Today the Chronicle reported that a Houston man was recently convicted of mortgage fraud and received a 15 years sentence.

Clarence Lewis III, 46, of Houston, was sentenced to 15 years Monday. He also must pay restitution in an amount to be entered early next year and serve three years of supervised release.

Federal authorities said Lewis was convicted May 13 of conspiracy to commit mail and wire fraud and four counts of wire fraud following a bench trial before Judge Lynn N. Hughes.

Lewis, who held a mortgage broker’s license and real estate broker’s license, garnered more than $12 million in fraudulent residential mortgage loans during the five-year scam, which began in 2002, federal officials said.

Lewis operated under the entities Motown Mortgage Group and Lewis and Associates Realtors.

He also used an assumed name business – Astro Construction – to extract loan proceeds from real estate closings. The loans on the majority of the properties fell into default and the properties were foreclosed.

It has been rumored that Texas will try to stop Real Estate Brokers from originating loans or Mortgage Brokers from selling real estate. There are too many conflicts of interest between roles and there are no checks which makes this type of fraud easy to commit. Fraud like this was rampant between 2005-2008 and I am sure we will hear about more convictions as these cases play out.

John Kanas CEO of Bank United predicts 1,000 banks will fail in the next two years.  He feels like most will be smaller regional banks affected by losses in commercial real estate.

Texas based Guaranty Bank was shut down by the FDIC as the 2nd largest bank failure of the year . The bank’s assets and deposits were sold off to the U.S. division of  BBVA (Banco Bilbao Vizcaya Argentaria) Compass, Spain’s second largest bank.  FDIC and BBVA will share in $11 billion assets. Guaranty Bank had over 150 locations in Texas and California. BBVA indicated that acquiring Guaranty Bank’s asset will help reach Spanish speaking markets in both states. The FDIC has taken over a record 81 banks in 2009 and that number is expected to rise with mounting loses in commercial real estate.

BB&T Bank

Guaranty Bank

In my opinion one of the biggest problems with our credit crunch and high foreclosure rate is bank reliance on FICO scores.  FICO scores do a good job of reporting an individuals past history of repayment of debt. The biggest problem is the scores do not forecast in my opinion the current position of the borrower. To read from Fair Isaac what goes into your FICO score click here. FICO scores miss two important things when considering giving someone a loan, assets and income.  Most people credit reports have misinformation that can help or hurt them. You could have two borrowers one with $200,000 in assets making $100,000 a year with a 560 fico score and one borrower with a 800 fico score that has  -0- assets and making $30,000 a year.

A year ago the buyer with a the 800 fico score was able to get a loan for $500,000 with no asset or income verification and in most cases with nothing down.  This happened frequently which is why we are so many foreclosures in the high price ranges. The rate of commercial foreclosures is at an all time low. Why? Because commercial banks looks the entire position of their customer. They look at each loan & property individually and not just a credit score. Commercial lenders always look at the market area of the property, not just when the economy is in a down turn. Looking at the individual property and borrower more carefully will help banks avoid foreclosure in the future.

On March the FHA (Federal Housing Administration) increased it’s single family home loan limits from $200,160  to $271,050.  FHA provides mortgage insurance on FHA loan programs through their approved lenders. FHA is a quasi-government agency that is a part of HUD. FHA operates as a business generating enough income so that it does not have to rely on the government for income. The great thing about FHA loans is that people with low credit scores can get a 30 yr fixed mortgage with a market interest rate. Loan requirements for private banks are becoming stricter every day which will push more buyers towards FHA loans.

The FHA only requires a borrower to have 3% invested into the property. I have heard of many instances where borrowers had fico (credit) scores well below 600 and were still able to obtain financing. FHA does require no late payments or charge offs within the past year to two years on your credit report. FHA loans are great things for people trying to rebuild their credit or coming off a financial hardship. In the past FHA would require the appraiser to attest to the condition of the home. There were a number of things the appraiser had to certify were in good condition or working order.

