Pregnant women could face hurdle in getting home loans

Kenneth R. Harney on Aug 12, 2016

WASHINGTON- When youre on maternity leave with full pay from your employer you probably dont expect a mortgage lender to reject your loan application because your income doesnt count since you havent yet returned to your job.

Yet thats what a woman in Philadelphia says she experienced when she and her husband sought financing to complete renovations on a house in the city. And shes hardly alone. According to the Department of Housing and Urban Development, the agency that handles federal fair housing complaints, there have been in excess of 200 cases alleging maternity-related discrimination against women seeking home mortgages in the past six years.

Some of the lenders in past cases that have gone to settlement involve companies prominent in banking and mortgages, including Wells Fargo Home Mortgage, Bank of America, PNC Mortgage and MGIC, the mortgage insurer. In all agreements, the accused companies denied wrongdoing.

Under the Fair Housing Act, enacted in 1968, it is unlawful to discriminate in real estate transactions, including mortgage lending, on the basis of race, color, national origin, religion, sex, disability or familial status. That means lenders cannot deny or delay a loan simply because an applicant is on maternity leave but is otherwise qualified.

In the Philadelphia womans case, which resulted in a conciliation agreement July 29 with Citizens Bank, N.A. and Citizens Bank of Pennsylvania, the problem was that her pay stubs contained the wording short term disability, she told me. That troubled an underwriter at the bank, who suspected that she might not be planning to return to her job full time, she said. This was despite the fact that she and her employer were both willing to provide a letter specifying her date of return to work to allay any concerns. Without her income being counted in the application, the bank concluded that she and her husband would not be able to qualify for the financing they requested. The woman, whose name was redacted from the agreement, requested that she not be identified when I interviewed her.

Im getting full pay on maternity leave, she said she explained to the loan officer. This is not 1950 and you shouldnt be penalizing me! Citizens, which is the 13th largest retail bank in the country, according to its website, denied discriminating against the woman but agreed to make payments totaling $115,000 – $40,000 to her and $75,000 to an unnamed fair housing advocacy group. The bank also agreed to conduct fair lending compliance sessions with its staff and to adopt a parental leave policy.

In a statement, Citizens said we follow fair lending practices and are committed to ensuring equal access and consideration for all customers plus providing ongoing training for colleagues. The bank ultimately came through with the financing requested by the woman and her husband, but only after she had returned to her job, she said. By then, she had filed a complaint with HUD.

Shanna L. Smith, president and CEO of the National Fair Housing Alliance, says there needs to be much better training for [lenders] about how to deal with interrupted income for loan closings when a woman is pregnant and [on] paid maternity leave. In one case brought by Smiths group and now pending at HUD, a loan originator in Arkansas told an applicant that even though she was on paid maternity leave, she would have to be back at work for the loan to close,” according to Smith.

Curiously, interrupted income situations dont seem to be a problem for lenders when it is a factory or seasonal male worker, Smith said. But for a pregnant woman, the treatment too often is different underwriters dont seem to be able to calculate qualifying incomes properly. This is especially so, said Smith, when loan originators or underwriters have been with the bank a long time, and are still operating on rules from past decades that required women to return to work before a mortgage could go to closing.

Though discrimination like this is relatively uncommon given the large numbers of applications by pregnant women or those on maternity leave that are funded without a hitch it still occurs. If you or someone you know encounters it, contact HUDs fair lending office at 800-669-9777.

As the mortgage applicant in Philadelphia put it so well, this is no longer the 1950s. Federal law requires fair treatment of anyone on maternity or parental leave. Banks need to get it.

New programs open options for borrowers

Kenneth R. Harney on Aug 5, 2016

WASHINGTON – Are you or someone you know needlessly missing in action this summer, leaving near historically low mortgage money at 3 1/2 percent to 3 3/4 percent on the table? You might be if you fit this profile-

- You’re currently renting though your real goal is to buy a home. But you assume you can’t qualify for a mortgage because today’s underwriting rules are so strict and inflexible.

- You don’t have a lot of extra cash in the bank and you seriously doubt that you could scrape enough money together to afford a down payment.

- Your credit scores aren’t great – just under 700 FICO – but that’s mainly because you’re young and don’t have a deep credit history.

Sound just a little familiar? Well, here’s some good news. Giant mortgage investor Fannie Mae last week revised and improved its low down payment mortgage plan known as HomeReady. Fannie’s competitor, Freddie Mac, has a similar program known as Home Possible Advantage. Either one could be key to your getting out of your rental apartment and buying a house or condo by early fall.

