Say a house was sold in June of 2009 to an investor for $100,000 by a bank. The investor doesn’t do any work on the home and immediately lists it for $150,000.

Can he do this?

Sure — the real question is can anyone get a mortgage to buy that house.

And the answer is “maybe, but probably not”.

According to HUD guidelines, there is a 90 day anti-flipping rule that says if the house has been owned by the seller for less than 90 days, then it won’t qualify for FHA financing.

Some conventional lenders will lend money on a property that is being flipped – but the property must appraise at value and may still have the value cut.

So the important part of this is this: if you are planning on buying a home that is considered a “flip” then be sure that you know what kinds of problems it could cause with your financing options.

In the last few months, only a select few lenders have not required a minimum of a 620 credit score on all California FHA streamline refinances. Yesterday, the last major lender who used to not require a minimum credit score has announced that they now require a 620 credit score for all California FHA streamline refinance loans. Taylor, Bean and Whittaker announced that they would now be requiring at least a 620 minimum credit score on all California FHA streamline mortgage refinance loans.

New Minimum Credit Score Announcement Details

FHA Streamlines (credit and non-credit qualifying) and VA IRRRL’s with Credit Scores below 620 must be LOCKED prior to July 13, 2009 AND must CLOSE (Note Date) no later than September 15, 2009, and must be delivered to TBW within 10 days after closing Loans in this category locked on and after July 13, 2009 will require a minimum FICO of 620. Clients will be required to obtain a 3 Repository credit report and utilize the standard method of determining qualifying FICO.

Any Conventional, FHA (including Streamline Refinance), or VA (including IRRRL) loan that exceeds $417,000 with a Credit Scores below 660 must be LOCKED prior to July 13, 2009 AND must CLOSE (Note Date) no later than September 15, 2009, and must be delivered to TBW within 10 days after closing Loans in this category locked on and after July 13, 2009 will require a minimum FICO of 660. Clients will be required to obtain a 3 Repository credit report and utilize the standard method of determining qualifying FICO.

In addition, any previously announced minimum Credit Score requirements that TB&W has put into place, that did not have a specified Closing date, will be required to be LOCKED prior to July 13, 2009 AND must CLOSE (Note Date) no later than September 15, 2009, and must be delivered within 10 days after closing. Therefore, any loan, regardless of whether it may be locked, registered or approved, that has a qualifying credit score below 620 (with the exception of those loans that have specified higher FICO requirements) must CLOSE (Note Date) no later than September 15, 2009.

TB&W will continue to allow non-traditional credit for those borrowers with no useable credit for the loan programs that allow the use of such credit in accordance with published guidelines. TB&W is fully aware that these limitations may result in the inability for a particular loan to meet these specified deadlines. TB&W will work as diligently as possible to accommodate all loans in the pipeline. We will be unable to grant any extensions or exceptions to these requirements.

California FHA Streamline Refinance: What Does This Mean?

Although the FHA guidelines do not officially require a minimum credit score, virtually all lenders (and all of the major lenders) in the US are now requiring a minimum of a 620 credit score. TB&W was the last major US lender who was not requiring that you had at least a 620 minimum credit score. It is possible that there are still smaller lenders who can offer the California FHA refinance streamline loan with no minimum credit score requirement, but it might be difficult to find them.

For those people who were interested in refinancing, one of the key things they first needed to know was whether Fannie Mae or Freddie Mac owned their loan. If Fannie Mae owned their loan, they could use any Fannie Mae approved lender. If Freddie Mac owned their loan, they were required to use their current lender (also known as a servicer).

Today it was announced that people who have a mortgage that is owned by Freddie Mac can now use whatever Freddie Mac approved lender they want when refinancing — and released some guidelines.

Key highlight of the announcement include:

1. Borrowers can continue to work with their existing servicer to refinance their mortgage. In the vast majority of these cases, the current servicer will not have to re-underwrite the borrower.
2. If the borrower chooses to work with another Freddie Mac-affiliated lender, the mortgage will need to be re-underwritten.
3. Freddie Mac will allow the lesser of 4 percent of the new refinance mortgage amount or $5,000 of closing costs, financing costs and prepaids/escrows to be rolled into the new refinance mortgage.
4. Freddie Mac’s standard post settlement delivery fees, up to a maximum of 2 percent, will apply to the Relief Refinance Program.

According to Freddie Mac Executive Vice President Don Bisenius:

“We are responding to consumers’ desires to have more refinancing options. As an added benefit, we are expanding the program and providing greater flexibility in financing closing costs. Freddie Mac is committed to doing everything we can to bring the benefits of the Administration’s Making Home Affordable program to as many borrowers as possible.”

What this means is that if you decide to work with a lender who is not your current servicer, it will be more difficult to get your refinance done — although not impossible as it was before. Freddie Mac has expanded their guidelines so that  people who have been given poor service from their current lender have choices of lenders who can help them get their loan done.

Hurry before mortgage rates go up!

Now the speculation can end – HUD has gave official guidance in the form of a Mortgagee Letter 2009-15.

