Originator Digest: January 2012

To much fanfare, FHA announced measures to better protect their insurance fund in a recent Final Ruling published in the Federal Register.  Slipped in as a footnote to this announcement was a declaration that FHA is deaf to the concerns of the real estate industry.  They are taking aim to again attempt to reduce the allowable seller paid closing costs.  Make no mistake; they wouldn’t be doing this twice if they didn’t fully intend to see it through this time (regardless of industry feedback).

First, a little history (with a touch of nerdy stuff).  On July 15^th of 2010, FHA proposed to “cap the seller concessions in FHA-insured single family mortgage transactions at 3 percent of the lesser of the sales price or appraised value” after citing the industry norms of 3 percent for conventional loans and 4 percent for VA loans.  They attempted to justify this by saying that high seller concessions encourages inflated appraisals (translation of what FHA was really saying: “appraisers are crooks that don’t know how to do their job and the lenders that we approve don’t know how to underwrite appraisals”) and then they came up with some stats I could have cooked up in my mom’s basement when I was in 8^th grade and put them in a table (but they called it an actuarial table so that sounded cool and a lot of chumps bought it).  Of course there was no mention that higher seller concessions come on smaller transactions and smaller transactions on the whole are done for those who are more vulnerable to serious economic turmoil (not that we’ve had any of that lately).

Immediately after they announced these changes, the industry pushed back.  And when I say the industry pushed back, I mean everyone from builders to bankers to brokers to the National Association of Realtors®.  HUD backed down and instead kept their focus on continuously raising the annual mortgage insurance premium.  Now, in the face of a nearly imminent FHA bailout, they are acting on this again.  Why?  Will it really do anything to shore up how undercapitalized their insurance fund is?  No.  This is simply HUD and FHA bureaucrats making sure that they can say that they did something to avert the need for a bailout when it eventually comes.  It’s nothing more than political CYA.

With this action, the collective costs of political cowardice will be frightfully transparent.  The average credit score for FHA loans right now is 700.  FHA’s mortgage insurance is currently 35% more expensive than the private market alternative.  This proves that there is no actuarial basis for the current costs of FHA loans but rather, FHA is making their current customers pay for their poor decision making in the past in a desperate attempt to prevent themselves from having to face the political music come “bailout time.”  To make matters worse, and this shouldn’t surprise us from what’s happened with the Social Security “trust fund,” congress is now using FHA as a piggy bank at the same time that is faces having to bail it out.  And now we’ll face reduced seller concessions which with will force FHA purchasers on the more affordable end of the home buying spectrum into higher interest rates and do nothing to help the FHA insurance fund.

So if you end up taking a FHA loan and find yourself paying exorbitant mortgage insurance, a treasury override and not enjoying the historical program privilege of seller paid closing costs in excess of 3 percent, please know this: it has nothing to do with the risk you pose to the lender.  It is only a consequence of actuarial and political failure.

Borrowers are going to pay more for an FHA loan in 2012.  FHA mortgage insurance premiums are going up AGAIN.  This change could possibly take an approved loan file straight to the DENIED bin.

The recent, signed legislation to extend the payroll tax deduction means an increase in FHA’s mortgage insurance premium.  The FHA (Federal Housing Administration) has 2 charges to the borrower:

·        Up Front Mortgage Insurance, which is currently 1% of the loan amount

·         Annual Mortgage Insurance, currently at 1.15% and slated to increase to 1.25%

How could this affect you?

It could end in loan denial.  Namely, if as a borrower, you are near the limits of allowable debt-to-income ratios.  For example, on a $250,000 loan, this increase will add another $26.04 per month in additional mortgage insurance which also gets added into the debt-to-income ratios.  This increase couple topple the peak of allowable ratios and result in a denied status on your loan.

What do you do?

We Are All About Solutions!

Two things:

1. If you are an FHA buyer, get off the fence, find your home and CLOSE on your loan…now rather than later.   Push that spring market today!  Heck, even if you do still qualify after the increase, who wants to pay extra mortgage insurance?  Pew.
2. Convert your financing goals to conventional financing.  With as little as 5% down (good credit needed), you can get a loan with NO monthly MI.  HUGE advantages:

               a.       No monthly MI means your purchase power just increased dramatically (see illustration below).

b.      Sellers and banks LOVE conventional offers!

c.       Many lenders will tell you that there is a rate increase for doing this “flavor” of conventional financing (called single premium financed MI).  DON’T LISTEN.  You can get the SAME rates as those borrowers paying monthly mortgage insurance.  You just need to work with a lender who has that capability.

 

Happy House Hunting!

 

 

Fannie Mae Homepath Mortgage Loans… NO Appraisal, NO MI and NO Condo Certification!

 

Looking for a fix up property… with mortgage financing readily available?

 

You believe you are either a handy person when it comes to home fix up projects or maybe you know someone who is handy.    Shopping for foreclosed homes seems like a great idea for you, as foreclosed properties are the properties most likely to have some fix up projects that need to be completed.   

