How to remove the monthly Mortgage Insurance payment, aka MI or PMI, from your home loan...

With Sacramento home values on the rise, several past clients have gotten in touch with me recently wanting to know three things: (a) how much is their home worth, (b) is it worth enough to remove my mortgage insurance, and (c) what is the process to do that?

First for those who don't already know, I should explain what Mortgage Insurance is. Mortgage Insurance, aka MI or PMI, is insurance that borrowers must pay for and is typically required for conventional mortgage loans when down payments or equity is below 20%, and ALL FHA loans. This insurance compensates lenders or "investors" for losses due to the default of a mortgage loan. The cost of mortgage insurance varies based on the amount of the initial downpayment for the loan, and how large the loan itself is.

So for example, if a buyer purchased a home with a conventional loan for $175,000, and made a 5% ($8,750) downpayment, the total loan would be approximately $166,250. At a 5% interest rate, the total monthly mortgage payment including loan principle, interest, property taxes, homeowner's insurance, and mortgage insurance would be approximately $1,235. About $109 of this payment would be mortgage insurance. Alternatively, if a buyer purchased a home for $400,000 and made a 10% ($40,000) downpayment, the total loan would be approximately $360,000. At a 5% interest rate, the total monthly mortgage payment would be approximately $2,625, and about $159/month would be mortgage insurance.

Wouldn't it be nice to erase that mortgage insurance portion of the payment and save some money? Here are the requirements for requesting the cancellation of your mortgage insurance on your primary residence:

• You must not have any "subordinate" loans. Basically you can not have a Home Equity Line of Credit (HELOC), 2nd mortgage, etc.
• You must have a good payment history -- don't make late payments!
• You must have been making payments on the loan for at least 2 (or more) years. Sorry...if you bought your house last year you have to wait...
• Your loan balance is either 80% of your original sales price, or you can demonstrate that your home has increased in value so that you have 20% equity.

So basically -- If you bought your Sacramento home for $175,000 2+ years ago, and you currently owe about $161,000 (based on my scenario above, the original financed amount of $166,250 would have been paid down to that amount), you must be able to demonstrate that your home is worth more than $200,000. The lender will determine the value either by an AVM -- a Zillow-like automated valuation tool, or you can do a full appraisal. You must provide a written request for cancelling your mortgage insurance. Call your loan servicing company and ask them where to send this request. Some will allow you to do this by fax and others will require it to be mailed. Specific criteria may differ from lender to lender, and mortgage insurance company to mortgage insurance company, so do your homework.

Given the current upward thrust of the Sacramento real estate market, many folks who financed a Sacramento area home 2 years ago will be able to make a strong case to their loan servicer that this monthly mortgage insurance be cancelled.

Another thing to note is that per the Homeowners Protection Act of 1998 (HPA), which covers single-family primary residences whose sales were closed on or after July 29, 1999 -- a borrower can request cancellation of mortgage insurance on the date the mortgage loan balance is first scheduled to reach 80% of original value, based solely on the initial amortization schedule of your loan (how it's paid down with your monthly payments), regardless of the outstanding balance of the loan. Again, you must request this of your loan servicer in writing and meet other criteria -- like timely payments.

If I can provide you with an estimate of your home's value to help you determine this, please send me an email to erin@erinstumpf.com and I am happy to provide you the data and a letter template to make your request to the loan servicer. If you have read my blog posts about tools like Zillow, you will know that I believe they are completely inaccurate (and for Sacramento homes, mainly just too low right now!).

Unfortunately, if you purchased with an FHA loan, you have a much longer wait (anywhere from 5 years, to when you pay off your loan, depending on when you made your purchase) to remove your mortgage insurance. Depending on your circumstances, if you have adequate equity and a good payment history -- it might just make sense to refinance your loan. One of my past FHA buyer clients is refinancing, transitioning from a 30-year FHA loan to a 15-year Conventional loan. He is lowering his interest rate, and getting rid of the MI, and his monthly payment is staying about the same! So basically he will own his home in half the time. Amazing...