Many appraisers felt uneasy about this and frequently called out things that were not real issues. Unfortunately the appraiser was the only party that made the decision. We would have appraiser stating that homes need painting or that the side walk is cracked. These items would be required to be corrected before the loan closed. All of those certifications are no longer required so a FHA loan is very similar to a conventional loan from a private bank. Higher loan limits will help home sellers because it will open up a new pool of buyers.  This increase is only temporary, but hopefully FHA will make it permanent.

MSNBC and some other media outlets have reported that top democrats in congress are backing a law that would allow bankruptcy judges to alter the terms of a 1st lien mortgage. Meaning when a homeowners files bankruptcy and goes court the judge could legally reduce the amount they owe the bank, which is currently prohibited.  No party can change the terms of your loan, not the bank, not you or any government official. We don’t want that to change. A mortgage is a secured loan, when you get a loan, a lien is placed on the property for the amount you owe. This is a guarantee that the bank will get the amount you borrowed back or they get your property. Because the loan is secured by a safe asset “real estate” borrowers can get very low interest rates and loans with good terms. If banks cannot be guaranteed that they will get back the full amount loaned or the real estate that you used to secure the loan, interest rates and down payment requirements will soar. Borrowers with questionable credit will be required to put down a substantial down payment so that a bank would feel confident that they would not lose money on their investment. Why would a bank loan a borrower with questionable credit $200,000 if a judge may reduce the amount owed by $20,000 next year if they declare bankruptcy?

What does it say to a homeowner who works three jobs to payoff their debt  so they won’t go into bankruptcy? Or someone who rented for 5 years in order to save up 20% to buy a house?  That the short cut is OK?

Congress needs to focus on creating jobs and working together to make our economy stronger, not creating long term problems for future home buyers.

On February 19 the bond prices fell by almost 2 points, which pushed interests up by almost a full percentage point. Buyers who got interest quotes two weeks ago at 5.4% were told Tuesday the new prime rate was 6.3%. That’s a huge jump that could cost a buyer considerably over the life of the loan. The lesson to learn here is when rates get historically low (Under 5.9%), lock them in.  The fee is normally very small, typically the price of an appraisal ($350-$400).  Most of the time all of the money goes towards your appraisal or other cost when you close the loan. I always encourage buyers to shop rates, but once you find a lender with acceptable fees and rate, lock it in. Also most lenders will let you get the benefit interest rate reduction, if rates fall below your locked in rate. Below is an example of what not locking in can cost you.

Principal & Interest on a $200,000  30yr Fixed  @ 5.6% = 1148.15

Principal & Interest on a $200,000 30yr Fixed @6.3% = 1237.94

Over 5 years that the lower interest rate will save the buyer $5,387.

Consumers in Houston on average have the worst credit scores in the United States.  Your FICO/Beacon or your credit score, it is the largest factor lenders use to determine if you can get a loan and at what rate. You have a separate FICO score for each of the three major credit agencies.  A common question is “why would they be different?”. They can vary by more than 100 points. Not all creditors report to all three agencies, so you will have different information for each. In many cases there is incorrect information posted on your account which negatively impacts your credit rating. A few FICO points here or there and it can mean the difference between a good interest rate or a bad one. Depending what was reported incorrectly it could mean the difference between getting a house or continuing to rent.  It can take many months to clear up a credit report for incorrectly reported items. Credit Agencies do not verify what is on your report. They are supposed to by law, but they don’t because of the time it would take to do so. They simply take the word of the creditor. Why would a creditor report inaccurate information about you? Because of the large amount of data they deal with daily mistakes are bound to happen. One type “O” in your account and it could show you were late or never paid at all. Worse someone could still your identity, a crime that is growing daily. Here are some of my recommendations to make sure you credit is in order before buying a home.

First Opt Out – Opt out of the annoying credit and insurance offers you receive in the mail. Why? Because they are damaging your credit score. Credit card and insurance companies are allowed to inquire about your credit even if you did not authorize them to do so. For every inquiry it may knock your score down by as much as 5-7 points. 5-7 points is not much unless you receive 4 a month which would result in reducing your score by about 50 points. Once you opt out insurance and credit card companies are not allowed to inquire about your credit unless you requeste them to do so.

