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Sherwood Village’s Finest…

August 30, 2010 By
Exterior Front

Sherwood Village Way is an incredible townhome nestled in the heart of Placentia in the highly sought after community of Sherwood Village . This generous free-flowing floor-plan is nicely appointed with upgrades throughout. Some of the spectacular improvements include Pergo style flooring, hand troweled ceilings downstairs, ceramic tile kitchen counter tops with an updated stove and microwave, updated light fixtures, modern paint, and newer window coverings. The master bathroom has been remodeled with an new tub surround and sliding doors, update tile flooring, and new fixtures. Additionally; the property offers an updated heating and air system and much, much more. The association offers a spacious clubhouse, a great pool and spa area, tons of greenbelts, walk ways and plenty of guest parking.

For Additional Information… Visit: www.1581SherwoodVillageWay.com

Filed Under: Featured Listings

Fantastic 4-Plex in San Clemente

August 30, 2010 By
Escalones Front

This is a fantastic 4 plex located just minutes from the beach. All units have been redone within the last few years as it offers a newer roof, newer appliances, scraped ceilings, mirror wardrobe doors, cathedral ceilings in the front unit, a fireplace in the front unit, ceramic tile floors and counter tops, and frest exterior paint. Units consist of (3) 1 bedrooms – 1 bathroom and (1) 3 bedroom – 2 bathroom. All units have a rear patio and 1 car garage. The front unit offers an amazing deck with a peek a boo view! Property offers common laundry and collections from the laundry are in addition to the numbers listed below. This is an incredible value and a great property!

View more information at: www.146WestEscalones.com

Filed Under: Uncategorized

Buying an older home? Realtors giving $2,000 for certain energy-efficiency improvements

August 30, 2010 By

By Jim Wasserman * jwasserman@sacbee.com * Published: Monday, Aug. 23, 2010 – 11:44 am

The first of it’s kind… I’m loving the fact that this would be a great fit for our community here in Southern California. The challenge would be that we would need an increase in the credit amount to cover the necessary improvements. Read on and let me know your thoughts…

The Sacramento Association of Realtors, aiming to overcome consumer reluctance about buying older, energy-guzzling houses, has launched a program to give qualified buyers $2,000 to help make energy-efficiency improvements.

The grant program, funded by a $234,000 SAR fund, is believed to be the first of its kind in California. “We help buyers who need it the most, and improve houses that need it the most,” said SAR coordinator Charlene Singley, a Lyon Real Estate agent in Sacramento. “And we’re out there trying to help improve energy conservation in the area.”

To qualify, buyers must purchase a home built in 1978 or earlier. That covers about six in 10 Sacramento-area houses, said Comstock Mortgage Senior Loan Consultant Kevin Nunn, who created the grant program for SAR. It also covers many of the bank repos that have become a large share of the region’s for-sale listings.

Buyers must use a SAR Realtor or lender. The homes can be located anywhere that one of those members sell.

Buyers must also use a Federal Home Administration or Veterans Administration Energy Efficient Mortgage. Those mortgages, in use since the early 1990s, allow buyers to roll the costs of energy efficiency improvements into their home loans. The idea behind Energy Efficient Mortgages: they save buyers more in the long run than it costs for the financing.

Nunn said energy efficient mortgages allow buyers to borrow up to 5 percent of the sales price – $10,000 in the case of a $200,000 house – to install new air-conditioning, add dual-pane windows or extra insulation to the older house.

He said energy efficiency mortgages most commonly help buyers finance new air-conditioning systems, dual pane windows and insulation. The SAR program requires that a SMUD-certified contractor do the work.

© Copyright The Sacramento Bee. All rights reserved.

Read more: http://www.sacbee.com/2010/08/23/2977186/buying-an-older-home-realtors.html#ixzz0xvgkZ89U

Filed Under: Uncategorized

Homeownership to decline further, housing analyst predicts

August 29, 2010 By

John Burns says demographics, government policy and other factors that once pushed people into buying property are no longer enough.

Somewhere, somehow, in the last decade the so-called American Dream seemed to insinuate itself into the Bill of Rights. Government policy, among other factors, pushed homeownership to a lofty 68% of all households.

That was then.

The number has been steadily backsliding in the last couple of years, and housing analyst John Burns says he got “a lot of heat” for his recent report predicting that homeownership would drop below 62% — and maybe further — if the number of “strategic defaulters” who walk away from their underwater mortgages continues to increase, he said.

