Monday, June 15, 2009

Recent Underwriting Changes

There have been some important changes to the Fannie Mae underwriting guidelines that are sure to have an impact on the number of people who can qualify for a loan. Here are a couple of them:

-- You can no longer count 100% of the value of stocks, bonds, and mutual funds when they are used for reserves. The new rules states that only 70% of the current value can be used.

-- Only 60% of the vested value of retirement accounts can be counted as reserves (the old guidelines allowed 70%).

-- Fannie Mae "highly recommends" (meaning "do it or else") that all lenders now include a copy of the borrowers' income tax transcripts in the loan file, even if the actual income tax returns are not required. Tax transcripts are ordered directly from the IRS.

-- All files will now require a verbal verification of employment within 10 days of the closing for hourly, salary, and commission income, and within 30 days of the closing for self-employed income. Any good mortgage broker always did this, but it is now mandatory.

Fannie Mae is very clear in stating that they are instituting these new guidelines in order to combat the rampant fraud and misrepresentation that exists in the mortgage industry, and because the economy is not getting any better, despite what many people believe.

There are two camps in the real estate and mortgage industries right now. One maintains that if we could only start being positive about things and ignore the constant barrage of bad news, everything will turn around and the glory days of the past will return. The other camp maintains that accepting the current situation is the key element in an individual's success.

We are firmly in the "acceptance" camp. The economic situation is not the greatest, but it also presents an unprecedented opportunity to those who realize things have changed. Hoping for change kills businesses. Accepting change grows businesses. We are now in the busiest part of the year in the real estate industry. If your business is still down, maybe you're in the wrong camp.

We talk to a lot of realtors and a lot of loan officers. Most are not making anywhere near as much as they have in the past, but some are doing very well. The common theme we have noticed among the people who are doing well (both real estate agents and lenders) is that they accepted the new reality of our economy a long time ago. They realized that sub-prime loans and stated income are gone, and higher credit scores and larger down payments are going to be with us for a long time. They realized that nothing is more important at the moment than knowing more about your job than your competition does. How you go about learning more than your competition is totally up to the individual. It could be reading, it could be classes, it could be finding a mentor, etc. The important thing is to learn as if your job depended on it because your job does depend on it.

Here's an example of what we do to stay ahead of our competition. The first hour of every day is spent reading the Fannie Mae, Freddie Mac, FHA, VA, and mortgage insurance underwriting changes. Every single tip we send people is in one of the documents we read. Look at the tips at the top of this email. These are available to anyone at all on the Fannie Mae web site, but very few people bother to read them. Instead, they send in loans to underwriting and wonder why the deals fall apart. We get deal after deal after deal because we spend one hour a day reading. Today alone, we received three calls from real estate agents who just had deals fall apart because of underwriting changes. That's three deals we now have because we read for an hour every morning and our competition doesn't.

My father used to be a high school English teacher in NY. He taught the seniors who were considered un-teachable. Losers, idiots, hopeless cases. One year, he taught them two things. One was how to fill out a job application. Day after day, they all filled out a job application. Over the course of the year they slowly learned to read and write correctly. When they graduated (most were awarded a diploma just to get them out of the school), every one of them had a decent job by the end of June. 30 losers, 30 jobs. The second thing he taught them was that America is truly the land of opportunity - but only for the educated.

No comments: