FHA Changes – What’s the Big Deal?

Home mortgage professionals, real estate agents, and home buyers…we’ve pretty much seen it all in the past couple of years as far as procedural changes and adjustments we’ve had to make in order to provide mortgage loans. But regardless of the media-inspired drama, what’s with all the hoopla about the latest FHA changes? Was it a slow news day?

Per Mortgage Data Web, FHA made home buying possible for 1.9 million people in 2009. And now they’ve determined that they need to charge an additional .5% toward the upfront mortgage insurance premium in order to help replenish their capital reserves. So for a $100,000 dollar mortgage this translates to $2.68/month over 30 years. Sorry, but that is not worthy of exclamations that the sky is falling.

The other “sweeping FHA change” going into effect on April 1^st is the requirement of a 10% down payment instead of the current 3.5% down if the mortgage borrower’s FICO is under 580.

As I have always been a huge proponent of borrowers needing to have skin in the game, I think this is a completely fair stipulation — again considering the percentage of FHA borrowers that have defaulted on their loans. The bigger issue here is the preponderance of lenders that have minimum credit standards far above 580. This will affect an extreme minority and will not have an effect on mainstream lending.

The one other stipulation that WILL affect many is the probable decrease in the seller-paid contributions from 6% to 3%. We don’t for sure know when this is happening, but there will certainly be an impact on the lower priced homes. OK…that change gets my attention, but the others are simply the cost of doing business and compensating for the actions of bad borrowers.

So is it a big deal that an organization needs to compensate for losses suffered at the hands of those who don’t honor their obligations and demands better assurance that a loan will be repaid? At the end of the day, I don’t think that is a lot to ask.

Mortgage Loans, Good Faith, and Bob Dylan

In the world of mortgage loans, the times they are a-changing. On top of all the other “adjustments” that affected buying real estate in Tampa Bay this year, we’ve got new HUD guidelines to contend with as well.

Part of the impact here is that the official Good Faith Estimate won’t be issued until the home buyer actually has identified a specific property for which they are requesting a loan. Once the mortgage broker is able to provide the GFE associated with that mortgage, he or she MUST provide a list of the providers who gave those costs. If the borrower decides to use anyone from the mortgage broker’s list of providers and the aggregate of the loan costs winds up to be more than 10%, then the lender is on the hook to pay the difference.

This is just the tip of the iceberg and I don’t mean to be whining about how hard my job is. Most every occupation involves mandates whether they’re imposed ethically, governmentally, or legally. From my perspective, the business of doing loans should challenge the lender, and ultimately should serve in the best interests of the client. And I think that we will get there.

At the end of the day, I am just preaching patience here. And that patience needs to come from the real estate agents and the borrowers to understand that ours is an industry that is currently playing catch up to all the “new and improved” process modifications. Bob Dylan understood: “…The slow one now will later be fast, as the present now will later be past…”

The Times They Are a Changing: What’s Ahead for Home Loans in 2010

This year could bring significant changes from 2009 for those seeking home loans. Over the last year, home prices fell to 2003 and earlier levels in many parts of the country. In addition, home loan rates declined to the lowest levels on record and this combination led to the highest home affordability levels ever recorded. Here's a recap of what happened in 2009 and what you need to know for the year ahead.

Would You Like a Sweetener with that Rate? 
Interest rates throughout 2009 were artificially low. That's because in late 2008, the Federal Reserve put into place a program for purchasing Mortgage Backed Securities with the intention of lowering mortgage rates. They were successful with reported rates by Freddie Mac falling below 5.00% several times in 2009.
Without this program mortgage rates would have been at least 1.00% higher, and potentially even higher than that. Did you know that a change of 1% in a home loan rate impacts the amount someone can borrow by roughly 10%? For example, if rates are in the low 5.00% range today and they shoot up to the low 6.00% range, $250,000 home buyers may become $225,000 home buyers. 
Look for rates to return to 2008 and previous levels as the Fed ends the program on March 31, 2010. While rates will not immediately increase to 6.00% or higher, know that without additional intervention, rising rates are inevitable. Expect that under worst case scenarios, rates could dance around the 7.00% range.

