the Chattanooga Lookouts baseball team, the dinner theater, the planetarium and observatory, all of the events held by UTC and the several other local universities and colleges, Civil War sites and the Chickamauga Battlefield, or the Chattanooga Zoo.

I will add this link to a terrific YouTube picture show of Rock City. It is very good.
Rock City on YouTube . (It's not mine, you can tell because of the quality.)

Chattanooga, the Scenic City.

A new internet technology provides us the opportunity to open up the conversation about Chattanooga and Hamilton County. This video exchange allows for each of us to open a topic and to hear what other have to say.

We can see each other, get to know and respect each other.

Please join the conversation. Let's talk Chattanooga.

 

 

To join the conversation, create a Seesmic video profile.

Then either create a new topic video and post it, or reply to an existing video topic.

The Seesmic video below explains more about the video program.

You will find a mortgage professional here. Whether you want conventional, FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, credit guidance, mortgage or home or other information in Tennessee, Georgia, or Alabama, call me, Richard Smith:

I had posted a previous blog about expanding the pool of available buyers, but received only few comments. It seems to me to be one of the critical focuses in our industry. We are watching the fed, concerned with program changes, seller's not listing low enough, or buyers not being realistic in their offers.

A book entitled Think like Einstein, recommends changing the question if you don't like the answers to the initial question.

I think the right question, is how can we get more qualified buyers.

Credit building, credit repair, high LTV loans, downpayment assistance. What tools? What marketing? What message and how? to increase the pool of qualified buyers.

So many no longer qualify. I met a potential buyer, a former customer, today. He is no longer qualified. He understood and resigned himself to the fact that the program we had previously used is no longer available.

What can we do to get qualified in today's market?

Anyway, here is my effort to restart that conversation. This time also using Seesmic, recommended by Mike Mueller. Please do not laugh at my presentation. Or if you laugh do so secretly, and do not put the laugh in your comments.

A good way to comment though is to sign up with a Seesmic profile, and post a video reply.

You will find a mortgage professional here. Whether you want conventional, FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, credit guidance, mortgage or home or other information in Tennessee, Georgia, or Alabama, call me, Richard Smith:

When working on a purchase transaction, I generally prefer to have a buyer's agent separate from the seller's agent. I feel like I am in better position with the buyer if there is an agent that is just representing that buyer.

How important do most real estate agents think that a dedicated buyer's agent is?

Generally, do you think that the buyers best interests are more often than not met if the buyer uses the seller's agent?

Thanks,

Richard

As always Jeff Belonger brings up pertinent, challenging and informative topics. He also generally goes straight to the public, meaning his posts are open for the world to see. I really like that.

He posted this http://www.activerain.com/blogsview/555729/It-s-not-the , which violates the AR "Keywords-in-the-first-4-words of the title" rule, but Jeff is doing alright without those nice little tricks.

The topic is ethics in mortgage originators, but probably could be applied also to real estate agents, appraisers, title companies, ... .

Jeff's post asks consumers when they shop for a loan, what criteria do they use? The biggest name?

Jeff's point is "No matter how big nor small may that company be, we all get our money from the same place when all said and done. With that said, you should seek out a mortgage professional. One who is honest and ethical. By not doing so, could cost you thousands of dollars in the long run."

It is like the bottle water companies that sell tap water. We all get the money from the same place.

Jeff's suggestion is that consumers find an honest and ethical loan officer.

Some comments in that blog indicated that most unethical originators are by now out of the business. I do not think that is true, but given the focus of state audit I just went through last week, at least in Tennessee, unethical originators will be on the run.

My basic question is "what are ethics in a mortgage originator?"

Close on time, accurate documentation, understanding the customer, reasonable fees, basic competence, no surprises at closing, explain process, pressuring the appraiser for value, to omit minor repairs, telling the realtor to leave that detail off the sales contract

Second, how would a consumer who is shopping for an originator, using internet, newspaper, recommendations, yellow pages, and basic research, decide on which originator is ethical?

