An agent in my office told me today about her sister who is a Realtor in California.  She was excited because recently she’s receive at least two emails saying that to qualify for a home loan, you can opt in to a “No Income Documentation” loan.

My first instinct was to flinch because these are the loans that are now most at risk for foreclosure (if they haven’t already foreclosed).  However my friend was pretty excited about them because it means that the economy is starting to turn to the point that investors feel confident in releasing no-income loans.

The paperwork shows that a minimum FICO score of 620 is required and are 30-year fixed mortgages with no pre-payment penalties.  To verify that a buyer is able to make the payments, the lender will verify current employment but is not asking for pay check stubs, W-2′s, tax returns, 1099′s, or 4506 forms. One lender states the loan amount must be at least $220,000 but no greater than $729,750, while another offers a minimum loan amount of $100,00 with a maximum of $3 million.

The loans are available both for new purchases, home owners wishing to refinance, to purchase condos, or for non-owner occupied loans (at a higher interest rate, certainly).

This will be an interesting trend to follow – to see if it expands to the rest of the country.  If it does, it might just be the electric shock the heart of real estate needs to get going again.

It should have been predicted a year ago – and perhaps it was.  With more people in foreclosure or facing short-sales to get out from under their house mortgage, credit scores across the country are sinking.

According to a report by FICO, Inc., more than 25 percent of Americans today have a credit score of 599 or less.  There have been increases in people whose scores are above 800, but the middle-of-the-road borrowers are fewer and farther between.

MSNBC reports on the lower scores,

It can take several months before payment missteps actually drive down a credit score. The Labor Department says about 26 million people are out of work or underemployed, and millions more face foreclosure, which alone can chop 150 points off an individual’s score. Once the damage is done, it could be years before this group can restore their scores, even if they had strong credit histories in the past.

How has your credit score been impacted in the last two years?

At the height of the new vampire craze in popular culture, why not talk about the fangs that Fannie Mae is growing when it comes to collecting deficiency judgments!

With Fannie Mae on board during the TARP bail-out and with their tacit approval of sub-prime mortgages via their purchase of the same, you’d think they would be more forgiving to home-owners who default on their mortgages.  Instead, Fannie Mae is getting ready to sink their teeth into former real estate owners who walk away from their homes in a strategic default.

For another article about Fannie Mae’s lead in showing banks how to go for deficiency judgments, click here.

Of course, the case can be made for personal responsibility – that the homeowners knew when the made the purchase that the future value of the property could not be guaranteed – so they need to stand by their fiduciary promise to pay the note.  However, it’s just not fair to ordinary folks when the fat cats get away with the same thing and all is forgiven, according to Virginia Broker Lenn Harley,

IF THE AMERICAN HOME OWNER IS IN A POSITION OF NEGATIVE EQUITY, WHY CANNOT THEY CLAIM A FINANCIAL LOSS FOR TAX PURPOSES AND “WRITE IT OFF” as a corporation can do when they lose money on investments or P&L???? Why is the American home owner the entity that many would FORCE to have to HOLD THE PROPERTY WITH NO MARKET VALUE, LIVE IN IT AND CONTINUE TO PAY FOR IT WHEN IT NO LONGER MAKES ANY FINANCIAL SENSE.

The corporation USES THE TAX LAWS TO MITIGATE THEIR LOSSES.

Only the American home owner is forced to live in and continue to pay for their financial loss even when they didn’t make the decisions that caused the loss.

While I disagree with her political finger-pointing because both sides of the aisle deserve equal blame, her points are valid.  Would you ever do a strategic default?

My husband and I refinanced our mortgage several years ago in the heyday of real estate.  We bought our current home in 2003, then watched – amazed – as the value went up by $40,000 in just two years.  We thought, “Let’s refinance for the value and pay off our car and credit card!”

Bad move.  Our home is now worth only about $10,000 more than our original purchase price – only because we also added a sun room.  So in essence, we are about $50,000 underwater because we jumped right in the middle of the feeding frenzy of property values increasing like white lightning.  Hindsight… yea yea…

So is refinancing a good idea?  For us – even though we could decrease our interest rate from a 6.5 to a 4.5 percent rate – we can’t do it because the house won’t appraise for the refinance.  For others, it may still be a good option according to cashmoneylife.  Some of the reasons to refinance:

• Your credit score has improved.
• Mortgage interest rates increasing.
• Have trouble making your payments each month.
• Need to consolidate other debts.
• Making more money.

Again, proceed with caution if you decide to refinance, but the good news is if you bought your house before 2007, you are probably in good shape not getting in upside down.  Good luck!

Members of Congress let it tick down to the wire, but on June 30th they passed an extension for the closing date that will impact about 200,000 home buyers.

Read all about it here, but in a snapshot,

Previously, buyers had to be under contract by April 30th (that’s still true), but had until June 30th to close in order to qualify for the $8000 first-time home buyer tax credit (or $6500 for buyers who have owned five consecutive of the last eight years).  The measure extends the closing date to September 30, 2010.

I do have one buyer who is quite relieved.  Although he and his wife had a “clear to close” we learned that HUD hadn’t recorded their name to the deed upon foreclosure so the closing has been delayed until the title company refiles and the county records the name.  Their closing has been delayed until mid- to late-July.

I was happy to make that $8000 phone call to him!

Thank you, Congress.

Photo by Digital Planet Design.