New Listing - 10161 Gatemont Circle, Elk Grove, CA 95624

Exceptionally well cared for 4 bedroom, 2 bathroom, 1,712sf Elk Grove home with nice upgrades through out. In 2006, the kitchen was extended 8ft to enlarge dining area, the 4th bedroom was added, master suite was enlarged & master bath was updated w/jacuzzi tub, double corian sinks, separate tile shower & tile floor. Updated hall bath w/granite top vanity & tile floor. Upgraded carpet and laminate floors, inside laundry room. 3 ceiling fans. Backyard has a soft side pool, covered patio, fenced side yard. Near the Elk Grove Regional Park. Don't wait! Offered at $255,000, subject to lender approval of short sale. For more photos and detail, please visit 10161 Gatemont Circle, Elk Grove, CA 95624.

How I use Twitter to get my Sacramento short sale listings approved...

Let's just say when I negotiate short sales, I don't like to sit back on the fence and wait for things to happen. If you follow me on Twitter (@erinnstumpf) you may already know that I was not getting the response I wanted from a short sale lender (who shall remain nameless) for one of my own Sacramento listings this week...I know this is a Freddie Mac loan thanks to information I obtained from both the lender and the Freddie Mac loan look-up tool. So rather than wait, I thought I'd try to engage Freddie Mac directly to escalate this short sale file.

How would I do that, you ask? Freddie Mac is the 800-lb gorilla government sponsored enterprise that owns (aka, is the investor for) a large percentage of the loans serviced by the big lenders (your Bank of America, GMAC, CitiMortgage, Wells Fargo, Chase, etc). I tweeted them!

Twitter is an outstanding tool to get a company, or in this case, a GSE's attention. As you can see from this screen shot, Freddie Mac is all over it this morning. Twitter is just one tool in a large arsenal I have to help my short sales happen. Most real estate agents aren't connected to Twitter, and many who are don't think to use it this way. I know my clients appreciate my creative maneuvering to get their short sale transactions closed.

New Listing - 2336 Rudat Circle, Rancho Cordova, CA 95670

Delightful 4 bedroom, 2.5 bathroom, 2,098sf home on .153ac lot with built-in swimming pool in Rancho Cordova! You will love this light and bright home that boasts a wonderfully remodeled kitchen and bathrooms. The pool and jacuzzi will be perfect for when the weather warms up. A whole house fan, dual pane windows and many other extras make this a great buy for such a well cared for home. Offered at $235,000 subject to lender approval of short sale. For more photos and additional detail, visit 2336 Rudat Circle, Rancho Cordova, CA 95670.

Sacramento Short Sale Sellers: Cancellation of Debt Forgiveness has been EXTENDED another year!

Well, ding dong, hallelujah, oh yeah, yahoo, and boom! Not only does it seem that the United States won't tumble over the "Fiscal Cliff", but federal lawmakers have extended some very important provisions for Sacramento homeowners through the end of 2013.

I'll start with what I think is the most important one first -- this affects short sale sellers.

A few weeks ago, I was quoted in a Sacramento Business Journal article about the the need for an extension of the Cancellation of Debt Forgiveness for short sales. The existing legislation was in place through January 1, 2013 (yesterday). This provision basically cancels the income tax on the "forgiven" debt in a short sale. So over-simplified -- if you owe $300,000 on your home, and short sale it for $200,000 - you have been "forgiven" $100,000 in debt. The IRS traditionally views this sort of forgiven debt as income, and as such the homeowner would have to pay income tax on this $100,000. Thankfully, the US House of Representatives and the Senate extended this another year until January 1, 2014. Short sale sellers -- you still need to speak to your trusted tax professional to make sure you are protected by this legislation. While it applies to most homeowners, it does not apply to everyone! For example, one of the provisions is that the property must be owner-occupied primary residence in order to qualify for cancellation of debt forgiveness. Again, talk to your CPA.