Check out the basics of Fannie’s program. Start with the 3 percent down payment. There’s no minimum cash contribution requirement out of your wallet as long as you’re buying a single family house to live in. You can supplement your cash on hand with gifts from relatives or other sources. You can also increase your effective income for mortgage qualification purposes by including so-called “boarder” or in-house rental payments. Say the row house you want to buy downtown currently has a long-term tenant in a basement unit who’d like to remain in the house. That rent could count toward your income.

Another flexibility- Say you’re part of an extended family and you expect to have other household members living in the house with you who earn incomes but don’t want to be on the mortgage note as a co-borrower. You can use their documented earnings to increase the maximum debt-to-income ratio (DTI) you’re allowed on your mortgage.

Take this hypothetical example. Say you’re single and earning a solid $72,000 a year and want to buy a house. However, your current monthly debt load of $2,820 makes you ineligible for most conventional mortgages because your DTI is 47 percent. But if a relative earning $2,000 a month moves in with you, HomeReady may greenlight your 47 percent DTI, even if the relative contributes nothing in rent.

As you might suspect, underwriting flexibility like this comes with some requirements. Since HomeReady and Home Possible Advantage are targeted at moderate-income buyers – first timers, minority purchasers, extended family groups and other “underserved” borrowers – not everybody can participate. In most locations around the country, your income cannot exceed the area median income. Both companies’ websites have “look-up” features that list the median for your area. In designated low income census tracts, there is no income limitation.

Also both programs require some form of homeownership credit education – either an online course or, under Fannie’s latest version, counseling sessions with any of a network of housing counselors around the country.

Where do you get more information or start an application? Hundreds of lenders and brokers are already participating in these programs – Fannie says it has a roster of more than 700 lenders – and they can help. Some of them are actively promoting the program, some just are simply offering it as an alternative to Federal Housing Administration (FHA) insured loans. Mat Ishbia, president and CEO of United Wholesale Mortgage, told me “we’re doing a lot” of HomeReady mortgages nationwide, including many millennial first-timers.

Laura Reichel, senior vice president of Ditech Financial, says shoppers are running the numbers on costs – comparing their monthly payments using a 3 percent down payment HomeReady loan featuring cancelable private mortgage insurance against a standard FHA 3.5 percent non-cancelable insurance – and they’re often opting for HomeReady.

But not all lenders are sold on Fannie’s and Freddie’s programs. Paul Skeens, president of Colonial Mortgage Group, says HomeReady is tilted to favor applicants with higher FICO scores. “Once an applicant has a credit score below 680,” he says, mortgage insurance and other fees combine to make the program virtually unusable and forces borrowers to go with an FHA loan.

Bottom line- Don’t assume you’re frozen out of the mortgage market. Check out the new generation of flexible, low down payment loans that are aimed at consumers like you – if you fit the profile.

New bill brings good news for condo buyers

Kenneth R. Harney on Jul 29, 2016

WASHINGTON – Congressional Democrats and Republicans haven’t agreed on much lately, but they’re together on one issue that affects condominium buyers and sellers across the country- The Federal Housing Administration (FHA) has bungled its condo finance program.

In a rare moment of bipartisanship before heading home for the summer, the Senate unanimously passed legislation that will require the FHA to lighten up on its condo financing regulations and make low down payment FHA loans more available to the people they are supposed to serve – moderate-income buyers, many of them minorities and first-time purchasers, who turn to condominiums as their most affordable option. The vote in the Senate followed a 427-0 vote in the House earlier this session.

Passage of the legislation came after several years of complaints by housing, community association and other groups about FHA’s overly strict requirements. Critics pointed out that FHA once was the go-to source of condo financing for first-time buyers, but since 2010 its role has shrunk drastically. FHA helped finance 80,000 to 90,000 condo mortgages a year during the previous decade and a half, but more recently production has dwindled to barely a quarter of that volume. FHA condo lending in the first three months of this year plunged by 8.6 percent from the previous quarter, according to Inside Mortgage Finance, a trade publication. In the final quarter of last year, volume declined by 20.3 percent from the third quarter.

The agency’s restrictions on condo community eligibility for financing became so onerous – requiring complicated re-certifications of entire developments every two years – that thousands of condo associations abandoned the program. According to the Community Associations Institute, fewer than 14,000 of the 152,000 condo associations in the U.S. are now eligible for FHA loans. Individual units are not eligible for FHA financing unless the entire association’s finances, reserves, insurance, budget and other items have been approved by the government.

The bill (H.R. 3700) aims at correcting a number of key problems by-

- Ordering the FHA to streamline the entire re-certification process for condo associations and make compliance “substantially less burdensome.” Condo experts predict this alone could convince significant numbers of associations to return to the FHA fold, thereby opening up sales and purchases to thousands more condo units.

