END TO AN OLD TRICK

Have you or anyone you know ever moved into a different home without selling the current residence?   Did you claim to be renting your residence or selling it, all to get the best terms for a mortgage on an investment property? For years, many people used this ploy to get better terms for their loans.  This went on for years before lenders became smart.  When I got into the industry in 1986 as an underwriter, I was taught what to look for to determine true occupancy in a property.  With a few general questions you can determine a borrower's intentions with regards to the property.  If their commute distance from their current job to the subject property is 2- 3 hours away from the property, it is obvious that they are looking at the property as either a 2nd home or an investment property.  If they claim that the home will be a 2nd home, but it is located in downtown Allentown, you can conclude that it is to be used for investment.  To be considered as a 2nd home, the property must be located in a resort area or community where it is common for home owners to use them on weekends. If a buyer is moving from a home in which they owe more than the total price of the new home being purchased,  you can assume that the are either going to let their current home go into a short sale or foreclosure.  In 1983 in Houston Texas, the oil industry suffered a bad slump.  Many workers in that area were effected by the slump, and may lost their jobs.  Prices of homes dropped significantly, where many builders went bankrupt.  Buyers were purchasing the exact same home to theirs, in the same development, for 60% less money.  Why pay on a mortgage for a home that is worth 1/3 of what they owe on the home? Many claimed they were renting their current home and purchasing a new home.  When they completed the sale, they walked away from their old mortgage; therefore, the banks lost significant amounts of money. This trick worked well for a time, but the banks eventually put a stop to that.

Since the mortgage crisis of 2008, Fannie and Freddie Mac implemented changes in underwriting
guidelines which help to keep these fraudulent activities from happening.  If a buyer states that they will be vacating their current home and buying a new one, they must qualify with the new home mortgage as well as the old home, too.  If they brandish a lease, underwriters will not count any of the rental income until a borrower can provide proof that the home has been rented for 6 months.  This means that the buyers will have to vacate their home and rent for a minimum of 6 months before they can look to buy unless they qualify with both properties in their name.  Furthermore, if their current home doesn't have at least 30% equity, the borrowers must provide proof that they have 6 months mortgage payments on both properties saved in reserve.  Depending on the cost of the new home, you can be looking at tens of thousands of dollars needing to be shown in savings, 401k plans, IRAs, etc.  What seemed to be a fool-proof plan years ago, is becoming more and more difficult to pull of in today's market.

Andy Williams #118317
President
Abacus Regional Mortgage NMLS #112984
484 695 5972

No more Harleysville Bank

As many of you know, I have been doing business with a small local bank in Bucks County named Harleysville Savings Bank for many years.  They have always accommodated my customers by doing loans that didn't quite fit the mold of a saleable loan.  This means that what Fannie Mae and Freddie Mac deemed unworthy, Harleysville gladly accepted.  They didn't sell their loans and , in many cases, couldn't sell these loans.   They financed homes on many acres, log homes, non fannie mae approved condos, land loans, loans with mobile homes attached, 80% 1-4 unit investor financing, cash out refinances requiring no seasoning, and residential mortgages for LLCs.  Although their rates are extremely high and unattractive compared to the rest of the market, they still found a niche to finance the unique buyer.  Because of their desire to begin selling their loans on the secondary market, they have informed me that they no longer wish to do business with Brokers.  Effective September 30, 2012, I can no longer originate loans for them.  If you have had anyone pre approved by me prior to this date and I told you that I would be using Harleysville for the financing, I will no longer be able to honor this request.  I will have to take the mortgage application by the end of the coming week September 29, 2012 in order to finance it with them. I'm sorry for this inconvenience, but I'm currently seeking new lenders to fulfill this void. 

Andrew Williams
President
Abacus Regional Mortgage
NMLS # 118317
484 695 5972