TEAM EMPOWERMENT MORTGAGE CHATTER: April 4; News & Headlines; QRM: Is the Pendulum Swinging Back Too Hard?; 6 Ways to rev up your real estate productivity engine; Bargain-Seeking Buyers; GOP Senators Join Efforts -Ending Fannie/Freddie; Red Flags = Audits

Had a great time contributing…we bowled for “The American Dream” (CCAR Fundraiser)

Thanks to Shea Matthews, Joe Cuttone and Valerie Vincente


“When you get right down to the root of the meaning of the word ‘succeed,’ you find that it simply means to follow through.” – F. W. Nichol



“Congressional Republicans are moving aggressively to wind down mortgage giants Fannie Mae and Freddie Mac, but they face resistance not only from Democrats, but members of their own party who fear rapid elimination of the two entities would destabilize the fragile housing market.” And many in the business would agree. Read more at the Washington Examiner: F&FtoStickAround?

Yes, the US Court of Appeals has granted a stay on Fed’s LO Compensation rule. This order does not permanently stay or otherwise modify the enforceability of the rule. Instead, it is a temporary measure to give the Court an opportunity to review the case and make a final determination. The Federal Reserve has until 12PM EST today to file a response to NAMB and NAIHP’s (the plaintiffs) motions, and then the plaintiffs will be given the opportunity to file a response to the government’s response no later than 10AM EST tomorrow. After that filing takes place the Appeals court can order a hearing or make a decision on the basis of the filed briefs. If the court decides in favor of the NAMB and NAIHP then the most likely course of action would be that the case would move back to the District Court. The stay would probably be extended to cover the period of time the case is in the District Court and could be extended further if there is another appeal. If the Appeals Court decides in favor of the Federal Reserve the stay will be dissolved upon the issuance of the decision.

The latest survey shows that three out of four people make up 75% of the population. Statistics and numbers are interesting like that. But here is more good news: commercial and multifamily mortgage originations grew 88% in the fourth quarter of 2010 when compared to 4Q 2009 and hit $6 billion, the Mortgage Bankers Association said in its Fourth Quarter Commercial Real Estate-Multifamily Finance Quarterly Report. Much of this gain was due to a pick up by insurance companies in the CMBS segment – up 170%. Loans for conduits for CMBS saw a 60-fold increase compared to last year’s fourth quarter, and GSE’s saw a 65% increase. Multi-Family.

Jobs and housing, housing and jobs. After a decent Pending Home Sales number earlier in the week, on Friday the focus was on jobs after we learned that March non-farm payrolls rose 216k, with private payrolls up 230k. The overall payroll data was stronger than the market expected, and in the Household Survey (those pesky phone calls), the unemployment rate ticked down to 8.8% from 8.9%. A trader at Jefferies wrote, “Both the household survey and the establishment surveys are very encouraging and very clearly reflect improved labor market conditions. The only significant flies in the ointment are the lack of growth in earnings, which will translate into a continuation of very moderate income growth, and the continued substantial job losses at the local government level.”

The strong employment numbers, combined with some “bullish Fed-speak” recently would normally push bond prices lower and yields higher, but perhaps the market focused on the big drop in Consumer Confidence. On Friday somehow the 10-yr clawed its way back from being down .625 and closed basically flat at 3.45%. MBS prices were also roughly unchanged Friday, and in some cases better by .125.

This is a decidedly light week for scheduled economic news, which gives originators one less thing to worry about. Zip today, tomorrow is a 9AM CST ISM services number, zip on Wednesday, Thursday holds the usual Jobless Claims number, and zip on Friday. Ahead of a lot of zips, the 10-yr is sitting around 3.43% and MBS prices are a shade better.



QRM (Qualified Residential Mortgage): IS THE PENDULUM SWINGING BACK TOO HARD?