- Reducing the minimum owner-occupancy ratio from the current 50 percent to 35 percent, unless FHA can provide justification for a higher percentage. Seth Task, a realty agent with Berkshire Hathaway HomeServices Professional Realty in Solon, Ohio, says the 35 percent ratio will allow “substantial” numbers of developments that can’t quite meet the 50 percent test to get back into the FHA program. In an interview, he cited the case of an elderly condo owner who listed her unit for sale with him recently, but the owner occupancy ratio in her development was 49 percent. Ineligible for buyers using low down payment FHA loans, she tried unsuccessfully to sell and ultimately had to accept an offer $10,000 below what she could have obtained if her building qualified for FHA financing.

- Allowing transfer fees. The legislation directs the FHA to stop rejecting condo communities because they collect small transfer fees when units are sold. The funds collected are used to support association activities – they benefit all residents. FHA will now have to follow the lead of Fannie Mae and Freddie Mac, both of whom consider community-benefit transfer fees acceptable.

- Providing more flexibility on the amount of commercial space permitted in condo developments. Some urban condos are designed for mixed-use – residential and commercial combined – because that’s what makes economic sense in their locations. Under current rules, some of these developments are ineligible because FHA considers their commercial component excessive. The legislation directs the agency to be more flexible and to take the local market context into account.

Will these changes be sufficient to revive FHA’s sagging condo program? “We are cautiously optimistic,” said Dawn Bauman, senior vice president at the Community Associations Institute, which represents nearly 34,000 condo communities and management organizations. Rita Tayenaka, past president of the Orange County (Calif.) Association of Realtors, told me the bill “is a good thing but will not be the end-all” in resolving FHA’s condo woes.

Most analysts agree that the actual effects will depend on two things- how quickly FHA puts its revised procedures into the field, and whether thousands of condo associations who’ve fled the program conclude, “OK they’ve cut the red tape, maybe it’s time to jump back in.”

It pays to check out your equity

By KENNETH R. HARNEY- July 22, 2016

WASHINGTON – Are millions of homeowners sitting on much bigger equity nest eggs than they think? Do you know how much equity you’ve got? If not, could you be missing opportunities to tap into it for worthwhile projects at close to all-time low interest rates?

Academic and financial industry research suggests that large numbers of Americans don’t keep track of their equity and don’t really know how they could use it. That’s curious because home equity has almost never been higher or easier to access.

The Federal Reserve estimates that, thanks to rising prices and principal paydowns, total home equity surpassed $13 trillion in the first quarter of this year, more than double what it was in 2011.

Black Knight Financial Services, a mortgage data and analytics company, estimated last week that $4.4 trillion of equity is immediately “tappable,” that is, owners can withdraw funds via equity credit lines, equity loans and cash-out refinancing, and still retain a healthy equity cushion in their homes.

Equity is the difference between the market value of your home and the total mortgage debt you’ve got against it. A $350,000 house with $175,000 in mortgage debt has equity of $175,000, a 50 percent equity position.

Thirty eight million owners nationwide have at least 20 percent equity, averaging $116,000 per owner, according to Black Knight. Many lenders will allow owners to tap into that equity to the extent that their total debt does not exceed 80 percent of the home’s appraised value.

So in the example of the $350,000 house with $175,000 in equity, you might be able to borrow another $100,000, bringing your total debt up to $275,000 or just under 80 percent of your property value.

If there’s no need to pull out that much – say you need some cash to renovate the kitchen and add a bathroom – you could borrow considerably less, say

$25,000 or $50,000.

But before any of that happens you need to know the basics about equity, starting with how much you’ve got.

Research by mortgage investor Fannie Mae and analytics firm CoreLogic has documented that owners frequently underestimate the home equity they’ve accumulated. Millions of owners saw their property values plummet during and after the financial crisis and recession. Following that nightmare many seem to have tuned out news of home value rebounds, which have been substantial in many metropolitan areas and spectacular in others.

If you don’t know your home’s approximate value, it’s tough to calculate your equity position, even if you know your unpaid mortgage balance to the penny. There are multiple resources online (Redfin.com and realtor.com are examples) to help you keep up with local sales trends and provide rough estimates of almost any property’s value. Just type in an address and see what pops up.

You can also talk with local realty agents and, if you’re willing to spend a few hundred dollars, hire an appraiser to get a professional opinion.

Then there’s the knowledge gap about equity-tapping tools and uses. New consumer survey research by Navy Federal, the world’s largest credit union, found that 55 percent of survey participants reported having “little or no knowledge of home equity loans or lines of credit.”