Note: According to the Mortgagee Letter 2009-15, you cannot use the monetization of the tax credit for your 3.5% down payment.

Conditions of the 8000 Tax Credit Monetization Plan

If someone wants to turn their tax credit into cash to help cover closing costs or add to their 3.5% down payment they are required to have for a down payment, these conditions apply:

1. The tax credit advance, when combined with the FHA-insured first mortgage may not result in cash back to the borrower.
2. The second lien may not exceed the total amount needed for the down payment, closing costs, and prepaid expenses.
3. Secondary financing may be “soft” (silent) or require a monthly repayment.
   If payments are required, they must be included within the qualifying ratios and, when combined with the first mortgage, cannot exceed the borrower’s reasonable ability to pay.
4. Payments must be deferred for at least 36 months to not be included in the qualifying ratios.
5. If the tax credit advance loan has a short term for repayment, it must also provide that if the borrower fails to repay by the designated deadline, principal and interest payments begin automatically or the loan converts to a “soft” second.
6. The secondary financing may not require a balloon payment before ten years.

Lender Due Diligence Required For 8000 Tax Credit Monetization Plan

If someone wants to turn their 8000 tax credit into cash/credit to help cover closing costs, they can expect the lender to do at least these things as part of the lender due diligence process:

1. Require the home buyer to draft and provide the IRS form 5405 “First-Time Home buyer Credit.”
2. Contact the borrower’s employer and review pay stubs to confirm there are no outstanding garnishments.
3. Review the home buyer’s credit report to ensure there are no unpaid student loans, or other obligations that could be offset against the credit.
4. Validate that all of the eligibility requirements for the tax credit are fulfilled
   Review previous tax returns and IRS tax assessment letters, if any, to determine that the borrower does not have unsettled obligations to the IRS

8000 Tax Credit Monetization Plan: Still Must Have 3.5% For Down Payment

One of the most popular questions about the plan is “can you use the tax credit for your down payment” – and the answer to that question is “only after you have paid the initial 3.5% down payment yourself”.

If you want to use any part of the tax credit monetization plan as your down payment, you have to have the first 3.5% of your down payment yourself.

Other Resources:

HUD Official Announcement

Official Mortgagee Letter 2009-15

New Home Buyer 8000 Tax Credit Down Payment: Answers To Questions

8000 Tax Credit Questions and Answers

And the answer is “probably not, but you have a slim hope…”

Fake Social Security Numbers: Can You Still Get A Mortgage?

Can you get a mortgage with a fake social security number? Most likely the answer is going to be “no” — which is a tragedy, really.  You see, prior to about 2 or 3 years ago, there wasn’t really a centralized database where every lender was checking for valid social security numbers – and as a result, many people are now living in a home without a valid social security number.

And many of these people are still making their mortgage payments.

Yet, if you are living in a house that you bought 5 years ago with a fake social security number and have made every mortgage payment on time, you cannot refinance your mortgage because now each and every loan application is ran against a database that tells the lender if the social security number is valid.

Your only hope if you currently are living in a home that you own and you don’t have a valid social security number is to contact your lender and see if they can help you. I don’t really even know if the lender will be able to do anything, but it is really the only chance you have. Any “new” lender will be required to verify your social security number against the database and you will surely be denied for a loan then.

I wish I had better news on this situation – because there are thousands of people in this situation.

“What is a net tangible benefit?”

In simple terms, there is an equation that a lender will use when you refinance to make sure that there is a “benefit to the borrower”. Many lenders have started calling these equations the “net tangible benefit” equation.

For example, the California FHA streamline refinance program is very popular right now – because interest rates are lower than they have been in recent years and more people are in FHA loans than in the past because of the elimination of other loan programs.

The FHA streamline program uses a “Net Tangible Benefit” equation – and it can vary from lender to lender, but the general idea is that people need to be able to financially benefit from the transaction so that mortgage lenders aren’t “harming” their financial situation.

In order to participate in the FHA streamline refinance program, there are 3 criteria that must be met:

1. The property must be owner-occupied (no investment properties allowed)
2. The borrower can’t have more than 2 thirty-day late payments on their mortgage in the last 12 months
3. The loan scenario must benefit the borrower – also called a “net tangible benefit” in the mortgage world

Net Tangible Benefit?

The net tangible benefit test simply means that the benefit of doing the transaction outweighs any costs that are associated with the loan. As you know, any time that you go through with a transaction on something as large as your home, there are costs associated with the transaction and FHA wants to be sure that you don’t put yourself in a spot where those costs are outweighing the benefits.

There are various closing cost alternatives with the FHA streamline refinance program – such as no out of pocket closing costs or even no closing costs (where you accept a higher rate and allow the lender to pay your closing costs) but no matter what the scenario is, it must pass the net tangible benefit test.

The reason that we get so few questions about the Net Tangible Benefit Equation is that few consumers actually know it exists and it is different from lender to lender. But when the regulators show up and audit the mortgage lenders, you can be reasonably sure that one of the questions they will ask is “can you provide us a copy of your Net Tangible Benefit Policy”?