What early criteria should let a consumer identify the ethics of the originators she is considering?

Low quotes, disclosures provided, explain the process, questioning about the consumers circumstances, website, established business, recommendation

Part of the context of Jeff's post is that the originator, who was recommended to the customer, did not act in an ethical way towards the customer. So this story kind of makes recommendations not to be the great measure of ethical business people.

It certainly is not advertising. In Chattanooga there is a car dealer whose name is Big Hearted Smitty. If I am looking for a big hearted car dealer, is the business name or a tag line that says I am an honest dealer the best way to choose?

Do all consumers even want an ethical originator? I have been told many times by a customer when they call initially that they are looking for someone who can be creative? Or can we call this a second home? Or yes I am going to rent my free and clear $300,000 home on the river and move into the $85,000 house downtown because it is closer to work and I want a smaller home. (BTW, FYI prices in TN may be a little lower than in other parts of the country.)

What does ethics in mortgage origination mean?

How does a borrower identify the ethics in an originator when they are initially shopping?

Udate One thought that came from Laura's comment below - the consumer can ask test questions, or evaluate the originator's reliability by setting up a "follow up" test. Give the originator a time to call back with some information. And evaluate the quality and promptness of the follow up.

  

You will find a mortgage professional here. Whether you want conventional, FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, credit guidance, mortgage or home or other information in Tennessee, Georgia, or Alabama, call me, Richard Smith:

The heads may be starting to roll as a result of mortgage fraud probes. Generally the fraud arrests are focused on the local broker or appraiser. With this new development that was anticipated in the internet news yesterday, and just now announced.

I read the announcement in MSN.com .

This has more to do with a larger scale fraud towards secondary investors.

Other headlines in some newsletters.

Key senators being investigated

Former BofA exec faces 35 years

This may be the first of many.

I will update more as I read further.

Richard

You will find a mortgage professional here. Whether you want conventional, FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, credit guidance, mortgage or home or other information in Tennessee, Georgia, or Alabama, call me, Richard Smith:

I just read a post that offered some straight talk, common sense, and realty check for home sellers.
Allison Stewart wrote a newly featured post for the Realtor group: http://activerain.com/blogsview/556384/-YOU-RE-NEED

Your need does not change the market value.

That post really made a lot of sense to me. Sometimes the customer just needs to be made aware of the reality of things. If it changes their mind about what they do, then may be for the better earlier rather than later.

Our market is facing increasing interest rates, tighter guidelines, increasing inventory, and in many areas reducing property values.

One of our loan officers with American Acceptance Mortage has for a long time used a reality check line that I like with the occasional borrower who is disarmed by the total finance charge showing on the Truth In Lending disclosure.

The customer might comment that that is just too much interest to pay over the 30 years. She offers in her sweet, gentle, encouraging way, the simple question, "How much interest would it be to pay rent for those 30 years?"

Today she had a customer decide not to purchase because it was going to cost $300,000 over the life of the loan. She simply asked how much is it going to cost to rent over the life of you?

The reality check refocused the person's perspective and that person is now an approved buyer.

With interest rates increasing, and I think increasing for the long term, borrowers will need to be educated into the new market realities.

Sometimes a gentle reality check line goes a long way to keep the factors of our choices and expectations in a realistic perspective.

 

You will find a mortgage professional here. Whether you want conventional, FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, credit guidance, mortgage or home or other information in Tennessee, Georgia, or Alabama, call me, Richard Smith:

The Riverbend Festival is 9 days of top quality national and local music acts. It is an opportunity for talented children to perform on a big stage in front of a fairly large crowd.

The Riverbend Festival also offers other showcases. The nationally recognized 10k competitive race was mentioned in my previous post in the Riverbend Festival series.

Habitat for Humanity has for the last two years constructed a Habitat home at the festival. The home is then moved to location. It is just another remarkable idea carried out by my local community.

The home is built from the "road up." Floor joists, framing, roof, flooring, wiring, cabinets, interior walls, appliances, etc.