All in all though, this is a huge break for Sacramento short sale sellers. I have short sale listings that did not close in 2012...so those sellers were anxiously awaiting for this to be extended. I also have been speaking with many potential short sale sellers who were waiting to list their homes until they knew if the cancellation of debt forgiveness would be extended. If you have questions about listing your home as a short sale in the Sacramento area, I am happy to answer your questions and speak with you in more detail. Feel free to call (916-342-1372) or email me.

The other items that were extended via the "Fiscal Cliff" legislation -- mortgage insurance premiums are still tax deductible for taxpayers making under $110,000. This was retroactivated for 2012 and extended through 2013. Also, a 10% tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012.

So good things for 2012 and 2013...it's going to be a great year!

Ask Erin: What happens to my short sale if my loan servicing is transferred to another company??

I listed a short sale in Orangevale a few weeks ago...at the time I listed the house, the loan was serviced with Bank of America and the sellers and I were navigating our way through their "Co-Operative" short sale listing process (where we complete a few steps in advance in order to list the property with a pre-approved short sale price). Then something happened...we were notified of an upcoming "Service Transfer" and the loan would be moved from Bank of America to another lender for servicing. Huh?

This does happen from time to time. Bank of America, like many other large lending institutions, services mortgage loans for hundreds of investors. An "investor" could be Fannie Mae, Freddie Mac, a hedge fund, another bank, etc. As a part of normal loan servicing, these investors may opt to release or transfer servicing from one company to another company.  In most cases, once the servicing transfer occurs, the short sale process ends with Bank of America and the homeowner must contact the new servicer to start navigating that company's short sale process.

When I list short sale property, I generally talk about the possibility of this happening with the seller. This is not a really common occurrence mid-transaction (this has happened only 4 times out of all of the 100+ short sales I have worked on), but a servicing transfer is a risk that may occur at any time during the short sale process -- EVEN after a short sale has been approved! This is one of the reasons why it is important to move as quickly as possible to facilitate a short sale.

Generally, if your loan is going to be transferred from one servicer to another, the current servicer will send the homeowner a letter 15 days before the servicing transfer date. The lender may or may not contact the listing agent -- so short sale sellers PLEASE open your mail and keep your agent in the loop as far as what the communications say! The new loan servicer will send a introduction letter to the seller with a new loan number and payment or collection info. One thing to note -- before you send ANY payment or personal information to the new servicer, please call them to verify that your service has been transferred and the new mailing address. Some fraudsters will send bogus letters in an attempt to get you to mail them money or steal your identity! If an offer has already been accepted on your short sale, a closing has been set and an approval letter issued, the new servicer will determine if the short sale will continue. Unfortunately the new servicer may not be obligated to honor the approval.

It's August 1st...Have you started your short sale yet? Time in 2012 is running out...

No, I am not referring to the 146 shopping days left until Christmas. I am referring to the time left (152 days) in 2012 that short sale sellers can still take advantage of some of the state and federal debt forgiveness tax laws. Many short sale sellers who occupy their home as a primary residence and meet other criteria will have little or no tax consequence from completing a short sale in 2012. Many short sale sellers have benefited from legislation in place protecting them that will expire December 31, 2012. The difference in closing a short sale in December 2012 and January 2013 could cost a distressed homeowner several thousand dollars in taxes. I am not a CPA and refer my clients to tax professionals to seek advice in this regard to make sure these laws apply to their situation.

In a nutshell (and completely over-simplified), if a homeowner does a short sale and owes $300,000, and the NET proceeds from the sale that a bank will accept in a short sale equal $200,000, the seller of the property receives a 1099 from the bank for $100,000 (the amount of the "forgiven" debt). You will get this 1099 regardless of when you close your short sale, BUT for short sales closed in 2012, many sellers will not have to pay income tax on this "forgiven debt." If you close in 2013, if the current legislation in place remains un-extended to a later expiration date, you could have a very large tax bill to pay when you file your taxes the following year. Again, speak to a CPA regarding how this affects your situation. If you need a referral to one, contact me and I am happy to give you one.

