by Dave Shanklin
1. MORTGAGE DEFAULTS
This has been the biggest nightmare for MH chattel loan officers. Short sales, foreclosures and applicants burdened with mortgaged homes that they can't sell. Our industry's lenders started to show signs that they might be softening their position on mortgage defaults on credit reports, but they're still turning down applicants with mortgages that have gone "belly-up."
Our major lender out of San Diego will occasionally tolerate recent bouts of unemployment, recent bankruptcies, FICO scores in the low 600's and even recent mortgage lates. This lender has become what I call a "sub-prime" lender, based on the above, even though they will probably deny this title. Most of our industry's lenders have a zero tolerance policy toward recent mortgage lates. But this lender has been accepting borrowers with less than perfect mortgage history, as long as the home loan was paid in full and didn't default.
I am being told that FannieMae lenders are now approving applications with short sales that are at least three years old. This is helpful to the entire real estate market. Hopefully, in an upcoming column I can announce that our lenders are doing the same.
2. "I OWN A HOME WITH A MORTGAGE, AND I WANT TO RENT IT OUT AND BUY A MANUFACTURED HOME AND GET A LOAN FOR IT."
It's long been a FannieMae guideline to accept rental income and deduct part of that income from the borrower's debt ratio. A few strict rules apply here.
Our lenders will, from time to time, accept rental income on mortgaged properties as qualifying income. However, the rental income has to be documented with at least two years of tax returns. Only 70% of the rental income, after expenses, will count as qualifying income when computing the borrower's debt ratio. Most of the time, the homeowners are in the red and don't realize it. If a house rents for $1200/month, and the mortgage payment is $1200/month, then the mortgage payment is not "covered."
3. "I WANT TO BUY A MANUFACTURED HOME FOR A FAMILY MEMBER AND FINANCE IT."
This is what the industry calls a "buy-for" transaction. Good luck getting the LL community manager to agree to this. Most LLC's do not allow non-owner-occupied homes.
As far as lending, there is one lender in our industry that will consider "buy-for's" on a case-by-case basis. The home needs to be 1991 or newer, with a maximum loan of $75,000, and a very strong co-signor. This lender prefers the co-signor to be an immediate family member, and they will have to nearly "walk on water" credit-wise to get loan approval.
Loans that are less than 100% full-time owner-occupied are considered to be the highest risk category of loan for the chattel lenders. They are so paranoid that one of our lender's underwriters now routinely makes phone calls to the applicants BEFORE making a credit decision, just to make sure that all people on the loan application intend to live in the manufactured home that they are borrowing money for. Exceptions are made for "vacation properties." But forget about buying a manufactured home, financing it and renting it out, even if the home is with owned land. The land/home lenders are equally as strict on these matters.
4. "I WANT TO BORROW THE DOWN PAYMENT."
As I have mentioned in past columns, down payment funds must be true equity, free and clear of encumbrances. Preferrably, the entire down payment should be the borrower's life savings. This is the "glue" that holds the buyer to the asset, making it less likely that they will turn their back on the house if the have a bad year.
Family members may gift part of the down, or in some cases, all of the down. The gift provider will have to provide bank statements and sign a gift letter. With one lender in our industry, the gift provider will have to send the loan officer additional bank statements showing the funds being transferred from the gift provider, and the gift recipient will have to provide a bank statement showing that they received the funds. This is called "paper trail." This is to rule out any possibility that any part of the down payment was snuck in via a credit card cash advance, and disguised as a gift from a family member. This would be considered a fraudulent transaction, and any loan originator who goes along with this and gets caught will be immediately unemployed and unemployable in this industry.
5. "I HAVE INCOME BUT NO CREDIT, BUT MY SPOUSE HAS CREDIT BUT NO INCOME."
As a new loan officer, I sent in several applications of husband-wife situations with one spouse with good credit and no income, and the other spouse with high income and no credit, or bad credit. The applications were declined.
Underwriters will NOT accept a co-applicant's income unless it is backed up by a strong credit report. If one spouse has enough income on their own, and good credit, then the other spouse can be added to the loan, but their income will not count if they have unacceptable credit.
Quite often, loan officers find themselves giving advice on how to build credit. If the consumers follow the advice, then in a few short years they can turn the situation around and become proud homeowners. Quite often, the consumer is never heard from again. I guess they ignore the advice, keep going down the wrong road, and keep renting….