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We are experiencing an information overload regarding the real estate market place. As the housing element continues to struggle we are faced with a constantly changing lending environment including ever tightening qualifying guidelines. Some of the information provided consumers is inaccurate or exaggerated. Scroll down the page as there are various articles with lots of consumer information.

You Should be Buying Your Home Soon!


At the risk of sounding like just so much real estate hype, there are some good reasons to consider purchasing a home soon. While un-even across the state, 2012 did show signs of a real estate recovery that many expect to continue into 2013 and beyond.


Home prices:  increased, albeit only slightly and not everywhere. Predictions are that home values will continue to grow slowly.

Consumer Confidence Improving:  this drives the market and as people seem to be a bit more confident about the future it is expected that we could see a little inflation occur.

Low Interest Rates:   home mortgage interest rates have been at their lowest level in half a century. Many feel that the only way for rates to go is up . . . no one knows when but inflation headwinds occur watch out!

Supply and Demand:   concern over possible continuing home value reductions had many put off buying decisions but that pent-up demand is about to exert itself. At the same time, home inventory has shrunk. We could see price increases in homes?

Unemployment Dropping:   skepticism over how the numbers are calculated and the types of jobs being created doesn’t detract from the fact that more people are working and feeling a bit more optimistic about the future. 

Foreclosures Declining:    while there are some lingering bank owned property yet to be sold, banks have been encouraged to work through their inventory and try to keep families in their homes if possible.     

Provide By:

Humboldt Home Loans

John Fesler                  Jody Harper

269-2318                     269-2304




The following attempts to bring you up to date with accurate information of the recent lending practices that most affect real estate borrowers. Let’s begin with a quick review of how we got to where we are today.





With the hoopla with which this program is being unveiled, we might think that it will finally be a program that works for the millions of underwater home owners. While all of the details are not due until November 15th, some anticipated aspects of the program have been released.


While some of these details could change, here are the likely high-lights of the program:

-          Allow eligible underwater homeowners to refinance without regard to Loan-to-Value  guidelines. (Why not allow any consumer to refinance regardless of home value as long as the borrower has made current higher payments . . see comment below)

-          Allow the waiver, in some instances, of having to have an appraisal.

-          Waive mortgage insurance requirements.

-          Allow borrowers with reduced credit scores to participate.

-          Reduce and/or eliminate some risk base price adjustments (add-on fees) that thwarted many from obtaining the lowest rates in the first HARP program.

-          Only borrowers who are current on their mortgage payments for the past six months will be eligible. This implies that if a borrower had missed payments in the past but was current during the past six months eligibility would apply. (What is the likelihood of borrowers who missed a payment or more over six months ago will have been making payments for the past six months?)

-          Encourage shorter term loans wherein borrowers would accept 15 and 20 year terms rather than refinance into another 30 year loan. (While this would reduce the risk for the lender, borrowers may not experience much monthly payment relief and it may not be an option that consumers adopt.)




As in the past, this program will rely upon the major banks volunteer participation. In order to gain this cooperation, here is what the banks will receive.


  1. Fannie and Freddie will waive their rights to demand refunds from lenders for flawed underwriting practices. In other words, the banks will now be held unaccountable for knowingly having made poor underwriting decisions.
  2. The banks will receive “substantial” (the word used by government entities) relief from buy-back demands except in the case where actual fraud is found to exist. In other words, the ability to find banks accountable for any past malfeasance has been “substantially” limited.


The banks insist that they must be relieved of the above restrictions or the risk of participating is too great. This writer’s concern is that the banks will be granted the relief, the voluntary participation of the banks does not occur and refinances will still fall far short of expectations. In the meantime, the banks will have escaped again any accountability for past misdeeds.)


The program fails to address several critical issues:

-          Many underwater homeowners have subordinate loans (HELOCs or other secondary financing) and unless these lenders are made to agree to subordinating to a new HARP 2.0 loan, the program will be of limited value to many would-be borrowers.

-          There are no provisions for assisting consumers (e.g. with forbearances) who find their income reduced and/or who are currently unemployed and unable to find a job.

-          While the initial indications are the risk based price adjustments (add-on fees for high Loan-to-Value or low credit scores) are to be eliminated, the devil will be in the details and determine just who will be eligible.

-          Only loans held by Fannie Mae and Freddie Mac are eligible for modification.