“Homeownership is clearly a value that’s promoted by most politicians,” Burns wrote in the mid-July report. “They are in for a rude awakening, however, and a legacy that they will not be proud of.”

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It’s an interestingly glum assessment from a man whose real estate consulting company based in Irvine provides market analysis to some of the nation’s largest builders, developers and real estate investors. He’s no cheerleader, Burns said — they’re paying him to call it as he sees it.

And the way he sees it, several factors have historically pushed homeownership upward:

•Aging demographics (more people buy houses as they get older).
•New household formation (younger people leave Mom and Dad and set out on their own).
•Affordability.
•Social policy.

But a couple of those factors have clearly hit the wall. In this market, many of those older would-be buyers can’t sell what they already own and move up, and new household formation has been dealt a setback by fewer people leaving the nest because they can’t afford to live on their own.

Social policy, Burns said, is a giant question mark.

“In 1999, Congress and the Clinton administration made a conscious decision to grow homeownership,” he said. “The vehicle was allowing Fannie Mae and Freddie Mac to grow substantially by increasing the dollar limit on the number of mortgages they could take on.”

Now what to do with those two entities is a hot-potato question, Burns said.

Despite some recent initiatives to support more affordable rental housing, “I don’t think the majority of Congress is shifting to favor renting,” he said. “But they do finally realize that not everybody is meant to be a homeowner.”

Affordability, though, is the bright spot.

“In most markets of the country, it’s now the most affordable time to purchase in three decades,” Burns said. “If a lot of people who make $40,000 to $50,000 could come up with a down payment, and if they were convinced that they weren’t going to get laid off, that would be the real positive that would drive housing up.

“I know there are a lot of ‘ifs’ there. It’s true, though.”

If the previous list is supposed to amount to the pluses for homeownership, consider the minuses Burns said were weighing it down:

•Higher immigration levels. Not only do the majority of immigrants not have the money to buy homes, they also are cash-spending consumers who don’t have the credit histories requisite for home buying. They historically rent for five to seven years on average, Burns said.

•Tighter lending policies than in recent years, though they’re still generous by historical standards.

•Catapulting mortgage default rates. Burns estimates that 8 million homeowners aren’t paying their mortgages, and 6 million of those will lose their homes. Government rescue programs aren’t working because homeowners have too much credit card debt, he said.

Burns declined to enter the “when will housing recover” derby.

“I do think we’re bouncing along the bottom [of the falling market] here, but we’re clearly bouncing down right now,” he said. “We need job growth and a healthy mortgage market to pull us out of this.”

Umberger writes for the Chicago Tribune. – Copyright © 2010, Los Angeles Times

While I agree with the writers comments that we need job growth and a healthy mortgage market, I would have to disagree that we are bouncing along the bottom. While I’m not a fan of being doom and gloom, I do believe that the market will continue to adjust and the market will make additional concessions over the next few years. I would love to hear your thoughts… simply click on the comment section below.

Filed Under: first time home buyers, Selling your Home

Home Front: Appraisal sites on Net often fail to pin down accurate prices

August 28, 2010 By

Industry participants have stated this for years and now the media is addressing the validity of these online web sites. While they do provide a basic service, along with a decent valuation; the true value of your home can only be determined by the market, not an appraiser, not a Realtor, and not a seller… but the market itself. Your thoughts? Click on the comment section below and let me know…

By Jim Wasserman at the Sacramento Bee * jwasserman@sacbee.com * Published: Friday, Aug. 13, 2010 – 12:00 am | Page 1B

One of the most phenomenal new developments in real estate over the past five years is the ability to look up your home’s approximate value online.

Since Zillow.com launched in February 2006, millions of people now turn to keyboards and mobile phones, punching in home addresses. Here again, the digital revolution freed data from experts and democratized it for the masses.

A number of companies now compete for the eyeballs of homeowners, and the advertising they sell. If you don’t like Zillow’s free estimate of your value, you can get another at Cyberhomes.com, or another at Eppraisal.com.

But here’s the question: How accurate are these sites, really? These are computers talking back at you. They assign your house a value without seeing it and without knowing the neighborhood. Then they hedge their bets with a price range of $20,000 to $40,000 on either side of that value.

