FHA Changes in Lending Guidelines

This past week FHA (Federal Housing Administration) has made several key changes to their lending policies moving forward.  Currently over 40% of purchase loans being originated in the United States are FHA loans.  Since FHA has stepped up their volume of loans being secured as a result of the banking crisis, the amount of borrower’s using this loan program has significantly increased within the last 12 to 24 months.  Due this resurgence in their loan program FHA needed to make these changes in order to avoid potential disaster as they are currently experiencing greater default rates than ever before in the history of the program.  Here is a list of the changes FHA will be implementing:

• Increase UMIP (Upfront Mortgage Insurance Premium) from 1.75% to 2.25%.  The UMIP can still be rolled into the loan and does not need to be paid at closing.  FHA felt they needed to increase this premium as their reserves were undercapitalized due to the recent boom in FHA lending.
• Increase Down Payment for Low FICO Score Borrowers.  Currently there is not a minimum required FICO score in order to be approved for an FHA loan, however many Investors/Banks require a minimum FICO of 620 in order to be approved to purchase a home.  Moving forward any borrower with a FICO score below 580 will be required to make a 10% down payment instead of the current down payment requirement of 3.5%.
• Reduce Seller Concessions from 6% to 3%.  That’s right; a little known fact of FHA is they have always allowed the seller to contribute 6% to closing costs for the buyer.  Moving forward the maximum seller contribution to closing costs will be 3%.  This should not have a significant impact as 3% seller concessions seem to be the norm in today’s market.
• Heavily Enforce Tougher Guidelines on Individual Lenders & Banks.  Moving forward FHA will audit individual banks on a quarterly basis and will enforce suspensions or penalties if their default rate on FHA loans is three times higher than any other lender within their specific region.  As of today 67 banks have lost their FHA lending privileges due to these new tougher lender requirements.

FHA has been warning of these changes for quite some time now.  Based on the rumors of what FHA was planning to change this seems pretty fair when stepping back and looking at the big picture.  Rumors of the down payment increasing to 5% across the board, UMIP increasing to 3%, and risk based pricing due to FICO scores were all avoided.

With this in mind, here is what FHA still does!

• Minimum 3.5% down payment for borrowers with a FICO score greater than 580
• Extremely competitive interest rates (5.125% at time of this posting) for any borrower who qualifies for an FHA loan, regardless of their FICO score.
• Commons Sense underwriting guidelines that allow flexibility for borrowers who have extenuating circumstances within the last few years.
• Loans guaranteed by the U.S. Government in order to help aid the financial system as the economy and the housing market are still recovering from the recent crisis.

2009 was a year where the mortgage industry was challenged with many changes.  2010 will be no different; we will continue to see Investors/Banks follow the governments lead through tougher lending guidelines and increased regulation on the financial system.  Stay tuned for updates regarding these changes as staying educated and aware of the changes in our industry will be at the forefront of success this year.  If you have any questions regarding FHA lending or mortgage lending in general please contact me directly.

Using the 8k Tax Credit as a Down Payment – There is a Catch!

FHA announced they will allow first time home buyers to use the $8,000 tax credit as a down payment a couple of weeks ago, we all get our hopes up only to find there is a significant catch!  Last week HUD released their guidelines on how they will allow buyers to apply the tax credit.  First time buyers will still be responsible for the 3.5% minimum down payment, however the tax credit can be applied for closing costs, paying down the interest rate, or making a greater down payment.  The real estate industry collectively desired the tax credit would be eligible for the minimum down payment, however with an increasing amount of defaulting FHA loans this scenario presented too much risk.

Click here to play a video of how the tax credit can be applied

There are some other pressures we need to be aware of moving forward with FHA in this volatile housing market.  Due to the increase in defaulting FHA loans, Moody’s has reported they are analyzing the credit rating for FHA and there is a possibility there will be a downgrade based on their recent performance.  If we see a downgrade in their credit rating we can expect to see interest rates rise in a very short period of time.  We are also seeing FHA lending guidelines tightening where most Investors/Banks are now requiring a minimum credit score of 620 and a debt to income ratio of 41%.  These lending guidelines are very specific to each individuals personal scenario, please do not make any assumptions prior to completing a mortgage consultation.  This is something to be aware of if you are looking to purchase a home in next few months.  It is important to be on top of these possible changes in order to be proactive in your decision making so there are no surprises at the time you find the home of your choice.