Given the length of time that short sales take, if you want to complete a short sale in 2012 you need to start the process NOW.  Think I'm exaggerating? Assuming a seller doesn't have some odd circumstances, the lifespan of a typical Sacramento short sale looks something like this:

-Listing the property, preparing for showings, gathering financial and hardship info to submit to short sale lender: 7-14 days. My vast short sale experience tells me that most folks can't (or won't want to) list the house tomorrow and start showing it by this weekend. If your average seller called an agent today, met with that agent tomorrow, then spent time gathering their financial info and making the house presentable making arrangements for pets, extra house keys, etc., the house would realistically hit the market within 2 weeks.

-First on market day, showings, and seller accepted offer to submit to lender: 7-10 days. Let's face it, if a property is priced correctly and the seller is flexible with access to the house for showings, given the current lack of homes on the market, this process should be relatively quick.

-Lender receives all financial and hardship information from the seller, purchase contract and supporting documentation, assigns a negotiator and orders BPO valuation of the property: 7 - 14 days. Some short sale lenders are faster than others. Most of the larger banks (Chase, Wells Fargo, BofA, GMAC, CitiMortgage, HSBC, etc) have pretty streamlined processes for getting the files assigned to folks and the initial BPO values established.

-BPO agent/appraiser visits property and returns value analysis report to short sale lender: 7-14 days. For the sake of defining it, a BPO essentially an appraisal ordered by the short sale lender. This is their method to best validate the buyer's offer received and determine the fair market value of a property. The folks who do these BPO's are unaffiliated 3rd parties who might have 20 other BPO's to do at the same time. Once the assignment is received, it might take them a few days to fit visiting the property into their schedule (longer if the house is occupied and they must coordinate access to the house with someone else), then visit the property, then complete the report and submit back to the short sale lender that ordered the BPO.

-BPO received by negotiator, analysis of file: 7 - 45 days. Yikes. This can take a long time...the file could be re-assigned to a new negotiator and it could go to the bottom of that person's stack.

-Submitted to investor or management for final approval: 3 - 30 days. Again yikes. Depending on who actually controls the decision-making process of the loan, this could be super fast, or painfully slow. Best case scenario is that the loan is owned by the short sale lender itself and it's just making a management decision if the short sale fits within its internal guidelines, OR, perhaps Fannie Mae or Freddie Mac must approve the short sale. Or perhaps the loan is owned by a Hedge Fund, or a Retirement Fund. If it turns out that the Missouri State Teacher's Retirement Fund owns the loan for example (not to pick on them, if they even exist LOL), and Margie in Accounting is the ultimate decision-maker, you might be in for a longer wait.

So then approval issued! Yay! Now what...well depending on the offer you received from your buyer, you will be looking at 21-45 days to close your escrow, barring no additional surprises with the buyer's loan or inspections, of course.

So on the fast end of the normal timeline spectrum from the day the house hits the market to the day the short sale is approved -- you are looking at about a month if all the stars align, plus the time it takes for the buyer to close escrow. If you are this fortunate and have a very straight-forward short sale and no surprises, congratulations you still have plenty of time to complete your short sale before the end of 2012.

On the longer side of the normal timeline spectrum from the day the house hits the market to the day the short sale is approved -- you are looking at 3-4 months, plus the time it takes for the buyer to close escrow. This timeline is more realistic for most short sales, AND it will push you to the very end of 2012. It'll be stressful, but you have time to get your short sale closed.

So...if you need to do a short sale and can benefit from the tax laws that will expire at the end of 2012 - what are you waiting for? I welcome your call if you have questions I can answer or to see if we are a fit to work together.

It's nice to be appreciated for my short sale expertise...AND high level of service...

Today at my regular Monday morning office meeting, my managing broker read a letter that a recently closed short sale client sent in. One thing many folks do not realize is that in addition to negotiating my own short sale listings, because of my expertise in closing short sales, other agents retain me to negotiate their Sacramento short sale listings for them. In this specific instance, I assisted another agent in my Dunnigan Realtors office and negotiated a pretty complicated short sale with HSBC Mortgage. It's nice to be appreciated. =)

Doing a Sacramento-area short sale with HSBC? Here is what you need...