Seattle-based Zillow doesn’t claim to be right on the money. But the firm’s chief economist, Stan Humphries, said Thursday, “Our accuracy in the Sacramento metro is very good.” He said “roughly half of homes sold in the metro sell for within 10 percent of the Zestimate.” That’s Zillow’s trade word for estimated values.

Despite that contention, some appraisers and real estate agents hold dim views of Zillow and competitors.

“All these data sources are OK for basic tract homes that have no upgrades or are in average condition,” said Colleen Tiner, who owns Tiner Appraisals in Fair Oaks.

“But when you get anything that’s off average Zillow doesn’t apply at all.”

These online sites, powered by what’s called automated valuation models, have the hardest time in irregular neighborhoods.

If you live on the nicest street of an average neighborhood that’s bordered by a declining neighborhood, the free sites can appear to toss darts at the wall.

An acquaintance in this situation in Sacramento County got three values ranging from $99,000 to $217,000.

Humphries acknowledged that Zillow’s accuracy improves with “the proximity of comparable homes.”

Agents do praise one thing about Web estimates. They educate clients, said Frederick Kuo, broker associate with Prudential NorCal Realty in Carmichael.

“I feel like the greater wealth of information has actually helped me with some clients. They have a more realistic understanding of the market and the process they’ll be going through as a buyer,” he said.

His complaint, though, is about actual values, and Zillow’s in particular. Judging by sales prices, Kuo believes the site “tends to be about 20 percent over actual values” in both newer, homogenized neighborhoods and mixed older ones.

Computers see houses objectively, said Tiner. She said, “We have the experience to estimate the subjectiveness to an appraisal.”

That’s old-fashioned shoe leather that goes beyond algorithms. It’s about knowing neighborhoods, seeing the remodeled kitchen and knowing what a view of the lake is worth.

Zillow’s Humphries said computers can learn.

“Our computer models train themselves daily as new information, such as home sales or user-contributed facts, becomes available,” he said Thursday.

Zillow claims 12 million visitors monthly. Yet a home’s real value always comes down to the oldest formula on Earth: what’s agreed to in a handshake.

© Copyright The Sacramento Bee. All rights reserved.

Filed Under: first time home buyers, Selling your Home, What's New?

FHA tells Congress: Mortgage insurance claims are down; home prices a concern

August 20, 2010 By

I’m not sure where the numbers are coming from… I still believe that these numbers are falling short of reality. I believe that home prices will once again start to soften, and the claims by the Mortgage Insurance companies will return… What is your take? Read on… and leave me a comment below.

By Dina ElBoghdady
Washington Post Staff Writer
Wednesday, August 4, 2010
Mortgages backed by the Federal Housing Administration have performed better than expected so far this fiscal year, though the improvements could be overturned if home prices sink, according to a report the agency submitted to Congress this week.

The report analyzed the FHA’s loan portfolio from October through June and compared the results to the projections in an independent audit released late last year.

That audit found that as the FHA’s loan volume expanded, its default rate rose and the excess cash it set aside to deal with unexpected losses eroded to dangerously low levels as of Sept. 30. The auditors concluded taxpayers would be on the hook for losses if worst-case scenarios played out — a first for the agency, which has always used fees it charges borrowers to pay lenders for losses.

In its report to Congress this week, the FHA updated lawmakers on the performance of its loans since the audit’s release. The agency said it collected more money than it disbursed in the nine months ended June 30, for a net increase of $446 million. It concluded that FHA loans are holding up better than the audit had predicted on many fronts, in part because the agency has attracted more creditworthy borrowers and rooted out fraudulent lenders.

But the report did not update the excess cash reserves calculated in last year’s audit. Those were about $3.6 billion as of Sept. 30. That represented about 0.53 percent of all outstanding single-family home loans insured by the agency — well below the 2 percent required by law. A new audit is due later this year.

The FHA’s report to Congress said that from October through June, the FHA had 19,310 fewer insurance claims on loans gone bad and paid $3.7 billion less than projected by the audit.

Some states are experiencing a backlog in processing foreclosures, which may help explain the lower-than-expected claims, the report said. But aggressive foreclosure prevention efforts and stabilizing home prices also contributed to the better results.

When home values drop and borrowers end up owing more than their homes are worth, they are vulnerable to foreclosure because they can’t sell their properties or refinance if they face a financial setback.

But just as better-than-predicted home prices have helped the FHA so far this fiscal year, a sustained drop in prices could severely damage its finances going forward.