Next Request your Free Annual Credit Report – You are now allowed to request your credit report for the three major reporting companies(Experian, Equifax, Transunion). You can print them instantly or have them mailed to you. You can find them at http://www.annualcreditreport.com/ . Be sure to print the reports if you request them on-line because some services will only allow you to view them once on-line.

Review the Reports – Look for anything that maybe incorrect, take your time it is a big report. Credit reporting agencies are required to correct any incorrect items, amounts, dates, etc. If you find something wrong dispute it with them and the company that reported it to them. Dispute it in writing with registered mail or online, but do not call. There is not documented record of a phone call.  You have to be persistent and follow up. In general their first reply with be that they verified it but you have to be persistent.

Even if you are not going to buy a house in the future, it’s important to monitor your credit. Just about everyone checks your credit these days even some employers. A bad FICO score can cost you in many ways in life.  Knowing whats on your credit is taking control away from banks and putting you in control of your financial future. Below are some good websites to help you.

Credit Monitoring – www.truecredit.com

Personal Finance Website – www.bankrate.com

Many of you have called me this past week asking me about the problems in the Mortgage Industry. The media, as usual, has hyped this as a “doomsday” situation. They have stated buyers are unable to get mortgages and that is simply not true. There have been buyers with great credit not being able to get funding at the last minute because their mortgage company went bankrupt. What the news is not telling you is those same buyers simply switched to another mortgage company and closed within a few days at little or no additional cost.

During the past five years we have enjoyed very low interest rates. Anyone that had a mortgage was refinancing it, sometimes every year. The low interest rates encourage people to purchase homes. Lenders were making a lot of money. New mortgage companies formed, tons of people were getting into the mortgage industry to cash in.

Because of the competition, lenders were offering new exotic loan products. 100% financing, No Doc Loans, ARM’s, Buydowns with Arms. These are called non conforming loans(non government backed). Conforming loans are backed by the government. Once loans are made, they are packaged together and sold as mortgage backed securities to investors. By selling off mortgage backed securities, lenders can free up those funds to make more loans. Because of the numerous amount of foreclosures, investors are wanting high returns (high interest rates) before they are buying loans.

Mortgage companies made billions of dollars in loans 30, 60, 90 days ago at “X” interest rates when investors were buying loans at that rate. Mortgage companies are now trying to sell those loans and investors want a higher interest rate. Since mortgage companies cannot legally go back to the consumer and raise their interest rates they are stuck with the loan. Since they are stuck with the loans that ties up their funds so they cannot fund new loans with current buyers. Many lenders are having to take a loss or if they are a small company they are going bankrupt.

Many people including myself see this as a painful but good correction in the market. No one wins when a home is foreclosed on, the bank loses, the homeowner is devastated, the neighborhood loses value and overall economy is hurt. As I type this, home buyers with decent(not good or great) credit, good job history and very little down payment will have no problem getting a loan and closing. Call me today if you have questions or a referral.

We still have a record number of foreclosures and a record number of sales. Aggressive tactics by mortgage brokers and lenders have lead to our record breaking foreclosure rate. Many people who purchased a house 10 years ago are shocked to hear that anyone with decent credit can purchase a home with Zero down and not have to pay any closing cost. Daily we are seeing buyers close on a house only spending money on inspections and a appraisal. Many times those expenses are actually refunded to them at closing. There are many renters that have more invested in a rent house then some new homeowners.

Many people feel that this is an indication of a bad market. Traditionally that has been the case but in today’s market we are seeing a different cycle. Typically once a foreclosure is taken by the bank and put on the market it is purchased within the first 30 days of being on the market by investors or first time home buyers. It is an odd cycle but luckily it is not affecting the home market significantly. I hear many people say “don’t foreclosures hurt my home value?” and they answer is no. Even with the high number of foreclosures many subdivisions rarely have more than one foreclosure home on the market at anytime. Appraisers and Real Estate Professional know that those lower sales price are not an indication of the market but rather an indication of the condition of that property. Foreclosures are typically not used when completing marketing analysis or appraisals.

Foreclosures present a great opportunity for investors that are seasoned and have cash available to act quickly. Foreclosures that are discounted sell within days and many time over list price. Mortgage companies are moving to tighten up requirements to cut the number of foreclosures and to try to stop mortgage fraud.