Blog of the Mortgage

Qualifying Taxes in 2009 - A new Hurdle

February 7th, 2009 5:20 PM

I've been on the road with my Streamline Training and FHA Updates for Realtors during the first few weeks of the year.

If you haven't yet, let's schedule an FHA Streamline Training and an FHA/Lending Update-2009 for Realtors. These are great tools to help you build your business this year. The opportunities for us are boundless, we just have to be prepared for the loans and educate our affinity and referral partners.

Speaking of educating on changes, my employer, sent out a notice back in December to all of you that spoke about the collection of property taxes and how to qualify for loans, specifically purchase loans and even more specifically REO purchases as this is where the biggest issue has arisen.

As if all of us in the origination didn't have enough falling knives to deal with; increased MBS Prices, low pull-through issues, FNMA Lending changes, Secondary market changes etc. We now have an additional hurdle to address: ALL OF us in the Lending Community are discovering that with our markets being awash in REO purchases that the County Assessor's offices are soo far behind (9 months in Sacramento - 6 months in Stanilaus - 4-6 months in Sonoma) that we (Lenders) are recieving property tax bills collecting the FORMER RATE OF TAX on the property when it was assessed at twice the current sales price.
This Causes inumerable headaches most especially since so much of our business carries impounds (required for FHA/VA, Often sold on Conventional over 80%).

To elaborate:
my company is receiving tax bills on CA properties for the Oct 2008/2009 tax installment (and now the January/February Tax installment) where the bill is substantially higher than the 125% collected in escrow for required impounds. Until the Assessor has determined the new tax basis, the Collector is collecting at the prior year assessment which is reflected on our title commitment (Prelim). The taxes that my company must pay out of our pocket will be refunded to the homeowner, not us. It is a direct unrecoverable expense/loss to my company.

So, as our announcement in December indicated we are having to COLLECT the higher rate of Tax at underwriting BOTH FOR QUALIFYING AND FOR IMPOUNDS.

Stated another way: we will use the TAXES AS REPORTED ON THE PRELIM for qualifying and impound calculation.

The only exception to this policy is if the Title Company or County Assesor's office can provide You and my company with an updated Tax Certificate showing the lower rate of Tax collection.

We will not be able to accept a "future" rolls estimation of tax as this isn't an actual re-assessment.

Qualifying at Issue (DU/ScoreCard DTI effected)

It's a long and complicated Road. You have likely discovered that ALL investors are currently sending out payment coupons with higher monthly payments (due to the tax impounds) than at closing.
Some lenders right now are also only qualifying at 1.25% of the purchase price, however we're seeing and hearing that those policies are changing across the board and many are switching to our method whereby the borrower is qualified using the higher rate of tax.

Why qualify at a higher rate of tax when we know that in the future the borrower will likely have a lower bill?
Simply because in the near term, and very importantly on FHA and high ratio loans, these higher rates of tax are putting additional financial squeezes on our borrowers post closing.
In an environment where every loan is scrutinized and warehouse linese are drying up left and right the last thing you want to do as a lender that is INTENT ON STAYING IN BUSINESS, is to open yourself up to a possible default issue while you wait for the various counties to catch up and issue the correct and modified tax bill.
So, be cognizant of these changes, make your realtor partners aware of these items and stay ahead of the curve when you are submitting your loans to DU/TotalScoreCard.

When does the borrower get a lower tax rate? How can they lower their bill?
Your borrower can stay on top of their county assessor's office and continue to pressure them for an updated assessment post closing. Once the updated assessment is issued have your borrower contact their servicing lender and get the update over immediately.
At that time the servicer will be able to update the impound collection on the payment coupon and lower the amount collected every month.
Once the Assessor has lowered the tax bill your borrower (by my understanding) will receive a refund from the county for any over-paid taxes after loan closing.

My Company's stance is one that will protect us in this volatile market and will provide you with a continued source of funding now and in the future.
At the very least this is being addressed in underwriting and closing so that your borrower is not receiving a surprise increased payment coupon after the close of escrow.

I'm looking forward to helping you close more loans in 2009! Have a great weekend.

You'll need the following links to download these forms:

Education Station
Government Loan Programs

Go out and have fun!

Posted by Raoul Badde on February 7th, 2009 5:20 PMPost a Comment (0)