“That’s the overarching caution,” said Bob Ryan, the agency’s chief risk officer. “We have to think about what loan performance will look like based on what houses’ prices will be doing going forward.”

The most at-risk loans are the ones made in 2007 and 2008, the report said. FHA Commissioner David H. Stevens has told Congress that “rogue players” migrated to FHA lending in those years and used aggressive tactics to attract poor-quality borrowers to the FHA.

Those loans are now maturing into their worst years because failures most often occur two to three years after a mortgage is made. As the loans go bad and clear off the FHA’s books, the agency expects its losses to taper off. The 2009 and 2010 loans — which now make up 60 percent of its outstanding dollar balances — are of better quality, which is why the delinquency rates on those loans are low, the report said.

In the quarter ended June 30, only 0.42 percent of the FHA purchase loans were at least 90 days late within their first six months. By contrast, 2.6 percent of the mortgages in the comparable quarter of 2007 and 1.5 percent of the loans in the same portion of 2008 were seriously late.

The report also said that the FHA has endorsed more than 1.3 million single-family loans in the first three quarters of the fiscal year as of June, and it’s on pace to ensure 1.7 million by the end of the fiscal year on Sept. 30. Home purchase mortgages alone may surpass the one million mark for the first time since 1987. But refinance activity has slowed dramatically since its peak in late 2009

Filed Under: Selling your Home, What's New?

Short sales soar in California, U.S.

August 19, 2010 By
Instead of taking over homes through foreclosure and then selling them, many lenders are agreeing to short sales, in which a home is sold for less than the owner owes on the mortgage. (Joe Raedle, Getty Images / July 28, 2010) 104

Real estate deals in which lenders agree to take less for a property than the balance on the mortgage have tripled since 2008, a report says By Tiffany Hsu, Los Angeles Times August 11, 2010

Instead of taking over homes through foreclosure and then selling them, many lenders are agreeing to short sales, in which a home is sold for less than the owner owes on the mortgage. (Joe Raedle, Getty Images / July 28, 2010) 104

Sales of homes for less than the amount of their outstanding mortgage debt have tripled since 2008, particularly in California and the Sunbelt, according to a report released Tuesday.

Known as short sales, the increasingly common transactions for financially troubled homeowners are projected to balloon to 400,000 in 2010, according to Core Logic, a Santa Ana company that provides services to the real estate and mortgage markets. By comparison, existing homes sold at a seasonally adjusted annual rate of 5.37 million units in June, according to the National Assn. of Realtors.

In an economy in which jobs are scarce and a quarter of homeowners owe more on their property than it’s worth, short sales are appealing to investors, banks and owners as a cheaper way out than foreclosure.

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Such sales will likely remain routine as the mortgage industry attempts to stabilize, according to the report from Core Logic.

Through short sales, lenders and struggling homeowners agree the property will be sold at a loss, allowing the seller to escape crushing debt or the stigma of default. But in the process, the sellers watch their credit scores suffer and the funds they invested in down payments and renovations disappear.

And with fluctuating home prices, lenders can be reluctant to approve short sales. The transactions can be a hassle to execute, especially when multiple loans on a home mean a slew of creditors are included in negotiations.

Also, lenders have been burned in some short sales when they agreed to a below-market sale price only to see the property resold later at a significantly higher price.

Still, even though the number of short sales is still relatively small, the increase shows that lenders now view the transactions as “a good compromise between foreclosures and trying to ride out the market,” said Richard K. Green, director of the USC Lusk Center for Real Estate.

The number of transactions has exploded to more than 160,000 in 2009 from roughly 96,000 the year before. More than a quarter of the transactions occur in California, with another quarter split between Arizona, Texas and Florida.

About 4% of short sales are then resold within 18 months, according to Core Logic. The firm studied the short sales of more than 250,000 single-family residences over the last two years.

Short sales, Green said, could actually end up boosting the job market. Unemployed homeowners who can escape underwater mortgages have an easier time moving around, expanding their job search.