On a positive note, Waterstone Mortgage recently received our “full eagle” which is a term in the mortgage industry meaning we can now underwrite all of your loans in house.  This means our turn times for underwriting will be 3 to 5 days, a great advantage in comparison to our competitors.  This will additionally help us offer the most competitive interest rates in the market as well as have the ability to control the entire transaction from start to finish.  We will approve, process, underwrite, close, and fund all of our loans within the same location!  Just another way Waterstone Mortgage is doing our part to make the home buying/refinancing process as smooth as possible in this dynamic market.

If you have any questions about the application of the tax credit or the home buying process, please contact me so we can evaluate your independent situation and put together a plan for you to reach your goals!

First Time Buyers Can Use the $8,000 Tax Credit to Purchase a New Home

Yesterday was a great day!  Shaun Donovan, Secretary of Housing and Urban Development, released a statement detailing that FHA will allow first time home buyers to monetize the tax credit and be able to use these funds as a down payment for a new home.  This is unbelievable news and a great cause for excitement.  Now, first time home buyers will not need to wait until the following year in order to receive the $8,000 tax credit.  Instead, these funds can be used at the time of closing in order to cover the FHA 3.5% minimum down payment.  Since this news was just announced yesterday, I am sure it will take a few weeks to a month for the specific guidelines of this new rule to fall in place.  In the meantime I will continue to update this Blog with any future details as they are released.

If you would like a brief overview of the how FHA will allow buyers to monetize the tax credit, please visit the link below to watch a short video.  We have not received any specifics on how the funds will be monetized, but it is my feeling the government will offer short term tax free bonds on the private market to fund these short term bridge loans.  This way the government can generate investment from private capital and help boost the housing market at the same time, two birds with one stone!

Buyers Can Use the Tax Credit as Down Payment Video

Be patient with this process!  We have come a long way with lending regulations and the development of lending programs to help the nation through this financial crisis, but it will take a little time for all the banks and Investors who fund FHA loans to determine exactly what information they will need to review throughout the underwriting process.  Remember, FHA does not buy, service, or originate mortgage loans.  They simply present the outline of acceptable lending guidelines banks and Investors can use when approving and funding an FHA mortgage.

A quick comment on the 2^nd part of the video linked  to this message; I feel for the broker community, I used to own my own brokerage no more than 2 years ago.  Mortgage brokers are being squeezed right now and there are numerous causes for why this is happening.  I chose to rejoin the banking platform as I saw many of these problems coming well before the storm hit.  Waterstone Mortgage (WSBF) is on the cutting edge of how mortgages will be underwritten, approved, funded and sold in today’s volatile industry.  We truly do have all the benefits of a bank and a brokerage due to our stellar reputation within the financial community.  If you would like to learn more about the banker vs. broker relationship please let me know…

Stay tuned, more information is to follow and this new reform in FHA guidelines will be a great way to make the rest of the year an extreme success!

Is 100% Financing Still Available?

Many prospective homeowners are currently looking to take advantage of the three “I’s” in our real estate market.  There is a great deal of Inventory on the market right now, including homes with greatly reduced prices.  We are experiencing historically low Interest Rates where buyers can lock in a 30 Year Fixed mortgage between 4.875% and 5.125%.  Finally, there is a great Incentive for first time buyers with the government $8,000 first time homeowner tax credit.  What is a future homeowner to do if they want to buy right now, but unfortunately do not have the necessary down payment saved up to qualify for a conventional or FHA mortgage?  Are there any 100% financing options available in today’s market?

Yes, 100% financing options do still exist!  I will propose three options for any potential buyer to research in order to see if these loan programs fit the needs currently being desired!

VA Loans (Veteran Affairs) – VA will allow 100% financing for any buyer who is eligible to use their VA benefits.  Another great advantage of a VA loan is they do not require mortgage insurance.  This can help a buyer qualify for a lower monthly payment and still take full advantage of this government program sponsored by FHA.  VA loan scenarios are very buyer specific, so if you would like to discuss these options please contact me so we can design the best loan structure that will work for you.