-          Unless condominium requirements (e.g. 70% of the units are currently owner occupied; adequate reserves being maintained and that no litigation involving the condominium association exists) are modified, condos will be ineligible. This will affect states like Florida and Nevada with large condo projects.


Critics comment that this program falls into the category of “doing something is hopefully better than doing nothing”. Unfortunately, focusing attention on programs like HARP 2.0, which appears may offer less than expected relief to hard hit homeowners, reduces resources and attention that should be targeting how to fix the real problems with housing. These same critics ask why not just modify/refinance anyone who is current on their mortgage payments without regard to their current credit, income or employment status? Consumers logically ask, "if I am making my current mortgage payment is it not likely that I will make my new mortgage payment if the amount is lowered by several hundred dollars?"  Consumers can not understand why "since the bank already has my loan, why won't they let me refinance where there is no additional risk and actually less of a risk if my payment is lowered?" Perhaps the problem is that these are common sense questions in a world that seems to have lost all common sense.


Approximately 800,000 modifications occurred under the original HARP program (projections were up to 4 million borrowers would benefit) and the new projections are that up to 3 million could benefit from HARP 2.0.  Many analysts predict, however, that far fewer than a million borrowers will benefit from the revised program suggesting that this retread of the old program seems also doomed to mostly disappoint consumers rather than provide assistance.


So, we shouldn’t get our hopes too high. This is beginning to look like another mostly inept attempt to solve a perceived problem instead of addressing the major housing difficulties. Instead, it merely magnifies the government’s total lack of creativity, courage or even understanding of our housing dilemma. Plus, the unintended consequences of the program granting banks additional immunity against past excesses could be substantial.


HARP 2.0 (additional comment)


While this program now allegedly is designed to address underwater borrowers, there is concern that the trade off providing banks immunity from practically all scrutiny regarding all past indiscretions will lead to future excesses.


A main feature of the revised program eliminates LTV ceilings, allowing banks to refinance borrowers to currently undefined limits.

            Prediction:       Banks will limit the LTV to 125% - 130% rather than retain an open ended loan amount. Few borrowers will actually be approved for loans.

            Prediction:       HARP 2.0 will not only eliminate the ability to hold banks accountable for past behavior but will provide a way for banks to address the Walk-away” borrower. This is the borrower who though capable of making monthly mortgage payments, are abandoning their homes that are so far underwater that there seems no feasible way to ever recoup the lost equity. The anxiety is that banks will via HARP 2.0 have a tool wherein they “offer” a refinance and if refused will have the authority to pursue a deficiency judgment  action against the borrower. While this may be an unintended consequence of this revised program it has some potential draconian borrower impacts. (see Fannie Mae’s resistance to principal reductions below)


Critics point out that many borrowers who could benefit from refinancing at today’s low rates are prohibited from doing so because of PMI limits and add-on fees. The logical question is why borrowers who are current on monthly payments should not be allowed to refinance, at least up to 95% LTV without penalty. The logic suggests that a borrower paying a higher monthly payment is very likely to pay the lower refinanced monthly payment. It has been noted that even applying a qualification requirement wherein the borrower would “qualify” for the lower payment refinance would benefit millions of homeowners currently prohibited from acquiring a lower interest rate. The question


Fannie Mae’s staunch rejection of allowing any reduction of principal in dealing with underwater mortgages contributes to HARP 2.0 becoming merely an ineffectual bandaid for a serious housing problem. The comments above regarding deep underwater borrowers identifies that these borrowers will acquire relief from HARP 2.0 but are more likely to be abused in future months. Without reduction and or elimination of excess mortgage debt, borrowers are unable see a future time when they would be able to liquidate without having to use a short sale approach. In essence, they are condemned to being renters who will ultimately face a major credit rating hit (via having to participate in a short sale) should they decide to sell.


Final prediction:          HARP 2.0 will be highly promoted as another help to borrowers but which will provide minimal help to few borrowers but which is more likely to abuse deep underwater borrowers.






We know that the big banks continue to devote millions of dollars to lobbying Congress. Less remembered is the scandal some years ago wherein Fannie Mae and Freddie Mac executives were found to have accepted large “contributions” (we’d never call them bribes) for favored lending positions for those same big banks. The “books were cooked  to hide the nefarious activity but eventually discovery resulted in job losses and empty promises to never do such a thing again.