There is no doubt that one of the main reasons for the housing collapse was that mortgage underwriting became too lenient. It seemed anyone who wanted to purchase a home found someone to give them a mortgage; whether they actually qualified for it or not. These buyers eventually couldn’t make their monthly mortgage payment and many went into foreclosure.

This started the downward spiral in home values which crashed our economy.The government is now calling for adjustments to the definition of a “Qualified Residential Mortgage” (QRM) in order to guarantee this never happens again. Like many adjustments that follow a disaster, some are claiming the pendulum is swinging back much too hard. Let’s look at the requirements being considered.

The FHFA issued a Mortgage Market Note 11-02 last week which discusses QRM. Here are the highlights:

Types of mortgages that will qualify

A Product-Type qualified residential mortgage is a first-lien mortgage that is for an owner-occupant with fully documented income, fully amortizing with a maturity that does not exceed 30 years and, in the case of adjustable rate mortgages (ARMs), has an interest rate reset limit of 2 percent annually and a limit of 6 percent over the life of the loan.

Therefore, the following loans WILL NOT qualify:

  • Alt-A (most of which are low or no document) mortgages
  • Interest-only mortgages
  • Negatively amortizing mortgages such as payment option-ARMs
  • Balloon mortgages

Acceptable debt ratios

A PTI/DTI qualified residential mortgage has a borrower’s ratio of monthly housing debt to monthly gross income that does not exceed 28 percent and a borrower’s total monthly debt to monthly gross income that does not exceed 36 percent.

Payment-to-income ratio, otherwise known as front-end DTI, is the sum of the borrowers’ monthly payment for principal, interest, taxes, and insurance divided by the total gross monthly income of all borrowers as determined at the time of origination. Debt-to-Income ratio, or back-end DTI, is similar to payment-to-income but adds all other fixed debts into the numerator of the ratio.Down payment requirement

An LTV ratio qualified residential mortgage must meet a minimum LTV ratio that varies according to the purpose for which the mortgage was originated.

For home purchase mortgages, the LTV ratio will be 80% which means a buyer would need a 20% down payment.Necessary FICO scoreA FICO qualified residential mortgage has a borrower’s FICO score greater than or equal to 690 at the origination of the loan. The HLP dataset does not record delinquency history, prior bankruptcy of foreclosure, etc. of borrowers in the loans analyzed. For this reason, using a threshold of 690 for the FICO of the borrower at origination is a proxy for the absent detailed credit bureau data.

How many existing loans would pass QRM?

According to the FHFA report, less than half the loans originated over the last 12 years would have qualified. Here are the percentages that would have qualified based on the year the loan was originated:

  • 1997 – 20.4%
  • 1998 – 23.3%
  • 1999 – 19.5%
  • 2000 – 16.4%
  • 2001 – 19.4%
  • 2002 – 22.4%
  • 2003 – 24.6%
  • 2004 – 17%
  • 2005 – 14.4%
  • 2006 – 11.5%
  • 2007 – 10.7%
  • 2008 – 17.4%
  • 2009 – 30.5%

We understand that the loans written during the years building up to the bubble were not scrutinized appropriately. However, it seems strange that only 20.4% of the loans issued in 1997 would meet the new criteria.

When will this take place?

We want to make two things very clear right now:

These are proposed adjustments which are currently up for debate.

Whatever is approved will only apply to government backed mortgages. The private sector will still be allowed to lend their money based on their own criteria (ex. 10% down payments).

However, there will be increased costs to lending institutions which do not use the QRM. Those costs will be transferred on to the purchaser.

What might these increased costs amount to?

Cameron Findlay, chief economist for LendingTree, in an article on the ramifications of QRM explained:

Homeowners who do not qualify for a loan that meets the new definition (mortgage insurance doesn’t appear to be part of the equation) would be forced to pay substantially higher rates. Early market estimates place that number as much as 3.00% higher than the QRM equivalent rate (on a $200,000 loan, that’s almost $400 more a month).

Others like housing economist Tom Lawler do not see the impact being as severe.