USDA Loans (United States Department of Agriculture) – USDA offers 100% financing options for homes located within USDA lending boundaries.  This loan program is designed for homes located within agricultural or rural areas.  You would be surprised how many homes are eligible for this loan program.  If you are interested in purchasing around the outskirts of the Denver Metro Area this might be the loan program for you!  USDA does have income restrictions; however they are quite reasonable when compared to other similar federal or state financing programs.  Through the USDA website you can learn more about the specifics of this program and there is even a page where you can input the address of the home you are interested in purchasing to immediately find out if it is USDA eligible.

USDA Loan Program Overview
USDA Property Eligibility Search

$100 Down Payment Program (HUD Sponsored Program) – All right, it’s not quite 100% financing but a $100 down payment is tough to beat.  HUD sponsors a loan program where qualified buyers can purchase a home with as little as one hundred dollars down!  This program is for HUD homes only, and you can even finance some minor fix up or repair costs into the loan if approved through HUD.

Waterstone Mortgage is approved to offer all three of these options to our clients.  We have experienced great success with each of these programs as it is just another avenue we use to help all of our clients obtain their dream of being homeowners.  If you have any questions or want to see if you qualify for these loan programs please feel free to contact me for a free mortgage consultation.

Don’t miss out on today’s extraordinary buyer friendly housing market, take advantage of the three “I’s” and put yourself in a position to purchase a home while these unbelievable opportunities still exist!

The Future of Appraisals

As of May 1, 2009 Fannie Mae and Freddie Mac are enforcing a new code on how appraisals must be ordered.  The code is known as HVCC, or the Home Valuation Code of Conduct.  The goal of this new code is to limit the communication between the banker/broker and the appraiser during the home appraisal process.  Moving forward as a banker, I am required to use a centralized appraisal management system when I order an appraisal.  In the past, I was able to pick up the phone and call my trusted appraiser in order to make sure I would be ordering a quality appraisal from a trusted source.  Now, we are required to use a management system that will control which appraisers are chosen based off a list of approved appraisers.  I have posted a link to a short video for you to view that gives a detailed explanation of how this new code works and will be enforced.

Click here to play video

What is Waterstone Mortgage Doing to Help Our Clients with this New Code?

At Waterstone we have been using this new system since the beginning of April in order to have a good idea of what to expect from this new process.  Needless to say, the results we have experienced as a company have fallen short of our expectations.  As the video details, the management system is taking much of the profit from the appraiser community.  This is going to be an issue since our appraisers will now have to complete twice as many appraisals in order to generate the same amount of income.  This is important because twice the workload can mean less time spent on an appraisal which can take away from the overall quality.  Additionally, experienced appraisers are being forced out of the business as less experienced appraisers are willing to work for less money.  In an effort to control the appraisal process as much as we can, Waterstone is creating our very own centralized appraisal management system!  What does this mean?  By having our own appraisal management company I can submit a list of trusted appraisers I want to continue to work with.  This way I can still be confident a quality appraiser will have the opportunity to receive my appraisal orders out of the group of appraisers I have chosen.  This is just another benefit of working with a bank that is committed to getting the job done right. 

We all know the appraisal is an extremely vital part of the home purchasing or refinancing process.  If you work with trusted appraisers you would like to recommend for my list of appraisers, please E-mail me (mkazell@waterstonemortgage.com) their contact information so I have an opportunity to introduce myself.  This is just another change in our constantly changing industry.  By working together we can ensure our clients will continue to receive the best service from our most professional appraisers in the industry!

Refinance Eligibility Under the Obama Affordability Plan

Today is the first business day where lenders are accepting applications from homeowners looking to refinance under the Homeowner Affordability and Stability Plan that was recently passed into law through the Obama Administration.  The goal of this plan is to help numerous homeowners refinance their mortgage and take advantage of great low interest rates, especially where their loan to value would not let them refinance under normal circumstances.

First, in order to determine if you are eligible for this loan program your mortgage must be owned by Fannie Mae or Freddie Mac.  Please visit the links below to see if your loan is currently being serviced by either of these providers:

Fannie Mae
Freddie Mac

If your loan to value is between 80% and 105% this program is specifically designed to help you refinance where conventional lending might now allow you to do so.  Keep in mind, if you currently have a 1^st and a 2^nd mortgage this program is designed to only refinance your 1^st mortgage, even if they were taken out simultaneously.  We can still refinance your 1^st mortgage at a great savings, as long as the 2^nd mortgage holder agrees to subordinate their loan.