“In 2008, it was impossible to do these sales,” he said. “But there’s some regulatory pressure to get stuff off the balance sheet. And lenders are less in denial now, coming to grips with the reality that the economy isn’t going to snap back.”

tiffany.hsu@latimes.com
Copyright © 2010, Los Angeles Times

Filed Under: Selling your Home, Short Sale Updates, What's New? Tagged With: , , , , , , , , , ,

Foreclosures rise in July – CNN Money

August 18, 2010 By

We have discussed this in the past… the amount of hidden inventory continues to rear it’s ugly head, and the banks are finally moving more of their properties through the pipeline. What does this mean? If you or someone you know and love is in jeopardy of losing their home, get help sooner than later. Agree or disagree??? Let me know your thoughts by leaving a comment below.

This article is written By Les Christie, staff writer – August 12, 2010: NEW YORK (CNNMoney.com) — The latest foreclosure numbers carried a mixed message: They’re up 3.6% from the month before but down 9.7% from 12 months earlier.

In July there were more than 325,000 foreclosure filings — including notices of default, auctions notices and bank repossessions. That is the 17th month in a row total filings exceeded 300,000, said RealtyTrac’s CEO, James Saccacio.

“Declines in new default notices, which were down on a year-over-year basis for the sixth straight month in July,” he said, “have been offset by near-record levels of bank repossessions, which increased on a year-over-year basis for the eighth straight month.”

A near record number of people lost their homes to mortgage payment problems in July. Lender repossessions amounted to 92,858 homes, the second highest monthly total ever behind the 93,777 recorded this May.

Repossession is the final stage in the foreclosure process. People can stay in thier homes until the point that the bank takes posession of the home or sells it at auction.

Please understand… as of right now, the banks are being much more proactive about removing homeowners from their homes. Once it goes to sale, experience shows that it’s probably not going to be favorable.

Filed Under: Short Sale Updates, What's New?

“Buy and Bail” homeowners get past loan restrictions

August 17, 2010 By
People who chose to default typically have lost $100,000 or more in property value. Photographer: Jacob Kepler/Bloomberg

The industry continues to be hit with the increasing foreclosure inventory and this is just another problem that is providing fuel to the fire… I’m curious, what would you do? Take a few minutes, read this article and post your thoughts when time allows.

Harvey Collier, a mortgage broker in Fort Lauderdale, Florida, says he gets as many as 10 calls a month from people planning to default on their loans. The twist: They first want financing to buy another home.

People who chose to default typically have lost $100,000 or more in property value. Photographer: Jacob Kepler/Bloomberg

Real estate professionals call it “buy and bail,” acquiring a new house before the buyer’s credit rating is ruined by walking away from the old one because it’s “underwater,” or worth less than the mortgage. It’s an attempt to escape payments on a home whose value may never recover while securing a new property, often at a lower price with a more affordable loan.

The practice, which constitutes fraud if borrowers lie on loan applications, is continuing even after Fannie Mae and Freddie Mac, the biggest U.S. mortgage-finance companies, beefed up standards to prevent it, according to brokers such as Collier and Meg Burns, senior associate director for congressional affairs and communications at the Federal Housing Finance Agency. Whether driven by greed or desperation, the persistency of buy and bail underscores the lingering impact of the worst housing crash since the Great Depression.

“People were holding on, hoping the market would turn around,” Collier, who won’t work with applicants who intend to go into foreclosure, said in a telephone interview. “But now they’re giving up because there’s no light at the end of the tunnel in places like Florida.”

The value of U.S. homes fell by a third from 2006 to 2009, as tracked by the S&P/Case-Shiller index. In some areas, the losses were bigger. Prices declined 56 percent in Las Vegas, 55 percent in Phoenix and 49 percent in Miami.

Such declines have left more than a fifth of single-family homeowners with mortgages underwater in the second quarter, according to a report yesterday by Zillow.com, a Seattle-based data company.

Rising Strategic Defaults

About 12 percent of residential-loan defaults in February were strategic, meaning homeowners decided not to make payments even though they could afford to, New York-based Morgan Stanley said in an April 29 report. The rate, which was about 4 percent in mid-2007, probably will increase even if home values start to recover, said Frank Pallotta, managing partner of Loan Value Group, a mortgage-consulting firm in Rumson, New Jersey.

“After home prices bottom, the borrower in a position of negative equity is able to quantify exactly how long it will take to recoup the loss, and may decide to walk away,” Pallotta said.