Fast forward to about 18 months ago when New York Attorney General Cuomo (preparing to run for Governor of the state) threatened Fannie Mae and Freddie Mac with a forensics audit is they did not accept his Home Valuation Code of Conduct (HVCC) proposal for appraisal management. The GSE’s complied immediately and the proposal was adopted without review as to its “unintended consequences” or potential negative impacts upon the real estate lending environment. I’m not suggesting that the GSE (Government Sponsored Enterprise) executives had anything to hide in such a proposed audit but their acquiescence was very quick.


It is likely a coincidence that the big banks (again) were in the thick of these decisions as the vast majority of the Appraisal Management Companies (AMC’s) are owned and operated by these same large banks.


In order to understand the confusion surrounding today’s qualifying guidelines, we need to examine the cozy relationship that continues to exist between the big banks and the GSE’s. The 4-5 major banks are the “investors” who purchase the servicing rights from the GSE’s. Understand that when a loan is funded by a source lender (other than a major bank), the loan is underwritten to Fannie Mae and/or Freddie Mac guidelines. But, because the loan cannot be closed unless it can be sold to an investor (yes, those same big banks) we experience additional qualifying guidelines imposed by the bank investors called “overlays”. These overlays are sometimes confounding if not downright absurd. Worse, they often apply only to those entities other than the large investor banks themselves. All with the blessing of Fannie Mae and Freddie3 Mac.


In other words, the major banks have undertaken (with no attempt to conceal their mission) the task of trying to eliminate all competition, including mortgage brokers and small local banks in the home loan business. Ironically, in spite of the fact that some of the most absurd qualifying requirements do not accompany the mortgages made by the major banks, borrowers are almost universally charged more in both interest rate and fees. Can you imagine what will happen to rates and fees if the banks are successful in eliminating all competition?  


Now, with this understanding of how loans are made and then sold for servicing rights in what is called the “secondary market”, we can visit the pricing of loans. I’ve already indicated that a borrower will almost assuredly pay more in rate and fees at a major bank. Many banks and mortgage brokers have become very clever at concealing the hidden costs. Yield Spread Premium (YSP) is that fee paid by the market for the delivery of a loan with a higher than market interest rate. During the sub-prime boom borrowers were routinely provided higher rate loans for which mortgage originators were paid behind the scenes bonuses without disclosure to the borrower. The adoption of the new Good Faith Estimate (GFE) was an attempt to address this past abuse. Unfortunately, the new form is so convoluted and complicated that borrowers remain virtually unaware of how YSP functions. The large banks and some mortgage brokers have developed methods of obscuring the YSP income and the abuse continues. Thus, the next likely proposal from the legislators (who have little knowledge themselves regarding how this works or what to do) will be to “cap” the income that can be received from mortgage brokers. Note that there is no proposed cap on what loan originators in large banks can earn! (I wonder how the banks seem able to escape every legislative attempt to regulate the lending environment? Maybe all those dollars spent on legislator’s campaigns pay off?)


Here is how pricing affects you as a borrower. As indicated, it is still easy for mortgage originators to conceal their real earnings via the use of YSP. Many local originators routinely earn 1.5 to 2 points in origination fees on every loan.


It is very unlikely that you, as a borrower, will be able to discern the fee being charged. You have to trust that the mortgage originator is playing fair. You can ask:

-          Exactly what will you earn?

-          Will you be earning any Yield Spread Premium (YSP) or Service Release Premium (SRP)?

-          If either YSP or SRP accompany the interest rate, will it be credited to me (the borrower)?

Talk about scaring a mortgage originator when you actually seem to understand how this works?



Web Based Loan Acquisition

There is a popular ad that suggests “use us and you will have several lenders competing for your loan business”. The pitch suggests that you will have these several lenders will “negotiate” and you will get that “best deal” by such competition. What is the downside? First, lenders will contact only those whom they perceive as well qualified borrowers. They are not interested in wasting time trying to help more marginal buyers prepare to qualify for a loan. Secondly, and perhaps even more critical, your personal information is being shared via the web with many would be lenders, in hopes that several will contact you. The lenders receiving your information may or may not treat it confidentially. Can you see the potential problem with private information being treated casually?