Bottom Line

Loan qualifications will continue to get tougher and the costs of a mortgage will increase. Perhaps now is the time to buy that house of your dreams.

 6 Ways To Rev Up Your Real Estate Productivity Engine

What would it take for you to achieve maximum productivity for your business? Surprisingly, it’s easier than you may think.

While everyone experiences both high and low levels of productivity, the steps outlined below will help you keep your productivity engine purring with minimal amounts of effort.

1. Don’t starve the engine

Many real estate professionals jack themselves up with caffeine and sugar to get through their day. It’s common for us to skip meals as well. If you’re getting that 4 p.m. low or need a double espresso to get started in the morning, here’s how to put your body into high gear without sugar and caffeine.

Begin by getting in the habit of eating five or six times per day. Instead of having three large meals, eat three smaller meals with 100- to 200-calorie snacks between meals. Nutritionists recommend this approach for people who are diabetic since it keeps their blood sugar and energy levels constant.

2. Synchronize your brain

Research on peak performance indicates that humans perform best when both sides of their brain are working in concert. There are a number of ways to achieve brain synchronization — an easy way is to listen to music you love.

The way you can tell if both hemispheres of your brain are in synchrony is that you feel like dancing or snapping your fingers to the beat. There’s also a smile on your face. If you’re having an off day, as little as five minutes of the right music can put your brain back into top performance mode.

3. Take advantage of peak productivity times

Each day, your body has high and low cycles. For example, most people wake up or become hungry at about the same time each day. Your body temperature and other functions rise and fall throughout the day.

To take full advantage of these cycles, pay attention to when you are the most productive. The way to determine your peak energy time of day is to keep a log for several days. Note your energy level each hour and how easy or difficult it is to accomplish work-related tasks.

In most cases, you probably already know whether you are a morning person or a night owl. Whatever is the case for you personally, schedule your day so that you do your most important and difficult tasks at your personal peak time periods.

4. Can the negative self-talk

Most of us are our own worst critics. If you catch yourself complaining about a transaction, the traffic, or your weight, the best way to eliminate this negative self-talk is to shift gears and ask, “What are five things that are going right today?”

It could be something as simple as the sun is shining, my car is running perfectly, or my technology is working with no glitches. By immediately focusing on what is going right in your life, you increase your optimism and your energy. This, in turn, leads to increased performance.

5. Narrow your focus

To keep your focus strong, use time blocking. For example, if you are prospecting by phone, don’t allow any interruptions during your scheduled prospecting time. Devote 45 to 50 minutes per hour for the scheduled activity as well as 10-15 minutes per hour to check in for emergencies or to handle other urgent issues.

Also, while it’s tempting to respond to text messages or phone calls as they come in, remember that it takes almost 30 minutes after you return to your original task to reach the same level of concentration that you had before the interruption.

6. Allocate only 20 percent of your time to handle the bottom 80 percent of your activities

A common way we overwork our high performance engine is by trying to have it carry a bigger load than it was designed to carry. The 80-20 rule says that 80 percent of the benefit for our businesses comes from the top 20 percent of our activities.

Many agents beat themselves up because they didn’t accomplish the 53 things that were on their to-do list for the day. A better approach is to identify the three most important activities that you must complete each day. These are in your top 20 percent.

Allocate only 20 percent of your day to the other 80 percent. The reason? The bottom 50 percent of your activities may yield a far smaller share of benefit for your business. Consequently, you’re better off focusing primarily on the top 20 percent, doing what you can to complete the next 20-30 percent, and delegating or dumping the rest.

If you’re ready to make your productivity engine purr, then follow the simple tips above. You may be pleasantly surprised at how much better you feel as well as how much more you accomplish.


Housing prices across the country are at multi-year lows and mixed with low interest rates bargain hunters are targeting real estate.

More investors are heading to the market looking to make cash buys for real estate, investing in second or even a third home, Reuters News reports.