Jumbo Loans

Most likely to walk away are borrowers with the best credit scores and so-called jumbo loans that exceed the caps set for mortgages bought by Fannie Mae and Freddie Mac, which range from $417,000 in most locations to $729,750 in high-cost areas, according to the Morgan Stanley report. People who choose to default typically have lost $100,000 or more in property value, said Brent White, a law professor at the University of Arizona in Tucson. No data exist on strategic defaults done in tandem with buy-and-bail purchases.

Buy and bail is most often pursued by people with big enough paychecks and low enough debt to qualify for two homes, according to Mark Goldman, a broker at Cobalt Financial Corp. in San Diego. That threshold is easier to meet since home prices retreated and mortgage rates fell to an all-time low, he said. The average U.S. rate for a 30-year fixed home loan dropped to 4.49 percent, the lowest in records dating to 1971, McLean, Virginia-based Freddie Mac said on Aug. 5.

Home Before Foreclosure

“Most people, if they have the means to do it, would like to make sure they have someplace to live before they let a house go into foreclosure,” Goldman said. “They know they’re going to kill their credit score, so they make sure to get a home they won’t mind staying in.”

Freddie Mac and larger rival Fannie Mae cracked down on buy and bail in 2008 by banning in most cases the use of rental income from an existing home to qualify for a new mortgage unless the first property has at least 30 percent equity.

“There were a number of policies put in place to squelch this type of activity, but people who are savvy can always find a way to circumvent policies,” said Burns of the Federal Housing Finance Agency, which regulates Fannie Mae, Freddie Mac and the 12 federal home loan banks.

In addition to the rental restrictions, the mortgage giants now usually require reserves equal to six months of loan payments for both homes. The measures have been sufficient to block most applicants who attempt to buy and bail, said Pete Bakel, a spokesman for Washington-based Fannie Mae.

Still Going On

“We’re always looking for ways to discourage the practice of buy and bail, but it still seems to be going on,” said Brad German, a Freddie Mac spokesman. “It ultimately leads to higher costs for everyone as investors and others look for ways to price in the risk.”

Buy and bail is fraud if applicants provide false information to obtain a loan, said Steve Beede, a real estate attorney at BPE Law Group Inc. in Fair Oaks, California. The Federal Bureau of Investigation is pursuing more than 3,000 mortgage-fraud cases, almost double the number from a year earlier, FBI Director Robert Mueller said in a June 17 statement.

“Buy and bail is not the most common mortgage-fraud scheme, but it’s something we are aware of and investigate aggressively,” said Stephen Kodak, an FBI spokesman, who declined to give specifics about cases. The bureau works with state police and local housing agencies to conduct investigations, he said.

Plans for Properties

Mortgage lenders often ask about plans for existing properties when vetting borrowers, said Beede, the attorney. Others don’t seem to care, as long as there is enough income to pay both mortgages, he said. The new lender usually has no stake in the first loan, Beede said.

Clients of Ron Wilczek, a real estate broker in Tempe, Arizona, two months ago bought a house near Phoenix even though they couldn’t sell their existing property because its value had sunk so far below its mortgage.

Now settled in their new residence, they may try to sell the first home for less than what they owe, said Wilczek, owner of Metro Phoenix Homes. If the lender won’t agree to a short sale, they may just stop making payments, he said.

“You can make the argument that you must honor your commitments no matter what,” Wilczek said. “On the other hand, you have people who are realizing that if they want any hope of a retirement or a better life for their families, they can’t keep paying for something that will never, at least in their lifetimes, regain its value.”

Ethics of Move

Even if owners have underwater loans, walking away is unethical, said Scott LeForce, president of Realty World Northern California Inc.

“A loss of value doesn’t mean you have permission to run from your obligations,” he said.

In about two-thirds of U.S. states, including Florida, lenders may pursue a borrower after foreclosure by seeking a deficiency judgment allowing a lien on new property for the amount still owed on a previous mortgage. In states such as California and Arizona, lenders may not have that option if the original home was a primary residence.

“Making it possible to pursue people who do this particular kind of default would go a long way to addressing the buy-and-bail problem,” said Jay Brinkmann, chief economist for the Mortgage Bankers Association in Washington.

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.

Filed Under: Selling your Home, Short Sale Updates, What's New?

Lenders’ data mining goes deep

August 5, 2010 By

I love the data… I dislike that big brother has that much control and knows more about me than my family and friends… read on and let me know your thoughts.

Mortgage makers are going beyond tax returns and bank statements to determine whether you’re a good risk. They’re checking such things as where you have pizza delivered and where you shop online.