If you have any questions about how this loan program affects you, please give me a call or contact me at mkazell@waterstonemortgage.com so we can discuss your specific scenario.  Take action and make sure you take advantage of interest rates while they remain low!

FHA Max Loan Limits Increase

Recently FHA decided to increase their maximum loan limits throughout the country in an effort to allow homeowners with high loan balances additional opportunities to refinance their mortgage.  Before this latest increase the max FHA loan limit in the Denver Metro area was $368,000.

The new FHA loan limit throughout the Front Range is now $406,250.  The one exception to this amount is an additional increase in the loan limit in Boulder County, which is now $460,000.  Remember, FHA loan limits are county specific and vary throughout the state.  Below is a link where you can look up specific county loan limits through FHA:

FHA Colorado County Loan Limits

This is another example of how FHA is continuously adapting to the challenges of our market.  Below are a few additional details regarding the new loan limit increase:

·         New loan limits are for FHA loans that receive approval in calendar year 2009

·         Changes apply to the 203b (basic loan), 203h (disaster victims), and 203k (rehab loan)

·         FHA ceiling for high value areas is $729,750

·         National reverse mortgage limit increases from $417,000 to $625,500

Please keep in mind the following distinct advantages of the FHA loan program when evaluating your lending options:

·         Non-traditional credit is acceptable

·         No minimum credit score

·         Low 3.5% minimum down payment

·         Non-occupant, co-borrower is permitted

·         Expanded qualifying rations

·         No pre-payment penalty

·         Loans are fully assumable

These are just a few benefits of an FHA mortgage.  If you would like a complete overview of FHA lending I am teaching a 2 hour C.E. credited course that reviews FHA lending, the state of our current economy, and how all the recent government action will affect the real estate industry.  For information on when and where the class will be held please visit the “classes/webinars” link at the top of the page.

As always, questions and comments are welcome!

Homeowner Affordability and Stability Plan

Throughout the country we all know someone within our own circle of friends or family who is being directly affected by the economic crisis.  Every day it unfolds a little more and reveals just how fragile the financial markets have become.  We are going through the great deleveraging of the economic markets and it can be seen in every headline you read where there is a new bailout being presented.  Simply put, the market has no confidence in the economic regulatory system and there is no barometer to determine the actual value of an asset of any kind.  President Obama recently passed into law the American Recovery and Reinvestment Act of 2009 which includes the Homeowner Affordability and Stability Plan.  Here are the major details of this three part plan to help the housing market, the root of our current problem, stabilize and begin to maintain asset values.

$75 Billion Homeowner Stability Initiative Geared to Help up to 4 Million At-Risk Homeowners

 

·         This part of the plan is designed to help modify mortgages for homeowners who are struggling to make their mortgage payments due to increased interest rates, loss of a job, and other extenuating circumstances.  There are incentives for lenders/banks to modify these loans in an effort to put an end to a windfall of foreclosures.  Additionally, there is an incentive for homeowners to modify their loans if they are in trouble which includes a principal reduction feature that allows a borrower to save up to $1,000 a year for the first five years.  This is not intended for speculators or “flippers”; only for the homeowner looking to maintain their property as a primary residence.  The loan modification guidelines are still being created and the goal of the program is to have a universal policy that all lenders/banks can follow.

Supporting Low Mortgage Rates by Strengthening Confidence in Fannie Mae and Freddie Mac

 

·         This part of the plan is critical to any homeowner looking to refinance and take advantage of low interest rates during this unprecedented period of minimal mortgage rates.  The Treasury Department is allocating $200 billion dollars for both Fannie Mae and Freddie Mac to purchase preferred stock in these institutions.  Why is this important?  This commitment, along with the previous $600 billion dollar commitment to purchase MBS (mortgage backed securities), shows an increased effort by the government to keep interest rates low in order to help homeowners refinance and take advantage in these difficult times.  If you are thinking of refinancing your mortgage you need to be involved in a high level of communication with your mortgage banker.  Reason being, when the FED makes a move we will see a shift in rates and if you are not ready to pull the trigger and lock a rate you could lose out due to the constant volatility in the market.  Get your application and documents into your banker so when the market meets the rate you are looking for you won’t lose out on this opportunity!