“We’re starting to get a lot more inquiries and assisting in transactions,” says Rocco Papandrea, a senior vice president and wealth management adviser at Merill Lynch in New York. Papandrea says he’s seeing more interest in properties along the West Coast and in Colorado, as well as Florida.

Canadian buyers in particular are expected to be looking to purchase U.S. homes. The Bank of Montreal estimates that one-in-five Canadians is considering buying U.S. property.

With dropping home prices, more cities are looking to be attractive buys, such as the increasing affordability in popular vacation-home designations along the U.S. Sunbelt. For example, home prices have fallen 44 percent in Tampa, 54 percent in Phoenix, 57 percent in Las Vegas, and 49 percent in Miami, the Bank of Montreal reports.

“If the economy keeps clicking along and jobs keep growing, housing will be fine,” says Dean Frankel, a portfolio manager at Urdang Capital Markets in Plymouth Meeting, Pennsylvania, who oversees around $1.7 billion in real estate equity investments.

The economy–and ultimately housing–may then get a boost from the latest unemployment report released Friday. The unemployment rate reached a two-year low of 8.8 percent in March as companies began a brisk wave of hiring, adding employees at the fastest two-month pace since before the recession even started, the Labor Department reports.

The unemployment rate has fallen a full percentage point in the last four months, which marks the sharpest drop since 1983.


Sens. John McCain, R-Ariz., and Orrin Hatch, R-Utah, proposed a bill Thursday that would phase out government-sponsored enterprises Fannie Mae and Freddie Mac in five years or privatize them.

The bill comes on the heels of several similar Republican bills that have been proposed in the House.

While the proposed bill calls for Fannie and Freddie to be dismantled, the senate bill also calls for the GSEs to take steps such as charging higher fees and decreasing the size of their mortgage portfolios so that private banks can step up to take on a bigger piece of the mortgage market.

Fannie and Freddie, as well as other federal agencies, backed about nine in 10 mortgages in the past year.

“Never again can we allow the taxpayer to be responsible for poorly managed financial entities who gambled away billions of dollars,” McCain says.

McCain’s bill is similar to the one proposed in the House by Rep. Jeb Hensarling, R-Texas. Earlier this week, House Republicans also introduced eight smaller bills that take a “bite-sized approach” to winding down the GSEs.

The National Association of REALTORS® urged Congress this week to not move too fast in reforming Fannie Mae and Freddie Mac.

“NAR strongly agrees that the existing system failed and that reforms are needed. However, redesigning a viable secondary mortgage model that will protect taxpayer dollars and serve the country’s home owners today, and in the future, can only be achieved through a methodical, measured effort,” 2011 NAR President Ron Phipps said in testimony before the House Subcommittee on Capital Markets this week.

“REALTORS® agree that increasing private capital in the mortgage finance market is necessary for a healthy market and for reducing the government’s involvement. However, proposed legislation that relies only on private capital to operate the secondary mortgage market will slow, if not stop, the housing and economic recovery.”


With a growing federal deficit and pressure from Congress, the number of audits from the IRS are increasing–could your tax return be at risk?

The IRS says that individual income tax returns that report higher adjusted gross incomes were likely to get closely examined and small business owners, either as a partnership or a Schedule C filer reporting self-employment income, are always prime targets, reports.

So how does the IRS select the returns to audit? One way is its use of a computer-scoring system known as the Discriminant Information Function, which it uses to evaluate tax returns based on IRS formulas. DIF is based on tax deductions, credits, and exemptions with standards for taxpayers in each of the income brackets, reports. The actual scoring formula the IRS uses is top secret, however.

But here are some possible red flags that may alarm the IRS’ DIF, according to

– Home-based businesses, especially when in addition to salary income, and home-office deductions.

– Income other than basic wages (for example, contract payments).

– Unreported income, such as investment returns.

– Large business meal and entertainment deductions.

– Excessive use of a car for business.

– Losses from an activity that may be considered more as a hobby than a business.

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