 

This is a great idea, right up until you are not able to get financing on that foreclosed property.  You may qualify for a mortgage, but the property must also qualify for financing and this is determined by an appraisal inspection. If the appraiser determines there are work orders on the property, the lender may flat out turn down the mortgage or it will be a requirement that the work be completed prior to closing.  And, to make it interesting, generally speaking the seller will not allow you to do the work and many times will not do it themselves either.  Pretty much turns the property into a cash only opportunity.

 

Do not give up… you just need to look in the right place.   Fannie Mae has a number of foreclosed properties on their books, and believe it or not, they are not interested in being in the business of retaining properties, so they came up with special financing, called the Homepath Mortgage.

 

The Homepath Mortgage might be just what you need to meet your home purchase goal of doing some fix up yourself.  Not all the properties are going to have repair needs, but it is one of the best resources for finding those that do!  Depending on the property, there are other special features of the Homepath Mortgage, which make it the right choice for today’s buyer.  

 

No appraisal – so there are not going to be any work orders of items to be repaired prior to closing or any other property issues.

 

No Mortgage Insurance – even though you have less than 20% down payment, it will not be required. 

 

Down payment starts at 3% requirement for owner occupied – lower than FHA requirement of 3.5%

 

Down payment starts at 15% for investment properties – lowest investor down payment requirement available in the market.

 

Seller paid closing costs - up to 6% for owner occupied (please note: often, the banks will only give 3.5%, best to make full price offer if you want the full 6%, just my opinion) and 2% for investment properties.

 

No Condo Certification – no extra cost of paying for a condo review or worries about passing the requirements.

 

First Look Feature – owner occupied buyers have a 15 day advantage to purchase these properties before they are available to investors.

 

To find a property that qualifies for Fannie Mae Homepath Financing, go to www.homepath.com  and you will be able to search all the properties that Fannie Mae has available in your area.

 

Please do not hesitate to contact me if you have any questions or concerns regarding this special financing, I have been writing these mortgages for years, it just might be the perfect mortgage for you!

 

Thanks!  Deb – The Mortgage Lady

 

 

Personal ID NMLS#364933 Company ID NMLS#4474

 

 

Preferred Phone – 651.353.8531

Secure Fax – 1.877.869.7392

Email: deb@iloanhomemortgage.com or deb@debthemortgagelady.com

Website: www.debthemortgagelady.com

 

 

 

 

 

 

 

Understanding the mortgage process is a constant frustration for consumers. One can search the web and find all kinds of long articles breaking the mortgage loan process into anywhere between 6 and 9 individual steps. Upon reading these, a consumer gets even more confused since each individual step is confusing in and of itself. Unfortunately, the wrong question is likely getting answered in these articles. Most mortgage clients don’t want to become experts on the minutia of processing and underwriting, they just want to know where to start and have an accurate context for why everything happens as it does. The answer for each of these questions lies in the same place.

The mortgage process begins and ends in the same place, with the mortgage loan application. It is filled out and signed at the beginning and updated for signature at the closing. But here’s the key point; every step of the mortgage process is dedicated to verifying a fact or validating an assumption on that was disclosed on the initial loan application. The loan application is broken in to 10 straightforward sections:

1) Mortgage type and terms requested

2) Property information and loan purpose

3) Borrower information

4) Employment information

5) Monthly income and housing expenses

6) Assets and liabilities

7) A summary of the credits (i.e. earnest money and the mortgage) and the costs (i.e. purchase price and closing costs) of the transaction

8) Miscellaneous affidavit section (this covers intent to occupy the property, citizenship and other items)

9) The agreement section (this is the fine print legalese and where the loan application is signed)

10) Information for government monitoring (this covers race, ethnicity and gender)

Nearly all documents a borrower is asked for or asked to sign will directly or indirectly relate to this document. Nearly all of the 3^rd party reports and vendor services used in the loan process will directly or indirectly relate to this document. Throughout the process, as new or updated information is obtained by the lender, the application is updated and re-reconciled with underwriting guidelines. In short, almost all of the mortgage loan process is a collection of acts designed around verifying facts or validating assumptions in this document; the loan application.

Knowing this, what should a prospective borrower seek to do?

If asked to fill out an online application, a paper application or do one face to face with a loan officer. . . be thorough when the initial loan application is filled out. For instance, if there is approximately 11 thousand dollars in a savings account, don’t put 11 thousand dollars on the application if the real figure is 10,771.41. Use 10,771.41 as the figure for the application. If the income is approximately 4000 a month but in reality its 4166.67, make sure the figure on the initial application is 4166.67. Also, insist that your loan officer be accurate on the initial loan application. If you see errors, however small, make sure that he or she corrects them immediately. Don’t tolerate sloppiness.

This may seem like a tedious way to start the mortgage loan process but it has down line consequences. Benefits of an accurate initial loan application include better loan recommendations, faster processing, faster underwriting, a more predictable transaction but most of all . . . fewer if any surprises.

Sure the loan process has a lot of confusing moving parts but if you want to keep it simple, just know that it’s almost all about the accuracy of the loan application and you’ll be way ahead of the game!