We are still waiting to hear more information about how lending guidelines will be modified to help borrower’s whose LTV is between 80% and 105%.  Typically this homeowner will have a difficult time refinancing their mortgage at premium interest rates and would be required to have PMI (private mortgage insurance).  I will keep you posted about as soon as these restructured guidelines are released!

 

Allowing Judicial Modifications of Mortgages during Bankruptcy

 

·         This is the part of the plan that is carrying the most controversy.  If Congress allows Judges to modify the principal balance of mortgage loans in an effort to avoid bankruptcy we will see an adverse reaction from lenders/banks.  Reason being; if Judges are allowed to modify mortgages without the cooperation of lenders/banks, these institutions will protect themselves by raising interest rates through risk based premiums and  increasing fees associated with qualifying for a loan throughout the near future.  Hopefully this provision will not be approved and the first two steps in this plan will be sufficient enough to help prevent further deterioration in the housing market.

If you would like to review further and more detailed information of this plan please visit the following links; executive summary, program description, and frequently asked questions.

 

If you would like to discuss how this plan can directly impact you as a homeowner please contact me at mkazell@waterstonmortgage.com for a free mortgage consultation.  Take advantage of the benefits being offered at this time and save yourself some money in this challenging market!

 

 

Seller Credited Down Payment Assistance Making a Comeback?

Last week Representative Al Green of Texas introduced H.R. 600 to the House Committee on Financial Services. H.R. 600 was introduced to revise the requirements for seller-financed down payments on single family homes using an FHA mortgage.

From reading H.R. 600 it appears the revised requirements will impact down payment assistance programs based on the FICO score of the qualifying borrower as well as the initial mortgage insurance premium charged at the time of purchase. If a borrower has a FICO score greater than 680 it appears there will be no changes to the initial mortgage insurance premium. However, any borrower with a FICO score between 620 and 679 could be affected by an increased mortgage insurance premium of up to 3% of the loan amount. Currently, any borrower acquiring FHA financing is subject to a mortgage insurance premium of 1.75%.

It is widely perceived that reinstating down payment assistance will be a significant step forward in helping prospective homeowners who currently are in need of help with a down payment. I will continue to monitor the development of this legislation and keep you posted with any further information as it is released.

As always, your comments and questions are welcomed!

FHA Cash Out Refinance LTV Limits Will Be Reduced

Waterstone Mortgage has recently learned that HUD will be reducing the loan to value limits on an FHA Cash Out Refinance from 95% to 85%. The decision has not been finalized, but due to their recent pattern of decision making I am confident this guideline will be enforced by the end of the first quarter of 2009 if not by the end of this year! Why is this important? Most people looking to refinance their homes are just looking to get a better interest rate or extend and renew the terms of the loan. However, with an FHA refinance a “cash out” refinance is treated a little differently. If you have multiple mortgages on your home, meaning you have a 1st mortgage and a 2nd mortgage or home equity loan/line of credit, and you want to consolidate them into one mortgage this must be treated as a “cash out” refinance through FHA guidelines.

HUD claims with the current state of the housing market the 95% cash out threshold is not sustainable. Typically when HUD makes a new rule it is enforced immediately without much notice in advance. Please consider this your notice and a call to attention for any people you know who need to refinance their homes. If you know of someone with an adjustable rate mortgage or a high interest rate on their mortgage, please have them give me a call so we can discuss their refinance options. Especially if you know of anyone with multiple mortgages on their property where one mortgage might have a high interest rate or is set to adjust in the near future. There is still time to act and complete a refinance in order to help everyone stay in their homes with a comfortable monthly payment.

If you have any questions or would like to discuss available loan programs please do not hesitate to give me a call. Realtors, if you have any clients or listings who find themselves in this position where consolidating multiple mortgages is in their best interest please give them my name and contact information. As always, I guarantee to provide excellent service as well as detailed and accurate information. There is still time to take advantage of great interest rates and loan programs through an FHA refinance, but you must act quickly!