Lenders who prey on veterans hurt other home buyers as well

Lenders who prey on veterans hurt other home buyers as well

Kenneth R. Harney on Feb 16, 2018

WASHINGTON – Could predatory lending practices affecting veterans also be inflating http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=interest%20rate s&c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationsho using/s-2049258> interest rates paid by thousands of unsuspecting http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=home%20buyers&c 2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshousi ng/s-2049258> home buyers using FHA loans?

The answer appears to be yes – and the underlying abuses in home loans to veterans are prompting action by federal authorities and legislation on Capitol Hill.

Here’s what’s happening- According to officials, some lenders active in the Department of Veterans Affairs (VA) home-mortgage program have been inducing borrowers to refinance their loans frequently in order to generate fat fees for the lenders themselves, rather than benefiting veterans with lower costs or better loan terms.

The lenders use baiting tactics reminiscent of the housing-boom era – “teaser rates,” promises of zero payments for one or two months, refunds of escrows, switches from long-term fixed rates to short-term floating rates, and a grab-bag of bogus claims about saving money. In fact, many veterans have ended up paying more for their loans after the predatory refinancings, and some have found themselves left with little or no equity in their homes. Officials estimate that anywhere from 12,000 to 20,000 veterans have been affected by these marketing tactics during recent years.

All this may sound horrible, but it gets worse- Abuses in the VA mortgage-lending arena have spilled over onto borrowers in the much larger Federal Housing Administration (FHA) market, which primarily serves first-time home purchasers and others who lack significant cash for a down payment.

The linkage is via a little-publicized but exceptionally important agency, the Government National Mortgage Association or Ginnie Mae. Ginnie connects individual http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=home%20buyers&c 2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshousi ng/s-2049258> home buyersand refinancers using federal mortgage programs with deep-pocket investors around the world – giant pension funds and banks, among others. Ginnie pools VA, FHA and U.S. Department of http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=agriculture&c2= Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshousing /s-2049258> Agriculture rural housing loans into mortgage bonds, and provides a federal guarantee of timely payments to investors.

The inevitable result of the VA lenders’ predatory activities is an unusually high number of refinancings within the pools, which disrupts the expected long-term payment flows to investors. That, in turn, prompts investors to lower what they’ll pay for the bonds, and has the side effect of raising lenders’ interest-rate quotes to VA, FHA and rural home buyers and refinancers.

Michael Fratantoni, chief economist for http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=the%20mortgage& c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshous ing/s-2049258> the Mortgage Bankers Association, told me “it absolutely impacts http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=interest%20rate s&c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationsho using/s-2049258> interest rates” adversely when investors cut the prices they’ll pay for Ginnie Mae bonds. It sounds complicated, but the simple fact is this- If pension funds or banks are less enthusiastic about Ginnie’s bonds, individual borrowers sitting across from loan officers or making applications online end up paying higher http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=interest%20rate s&c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationsho using/s-2049258> interest rates on their government-backed loans.

Michael R. Bright, executive vice president and chief operating officer of Ginnie Mae, estimated in an interview last week that the abuses in VA refinancings have caused interest rates on FHA, VA and rural housing recently to be one-quarter of a percent to one-half of a percent higher than they otherwise would have been. What does that mean in dollar terms to applicants? Steve Stamets, senior loan officer for http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=the%20mortgage& c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshous ing/s-2049258> The Mortgage Link Inc. in Rockville, Maryland, told me that on a $300,000 FHA loan, a half a percentage point rate increase could add more than $1,000 a year to a home buyer’s payments.

“It’s heinous,” said Ted Tozer, immediate past president of Ginnie Mae. “People don’t realize this affects all borrowers who are getting a [government-backed] home loan.” Given the fact that FHA alone insured 882,000 new single-family-home purchase loans in fiscal 2017, you can begin to grasp how many borrowers may have been overcharged on their http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=mortgage%20inte rest&c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenation shousing/s-2049258> mortgage interest.

What’s being done to end this scandal? Last week, Ginnie Mae announced that it has notified a small group of lenders who allegedly have been abusing veterans on refinancings that they face potential exclusion from Ginnie’s principal bond program if they don’t stop what they’ve been doing. That would effectively cut them off from their main source of institutional funding for loans – a severe penalty. The agency did not identify specific lenders, but Bright told me the first penalties could be imposed as early as next month.

Meanwhile a bipartisan group of senators has introduced legislation that would block lenders from foisting rotten refi deals on VA borrowers. The “Protecting Veterans from Predatory Lending Act,” co-sponsored by Sens. Thom Tillis, R-N.C., and Elizabeth Warren, D-Mass. The legislation would require lenders to produce a “net tangible benefits” analysis – demonstrating real savings to borrowers before initiating a refinancing and guaranteeing decreases in interest rates.