Well...it's not a secret that I do A LOT of short sale transactions in the Sacramento area...and I have done several with HSBC Mortgage. I like HSBC's short sale process. It's generally (and of course, relatively speaking) on the faster side of the spectrum for negotiating approval, and their loss mitigation negotiators seem to be on top of their game and different short sale programs. So if you are looking to do a short sale on your Sacramento-area home and have a mortgage with HSBC, here is a list of the documentation you need to gather as you get ready to list your home with a Realtor;

HSBC

Loss Mitigation / Short Sale Tel: 800-395-3489

Seller's Documents Generally Required for a Short Sale:

-3rd Party Authorization Letter

-Hardship Letter

-Last 2 months of bank statements

-Last 2 months of pay stubs

-Unemployment stubs and award letter (if applicable)

-Proof of Homeowner's Insurance

-Most Recent Property Tax bill

-Last year's federal tax return

-Most recent quarterly Profit & Loss Statement (ONLY if self-employed)

-Evidence of SSI, Pension, Disability Benefits (if applicable)

-Rental Lease (ONLY if investment property)

-IRS 4506-T

I welcome your call if you have any questions regarding an HSBC short sale in the Sacramento area.

Sacramento Help for Homeowners Events - Coming March 20th, 2012

Sacramento homeowners who are struggling to make their mortgage payments will have the opportunity to meet face-to-face with their mortgage companies, as well as HUD-approved housing counselors, in an effort to assist explore foreclosure-prevention options and to move toward solutions to their mortgage problems.

Help for Homeowners Community Event
Tuesday, March 20, 2012 from 1:00pm – 8:00pm
Sacramento Convention Center
1400 J Street, Hall D
Sacramento, CA 95814

Free parking is available in the Memorial Garage (entrance on 14th and H Streets). It is highly recommended that you bring with you:

-Request for Mortgage Assistance form
-IRS Form 4506T and/or last two years of tax returns
-Monthly mortgage statement
-Information about other mortgages on your home, if applicable
-Two most recent pay stubs for all household members contributing toward mortgage payment
-Unemployment benefits award letter, if applicable
-If self-employed, the most recent quarterly or year-to-date Profit and Loss Statement
-Documentation of income you receive from sources (alimony, child support, social security, etc.)
-Two most recent bank statements
-A utility bill showing homeowner name and property address

Sacramento Short Sale Information

Don't let your pending divorce de-rail your home purchase!

So this morning I closed another short sale...the unique thing about this particular transaction was that the original closing date that was approved by the short sale lender (HSBC) was January 20, 2012. Well, today is February 28, 2012...a mere 5 weeks later!!

So among some other tabloid-worthy circumstances that made this short sale a nightmare (let's just say one of the sellers -- the wife -- fled the country mid-transaction...but literally thanks to some PI work THAT didn't hold up our closing), the most significant issue that lead to the buyer's late closing was that just a few days prior to our scheduled closing date, his divorce became final.

Now why would that matter, you may ask yourself?? The implications of the finalization of the buyer's divorce -- part of his divorce settlement included having to pay monthly spousal support (aka, alimony). That spousal support then had to be factored into his overall debt-to-income ratio to qualify for his loan, and this addition to his monthly debt suddenly elevated him to a level that made him UNABLE to qualify for his 5% down conventional loan just days before closing...so the lender had to switch the loan to another type of loan that would accommodate a slightly higher debt-to-income ratio (from conventional to FHA), requiring a whole new appraisal and new underwriting of the loan. UGH.

FHA lending standards are a bit different than conventional lending standards, and since the home was a bit of a fixer, the underwriter required that some repairs be made to the house that were not required before. At the end of the transaction, I ended up obtaining (more like begging for) FIVE separate one-week extensions to the closing date for this short sale. The short sale negotiator must have been tired of hearing from me!!!

Luckily in the end, we were able to close the transaction -- and buyer and seller are both elated. And I am sure that the HSBC short sale negotiator is elated to be done with me too! Ahh...