One more potential problem for the borrower is that each lender contacted is likely to obtain a credit report. A credit report is one of the first things a lender wants to peruse when determining the capability of a prospective borrower. Credit inquiries can lower a score which can be especially damaging to a borrower who is on the cusp of a credit score level. Just a couple of points could put a borrower into a level that impacts the ability to acquire more attractive financing terms.

Word/lending information/web based loan acquisition


As we continue this review of  lending practices and the accompanying changes taking place, we want to introduce you to the newest licensing requirements and how mortgage brokering differs from bank lending.





The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”), was passed on July 30, 2008.  This new federal law mandated that all home mortgage originators had to pass both a national and a state specific test. When first introduced, the legislation required ALL mortgage originators to pass the exams. The final legislation, however, exempted “mortgage loan originators who work for an insured depository or its owned or controlled subsidiary that is regulated by a federal banking agency, or for an institution regulated by the Farm Credit Administration”. In other words, if one works for a BANK the exams need not be passed. (Wonder how that exemption occurred in the final legislation? Could it be the amount of money that flows to legislators from the Finance Industry?)

Designed to enhance consumer protection and reduce fraud ALL loan originators (other than bank employed) must pass the exams and also enroll on the Nationwide Mortgage Licensing System and Registry (NMLS). While bank originators do not have to pass exams, they are required to register and acquire a NMLS number. This latter requirement will presumably deter a loan originator convicted of fraud in one area from simply going to another area or state and resuming a mortgage originator career.

But, let’s be clear. We don’t think passing two tests will keep some persons from committing fraud. At the same time, testing does “separate” those who did pass and those who didn’t even have to take the exams.

As mortgage brokers (with Humboldt Home Loans, we passed exams (both scored over 85% and 95% on the national and state tests respectively), underwent a criminal background check and registered for our NMLS designation. Our commitment to the education regarding all of the new rules and regulations was our investment of nearly $1000 each in pursuit of our profession.

So, do we think there is a difference between mortgage brokers and bank originators? You bet! We work hard to earn your business. We are available, provide you with the best loan education in the community, keep you alerted during every step of the transaction, keep our promises and we perform on time. Why would you not use us to assist you in acquiring your home mortgage?





Home loans are still available. Yes, borrowers do need to fully qualify for today’s loans. The stated income or no doc type loans are gone. But, rather than lament that fact, we recognize that borrowers acquiring loans today actually can afford to make the payments and are unlikely to face the prospect of foreclosure that plagues so many borrowers who acquired those so called bad loans.


Most loans are fixed rate but hybrid adjustable rate loans are available for some unique circumstances. Fixed rate financing is in most instances limited to 90% Loan-to-Value (requiring a minimum 10% down payment) but 95% loans are available under some circumstances to extremely well-qualified buyers.  FHA loans, with only 3.5% down payment continue but there have been changes to the mortgage insurance premiums that accompany FHA financing. Well qualified prospective home buyers should carefully compare the FHA loan with the 95% conventional loan or the Guaranteed Rural Housing (GRH) loan option.  While the FHA program is excellent, it does have some government requirements attached that can make the conventional or GRH loan a much better option. We recommend acquiring good counseling before making a final selection of loan option. If indeed, one is putting more than 5% down payment the conventional product will in almost every situation be a better alternative than a government sponsored loan option. 


Finally, it is important to not be discouraged with all of the negative news and to know that good loans are available and borrowers can qualify to purchase homes.  See the loan counselors at Humboldt Home Loans for guidance in selecting the best loan option for your specific need. You can talk to Jody Harper (707-269-2304) or John Fesler (707-269-2318) to discuss your loan options.



Finally, if you are purchasing a new home, you will be interested in the newest wrinkle in acquiring fees.

Home Resale Fees

If you are purchasing a new home, be cautious of this newest gimmick wherein you and all other future owners of the home are obligated to pay a fee every time the home transfers ownership. Sometimes called “transfer fees” or “capital recovery fees” they require a 1% (or more) fee be paid every time a transfer of ownership occurs. Imagine that you purchase your home for $250,000 and five years later sell for $325,000 and are surprised to learn that you owe $3,250 in a transfer fee? No one deserves such a fee and you need to ask when purchasing whether any such fee exists within your transaction. There is so much paper work involved when signing loan documents that this could be easily missed. Another reason to work only with mortgage personnel that you trust!

Word/lending information/home resale fees