Eighty-eight percent were generally aware that home equity funds could be used for renovations to their homes, but between 32 percent and 48 percent didn’t know they could spend equity dollars on medical bills, weddings and “unexpected expenses.” In fact, lenders do not restrict your use of equity cash.

Equity credit lines, popularly known as HELOCs, for home equity line of credit, allow you to pull out funds whenever you need them, up to a set limit. Navy Federal’s HELOCs provide a 20-year period of withdrawals followed by 20 years to repay the balance. The current variable interest rate is 3.99 percent.

Equity loans are fully amortizing second mortgages; you pay interest plus principal for anywhere from five to 20 years.

Interest rates at major banks run from just above 4 percent and up, depending on your credit standing and equity cushion.

Still another way to access equity is to refinance your mortgage for a higher amount than your current balance – a cash-out refi. It’s like any other refi except that you walk away from the closing with money in your wallet and a larger loan balance, ideally at a lower interest rate than you had before.

Bottom line- Check out your equity. You may well have more of it at your disposal than you thought.

Beware of agents who’ll ‘buy’ your listing

Kenneth R. Harney on Jun 10, 2016

WASHINGTON – It’s one of those hush-hush practices that homeowners rarely hear about but real estate agents know only too well- It’s called “buying the listing.”

What it means is that some agents want the listing to sell your house so badly that they’ll go along with whatever price you ask, even if it’s outlandishly above what comparable houses are commanding.

They know that there’s only a minuscule chance the house will sell at the inflated price you’re proposing but they take the listing anyway. They fully expect that after a few weeks with no takers, you’ll sober up and agree to what may have to be a series of price reductions.

Buying the listing works for some agents because they get cut into a commission payout that they would have missed had they lost the listing to competitors who counseled lower prices. Plus they reap immediate benefits- They’ve got their name plastered on a sign in front of your house, and they can hold open houses that could bring them new clients and other houses to sell.

But there are potentially big drawbacks for you as the seller. Overpricing a house can doom it to months of sitting unsold, even with price reductions. Serious buyers get turned off by new listings with inflated prices and they may not come back when the price inevitably gets reduced. At the end of the process, you could be left with a final price well below what you would have gotten had you priced it realistically earlier.

Buying the listing is a controversial issue in the real estate field. Most agents insist they don’t condone it or engage in it themselves. It’s also potentially an ethical violation for members of the National Association of Realtors, who are prohibited from “attempting to secure a listing” by “deliberately mislead[ing]” the owner as to the market value. Not advising overly optimistic sellers about the true value of their property – solely to obtain the listing – can be construed as misleading them.

How common is this? It depends on location and market segment. Some agents report that it rarely occurs in their areas. Others, such as Tony Marriott, an agent with Keller Williams Arizona Realty in Phoenix and Scottsdale, say it’s so commonplace that “better than 50 percent of the listings” start out notably overpriced.

Agents elsewhere say that initial listings with inflated prices account for anywhere from 10 percent to more than 30 percent of all new properties put on the market. Diana Keeling, an agent with Coldwell Banker in Bethesda, Maryland, told me the practice is most common in the upper brackets, where “a lot of agents want the listing at all costs.”

Dean Moss, a Keller Williams Realty Partners agent in Chicago, says “some agents have agendas of listing as many houses as they can” – regardless of how off-base the initial pricing may be – “as an advertising billboard for themselves.” Passersby see their signs frequently and figure, wow, that agent must be the best. Moss says when he confronts these agents and tells them their list price is off the charts, they sometimes reply, “I know. Make an offer!”

Some agents defend taking listings at elevated prices because they discuss pricing strategy in advance with the sellers. They draw the line- If the sellers of a house that should be priced around $400,000 are insisting on a listing at $495,000, they won’t touch it. But if they see the sellers are trying to push a little – say pricing at $415,000 or $420,000 – they’ll take the listing.

Alan May, a Coldwell Banker Residential Brokerage agent in Evanston, Illinois, says he’s open to listing properties that are slightly overpriced, but only after showing the sellers comparable recent sales and agreeing to price adjustments downward if the house doesn’t sell within specific time periods.

Bottom line- If you’re planning to sell your house, arrange for multiple presentations by agents who specialize in your neighborhood. Study the market analyses they offer. Don’t choose your agent mainly because he or she says your house is worth the most. Choose based on the key factors- proven sales record at or close to listing prices; strength of marketing strategies and resources; outstanding references and reviews.

If you let an agent buy your listing at a price that’s not supported by hard data, you may regret it months later when it still hasn’t sold and your asking price is much lower.