New real-estate survey offers helpful insight for buyers and sellers alike

New real-estate survey offers helpful insight for buyers and sellers alike

Kenneth R. Harney on Feb 2, 2018

WASHINGTON – They are gnawing questions that many http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=homebuyers&c2=A rcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshousing/ s-2044670> homebuyers inevitably ponder- What are my chances of getting the house I’ve fallen in love with at a price I can afford, which happens to be well below what the seller is asking? What are the odds that pesky contract contingencies, such as mortgage financing or the appraisal, could jeopardize my good deal?

Sellers have different concerns- What are the chances that I could actually get a higher price than what my cautious realty agent has persuaded me to offer? Might I have to throw in costly incentives to attract a buyer or – horrors – slash my price?

A new survey of 4,283 members of the National Association of Realtors offers some valuable insights, no matter what side of the deal you’re on.

Take pricing. Except in a handful of superheated markets where few houses are available for sale, the odds are strong that you as a buyer will be able to get the house you want for less than the list price. Just 34 percent of agents in http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=the%20survey&c2 =Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshousin g/s-2044670> the survey reported sales above or at the original asking price. So you’re probably more likely to write a successful below-list contract than you assume.

What about sales incentives – the sort of financial goodies that sellers throw into the pot to sweeten the deal? Are they commonplace? You might think so, but statistically they are not. Barely 20 percent of sellers offered any sweeteners whatsoever, according to http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=the%20survey&c2 =Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshousin g/s-2044670> the survey. Typically they involved the seller paying for some of the buyer’s closing costs or fronting the premiums for home warranty http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=insurance&c2=Ar camax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshousing/s -2044670> insurance coverage. Another concession- Sellers agreed to set aside money to remodel http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=the%20kitchen&c 2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshousi ng/s-2044670> the kitchen or a http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=bathroom&c2=Arc amax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshousing/s- 2044670> bathroom to the buyer’s specifications. But overall, 80 percent of sellers opt to avoid concessions. If there needs to be a cost adjustment, presumably they prefer simply to subtract it from the price they’re asking.

Sales contract contingencies are another key factor in your transaction. But here’s a surprise- Though they are boiler-plate standard in many local realty contracts, large numbers of final contracts end up with none. No language requiring the buyer to obtain a mortgage commitment within a specified time, no requirement regarding appraisal, not a word about an inspection.

Twenty-one percent of contracts covered in http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=the%20survey&c2 =Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshousin g/s-2044670> the survey were contingency-free. That’s an eye-opener because contingency clauses can be crucially important for buyers and sellers. Say you sign a contract on a home that looks great but has defects you missed – the roof is 10 years beyond its economic life, the plumbing is a disaster waiting to happen. Without an inspection clause, you may have no escape hatch out of the deal and no way to argue for a lower price.

Why do buyers agree to contracts like this? The survey provides no details, but there are several possibilities- Multiple bids on the house can push buyers to offer “clean” contracts; all-cash or distress sales may require the buyer to take the house “as is”; and some sellers may simply voluntarily waive certain contingencies.

But most buyers and sellers are smart- 75 percent of all final contracts include at least one contingency clause; 55 percent require a home inspection (still surprisingly low); and 43 percent have mortgage contingencies.

How about your prospects of going to settlement on time – or worse yet, having your sale blow up before or at closing? A few years ago, delays and cancellations were shockingly common, but in the latest survey things look much better. Seventy-one percent of sales settled on schedule in December, while 25 percent encountered delays but eventually went to closing.

What caused the delays? Buyers’ inability to obtain http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=the%20mortgage& c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshous ing/s-2044670> the mortgage they wanted topped the list, accounting for 31 percent of all delays. Examples might include glitches that turn up in the buyers’ credit files or the discovery of previously undetected liens or judgments that must be resolved before the lender could commit to http://www.closettrail.com/rd/r.php?sid=11478&pub=300908&c1=the%20mortgage& c2=Arcamax&c3=https://www.arcamax.com/homeandleisure/consumer/thenationshous ing/s-2044670> the mortgage. Appraisal issues triggered 16 percent of all delays, home inspection disputes another 12 percent.

But here’s a really encouraging statistic- Total blowups are way down from where they were a couple of years back. During early 2015, between 9 and 10 percent of all real estate contracts were canceled before final settlement. Today that’s down to just 4 percent.

In the often contentious and complicated world of real estate, that passes for great news. Buyers and sellers are working out their problems … rather than walking away.