The work is conducted by individuals and group volunteers, such as companies or churches. The work is done during the Riverbend Festival.

They have to turn volunteers away, because each 4 hour shift can only accomodate 15 people, really that is probably too many.

The new homeowner worked everyday also, putting in much more that the required minimum. She actually took vacation from her job to work on her new home.

American Acceptance had 3 people work. Several real estate agents showed up. Probably more volunteered than I am aware of.

The home was finished 1 day early. It was moved yesterday and will be ready for dedication in another couple weeks.

Here are some photos from the week.

 

 

 

 

 

 

 

 

 

 

 

              Day 1

 

 Day 1

 

 

 

 

 

 

 

 

 

 

 

  Day 2

 

 

 

 

 

 

 

 

 

 

 

Day 2

Day 3

 

Day 3

 

 

 

 

 

 

 

 

 

Day 3

Sandy working hard.

Sandy Houston is one of our loan officers at American Acceptance Mortgage.

 

 

 

 

 

 

 

Day 4 Photos

 

 

 

 

 

 

 

 Left a group from a local church working on the interior painting. Right the new home owner working inside. She took vacation from her job to work every day on her new home.

 

 

 

 

 

 

 

 

Hollis Jensen, a loan officer with American Acceptance Mortgage, and I worked on day 4. Jean Flores also showed up on that day. She is a real estate agent from Success Realty in Chattanooga. I am the old guy in the left photo. Hollis is the one playing around in the right photo.

Final Day Photos

 

 

 

 

 

 

 

 

 

 

Work was completed a day ahead of schedule. Habitat and the new owner held an open house nightly during the Riverbend Festival. On the last day, with work completed except for the final set up on site, they held an all day open house. Visitors toured the new home throughout the day.

Previous Riverbend posts:
Riverbend-Festival Day Eight Little Big Town and Rodney Atkins
Riverbend-Festival Days Four through Seven - Who plays guitar better than ZZ Top?
Riverbend-Festival Day Three - America and the Chattanooga Symphony and Opera
Riverbend-Festival Day Two - Anthony Hamilton and Grand Funk Railroad
Riverbend-Festival Day One - Black Crowes

You will find a mortgage professional here. Whether you want conventional, FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, credit guidance, mortgage or home or other information in Tennessee, Georgia, or Alabama, call me, Richard Smith:

Several blogs and newspaper articles have announced a temporary suspension to the FHA flipping rule. The intent is not to bring back predatory investment house flippers, but to help lenders move their foreclosure inventory.

The first blog I read this in was http://www.activerain.com/blogsview/553519/We-Can-Flip-Bush .

I verified the change with these articles at CNNMoney.com and Zimbio Business .

FNMA, FHMLC, federally chartered banks and other government related lenders have always been able to obtain a waiver to the FHA flipping rule. Now other lenders will be able to sell their inventories with FHA financing.

Initial thoughts were that this will probably also bring on a new waive of house flipping, as investors take advantage of this change in policy, but see the blog update below. It will certainly help lenders deal with the increasing numbers of foreclosed property to be able to access more buyers with FHA financing.

One of the thoughts behind this move is to encourage lenders to spend the necessary money to bring the properties up to FHA standards. The belief is that this will help stabilize values and generally upgrade neighborhoods that are being hurt by large numbers of foreclosures.

In Chattanooga, where our foreclosures are rapidly increasing, it will help sustain our property valuations. Lenders are now encouraged to perform property repairs so that the homes will pass FHA standards.

Repaired properties will bring higher prices.

The increased buyer pool caused by the availability of FHA financing, will also bring higher prices.

This is generally good news. I continue to check for more details.

Update
The FHA order waiving the flipping rule for mortgagees is found here at this link

My reading of the order is that it only applies to foreclosure properties. This will keep in force the effort to restrict investor property flipping.

I first saw the actual order copied in a post by Josh David.

You will find a mortgage professional here. Whether you want conventional, FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, credit guidance, mortgage or home or other information in Tennessee, Georgia, or Alabama, call me, Richard Smith: