I learned a long time ago that “common sense is NOT common practice“. This is especially the case during the emotional time that surrounds buying a home, when people tend to do some non-commonsensical things. Here are a few that I’ve seen over the years that have delayed (and even killed) deals:

1. Don’t deposit cash into your bank accounts. Lenders need to source your money and cash is not really traceable. Small, explainable deposits are fine, but getting $ 10,000 from your parents as a gift in cash is not. Discuss the proper way to track your assets with your loan officer.
2. Don’t make any large purchases like a new car or a bunch of new furniture. New debt comes with it, including new monthly obligations. New obligations create new qualifications. People with new debt have higher ratios…higher ratios make for riskier loans…and sometimes qualified borrowers are no longer qualifying.
3. Don’t co-sign other loans for anyone. When you co-sign, you are obligated. With that obligation comes higher ratios, as well. Even if you swear you won’t be making the payments, the lender will be counting the payment against you.
4. Don’t change bank accounts. Remember, lenders need to source and track assets. That task is significantly easier when there is a consistency of accounts. Frankly, before you even transfer money between accounts, talk to your loan officer.
5. Don’t apply for new credit. It doesn’t matter whether it’s a new credit card or a new car, when you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your FICO score will be affected. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.
6. Don’t close any credit accounts. Many clients have erroneously believed that having less available credit makes them less risky and more approvable. Wrong. A major component of your score is your length and depth credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both those determinants of your score.

The best advice is to fully disclose and discuss your plans with your loan officer before you do anything financial in nature. Any blip in income, assets, or credit should be reviewed and executed in a way to keep your application in the most positive light.

The KCM Blog

Last week, the Federal government and 49 state governments (Oklahoma being the exception) agreed to a $ 25 billion settlement regarding robo-signing and the challenges it created in the foreclosure process. We want to give a synopsis of the settlement and some perspective on what effect it will have on the housing market in 2012.

The Basics

The $ 25 billion in funds will be dispersed as follows:

$ 17 Billion National Commitment to Foreclosure Relief Efforts
The servicers collectively agree to commit a minimum of $ 17 billion directly to borrowers through foreclosure relief effort options, including principal reduction for qualifying borrowers, short sales, anti-blight measures, and enhanced homeowner transition programs.

$ 3 Billion National Commitment to Underwater Mortgage Refinancing Program
The servicers collectively agree to commit $ 3 billion to refinance “underwater” homes (when a homeowner owes more on a mortgage than a home’s current market value). To qualify, borrowers must be current on their mortgage payments on a mortgage owned by one of the five banks.

$ 5 Billion Payment to States and Federal Government
The servicers’ $ 4.25 billion payment to the states includes $ 1.5 billion for payments to borrowers who lost their home to foreclosure by one of the five servicers…$ 750 million of the state-federal payment will go to the federal government to resolve federal claims.

For further details on the settlement you can go to the official website.

Will the Settlement Have a Major Impact on a Housing Recovery?

Probably not. Though it is a step in the right direction, it may be too little too late. Here are some opinions on the settlement:

IHS Global Insights

 “Like many previous plans to stem foreclosures, this agreement will help at the edges. The problem is too big for it to have a large impact, however…This agreement will help the housing market move ahead in 2012 in a small way. But it is hardly a game changer.”

HSH.com

“While there is no doubt some benefit to formalizing and organizing the process of foreclosure and better monitoring of the process, the fact is that the settlement changes little.”

Capital Economics

 “While it is good that the settlement has been finalized and will offer principal reductions and refinancing schemes to borrowers, the bigger picture is that the settlement is not large enough to dramatically alter the outlook for the housing market or the wider economy.”

What about Foreclosures Moving Forward?

The settlement did bring clarity to one major issue – foreclosures. Banks have been holding off the foreclosure process on millions of homes over the last 18 months as they waited for the particulars of the settlement. They now know how they can move forward without penalty. The result will be an increase in foreclosures coming to the housing market.

Housing Wire

“It will speed up processing, and perhaps mean that foreclosures that have been waiting around since robo-signing came to light in 2010 will now gain legitimacy.”

Calculated Risk

“It does appear the number of completed foreclosures will increase following this settlement – especially in some judicial states with large backlogs – so there will probably be more REOs (lender Real Estate Owned) for sale.”

Bloomberg News

“The $ 25 billion settlement with banks over foreclosure abuses may result in a wave of home seizures…Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year over allegations of faulty and fraudulent paperwork used to repossess homes. With yesterday’s agreement, banks are likely to resume property seizures.”

Wells Fargo

“Mark Vitner, a senior economist at Wells Fargo Securities, said the settlement helps the housing market in the long run because it allows banks to proceed with millions of foreclosures that have been stalled. Many lenders have refrained from foreclosing on homes as they awaited the settlement.”

ATTENTION: Real Estate Professionals

If you want more information on how this settlement might impact foreclosures in YOUR area, join our FREE webinar on February 23rd.

Shadow Inventory: How to Explain the Impact it Will Have on YOUR Market.

Click here to reserve your seat.

The KCM Blog