Show Me Your Docs
Contrary to what you may see or hear in the media, money is widely available for people who want to finance their homes. There is one caveat, though. People need to be able to demonstrate that they qualify for the loan amount they are pursuing and that they have been willing to repay debt they have accepted in the past.
To obtain financing today, a borrower needs to supply the lender with all documentation pertaining to their income, liquid assets and potentially items related to their credit reporting. The best preparation path to follow is to gather most recent paystubs for 30 days of earnings, two years W-2s with complete tax returns and three months statements, all pages, for any liquid assets used for qualifying.
The free wheeling days of borrowing whatever people thought they could repay are gone. While some exceptions may be granted for strong compensating factors, total debt to income level will be capped at 45%.
If you haven't checked out your credit reports recently, now is a good time to do so if you plan on seeking financing in the next 12 months. You can pull up your reports for free at AnnualCreditReport.com. Examine your reports for any inaccuracies and work to get them corrected prior to seeking financing. You can also seek assistance from your mortgage professional.

Have We Hit a Bottom in Housing?
If you simply look at the data that is reported, one could surmise that the bottom in U.S. home prices was hit in 2009. One nationally respected index for home price reporting, the S&P/Case-Shiller Home Price Indices, indicates that home prices turned for the better around mid-year in 2009.
While all markets are different and some may continue to show signs of weakness, most communities have demonstrated strength and should continue to do so. However, some potential headwinds do exist for the second and third quarter of 2010, following the expressed expiration dates of several stimulus programs: The Mortgage Backed Securities purchase program and home buyer tax credits, both of which are directed at the housing and the mortgage markets.
Foreclosures and short sales will also continue to influence many of the hardest hit markets as unemployment and resetting adjustable rate mortgages weigh on distressed homeowners.

Dates to Remember
Two dates lie on the horizon that will impact interest rates and potentially home prices. The first program scheduled to end is the Federal Reserve's program for purchasing Mortgage Backed Securities. Announced in November of 2008, the Fed began purchasing $1.25 trillion in mortgage bonds in 2009 which will culminate at the end of March. As the intention and result of this program was to lower rates, mortgage rates will likely begin to rise after the program concludes.
In addition, April 30, 2010 is the last day to enter into a home purchase contract and still potentially qualify for a federal income tax credit of up to $8,000 for first-time home buyers and up to $6,500 for repeat home buyers. The credit can be claimed only on contracts that close by June 30, 2010.

Act Now...Not Later
While no one knows for certain what the future holds, one thing does appear clear. Home loan rates and home prices both will be higher in the future. If you or anyone you know is looking to purchase or refinance a home, waiting could be costly!
If you would like additional information on how these events may impact you, contact Thane Covert at TriCounty Mortgage

Tampa Bay Mortgage Loans and How to Avoid Foreclosure

Being accepted for a home mortgage loan can be one of the happiest days of your life. But for some, it can mark the beginning of a bad end. The effects of losing one’s home to foreclosure have long term ramifications, not to mention the long road to credit repair.

The only good thing about the misfortune of others is that it serves as a cautionary tale for buyers seeking home mortgage loans in Tampa Bay. While greed on the part of some lenders was at the foundation of the mortgage meltdown, irresponsible borrowing and living beyond one’s means was also a culprit.

While I may sound like the archetypal mortgage banker or an Ebenezer Scrooge wanna-be, it is imperative that home buyers work with a trusted Realtor and an ethical and responsible mortgage lender to determine how much house is too much and what loan product is the most suitable for present day income levels and projected earnings.

Over the years I’ve had people come to me and tell me that “such and such bank will finance my purchase” — but such and such bank may not be taking into account your entire financial picture and all the variables. Variables can work to your advantage in your home purchase, but certain ones will hurt in the long run.

At the end of the day, you don’t want to become a foreclosure statistic for the wrong reasons.