Reporting from Washington — That pizza you had delivered the other night could mean the difference between whether you are approved for a mortgage or rejected.

There’s a big stretch between making a house payment and paying for a pizza. But it’s not what you pay for carryout that matters, at least not in the eyes of lenders. It’s where the food was delivered.

Ordering takeout proves that you live where you say you do, and that helps lenders uncover the crook who claims to live in the property he is trying to refinance when he really lives hundreds of miles away. Or expose the 35-year-old who says he has a $1,200-a-month apartment when he really lives rent-free with Mom and Dad.

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When you order food online, you become part of a vast database that lenders might tap to help them determine whether you are a good risk. Moreover, all sorts of these data reservoirs exist, and none of them is off-limits to lenders who are coming off the worst financial debacle since the Great Depression.

“If the data is available and it can be obtained legally, I’m going to test it,” says Alex Santos, president of Digital Risk, an Orlando, Fla., analytics firm that works with lenders and investors to build better underwriting mousetraps. “If it is inexpensive and makes my credit model better, I’m going to use it.”

Digital Risk is just one of numerous risk-management companies that are continuously probing for ways to help clients quantify their risk, prevent fraud and otherwise ensure the quality of their loans. And they’re going to extraordinary lengths to do so.

For example, they might peek into your online-buying habits. After all, the reasoning goes, someone who buys his shirts from a Brooks Brothers catalog may have more disposable income than someone who shops at JCPenney.

“At least that’s a theory we can test,” Santos says. “We’re looking for any type of data source that you can plug into a computer. It takes only a month of trial and error to determine whether the information can help [determine credit risk] or not. We have a hypothesis, push a button, and the computer tells us whether the data is predictive or not.”

This sort of data mining goes way beyond your credit score, that financial snapshot that measures your ability and willingness to repay your debt. And, Santos says, “there’s a tremendous amount of this kind of analytics going on right now.”

Lenders are still checking credit histories, not just when you apply for a mortgage but also a second time a day or two before the loan closes. But your credit score — known as a FICO score for the name of the company that created the scoring formula — is now considered “too broad.” Consequently, it has moved down in the hierarchy of tests that lenders are using to make certain that someone isn’t hoodwinking them.

First and foremost, lenders are pulling copies of your tax returns directly from Uncle Sam.

Don’t be alarmed. You give the lender permission to do that when you sign Form 4506-T. The idea here is to make sure that you haven’t altered the copy of your last two years’ tax returns that you provided when you signed your loan application. Lenders want to know if you might have exaggerated how much you earned.

Form 4506-T isn’t new. But a few years ago, at the height of the housing-market bonanza when home loans were easy to come by, many lenders failed to use it. Now practically everyone is going straight to the federal tax collector to compare the returns you provided with those on file with the IRS.

Lenders also are going to great lengths to verify employment and assets. Not only are they calling the name and work number you provided on your application, but they also are seeking confirmation in writing from your employer about what you earn, your position and how long you’ve worked there.

It’s the same for your bank accounts. Rather than being satisfied solely with the copies of the bank statements you provided, lenders are going directly to your bank to secure another set of those statements to make sure the numbers line up.

Lenders are no longer taking the appraiser’s word for how much the property you want to buy or refinance is worth, either. Now, they are employing automated valuation models as a second line of defense to be certain the appraiser’s estimate is on the money.

Next in the line of defenses is your credit score, but not just the score pulled when you applied for the loan. Now, they are pulling a second score shortly before closing to make sure that you haven’t taken out a car loan, bought a houseful of furniture on credit or done something else that might change your ability to make your house payments.

Lenders also are searching for other undisclosed liabilities by running your Social Security number through a huge database known as Mortgage Electronic Registration Systems.

Since 1997, more than 63 million mortgages have been registered on the MERS tracking system, each with a distinct 18-digit identification number. So, if you have another mortgage that you “forgot” to tell your lender about, this check will probably find it.

Now, too, the most cautious lenders are digging into noncredit proprietary databases such as those maintained by Papa John’s or Victoria’s Secret. And nothing is out of the realm of possibility. The “only boundary,” says Digital Risk’s Santos, is whether information can be accessed legally.

As long as it does not distinguish between race, religion, age and other “protected” classes, anything is fair game.

Distributed by United Feature Syndicate.
Copyright © 2010, Los Angeles Times

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