In the last few months San Diego foreclosures have shown a drop in their numbers. After almost two arduous years of foreclosures, finally there is a sigh of
via San Diego foreclosures are plummeting, showing a positive sign..
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Yesterday, Thursday, January 21st, the much anticipated Mortgagee newsletter about risk-based pricing was released by HUD. This represents the first of two landmark changes in the agency’s guidelines for this year. In December HUD (Housing and Urban Development), the agency that oversees the underwriting of FHA loans, had warned that these changes were on the way for “risk-based pricing”. In other words, the riskier the borrower the more expensive the loan and/or the higher the interest rate. The second announcement was leaked last Friday, January 15th, imposing a one-year moratorium on the FHA guideline that previously had prevented investors from flipping homes to FHA borrowers within the first 90 days of ownership. Prior to this announcement investors were only able to sell these homes via Conventional, VA or private funds (cash). 1) Risk Based Pricing: To sum up the ‘Mortgagee letter 2010-02′ published by HUD, this change represents an increase of 0.5% of the loan amount to the Up Front Private Mortgage Insurance Premiums on all FHA loans. As an example, under the old plan, for a loan amount of $300,000 the consumer had to buy a mortgage insurance policy of $5,250 to insure the loan against default. After April 5th 2010, the same policy will go up to $6,750. That is an increase of about 29%. The explanation is simple. After the demise of the Sub-prime era, FHA became the only lending source for buyers that had less than perfect credit, and also only required a 3.5% down payment. This provides home buyers the option of having very little “skin in the game”. In 2007 FHA loans represented less than 5% of all the loans originated in the US. In 2008 these loans began to gain popularity and in 2009 they represented the majority (80%+) of the loans for first time home buyers. My bet is that even with the increase in the Mortgage Insurance Premium, these loans will not lose ANY of their current popularity. 2) The second change, designed to allow quicker foreclosure resale’s, may have a very significant effect on our overall economy. If you are a first time home buyer, I don’t need to tell you how frustrating and lengthy the process you have to go through in order to get an offer accepted, especially if your financing includes an FHA loan. It feels at times as if the money to purchase the property is not green. By placing a moratorium on the 90 day waiting rule to flip a property, we might be giving the first time home buyer a fair shot to get an offer to buy a home accepted. Investors need to unload these properties as quickly as possible. The rule specifies that as long as the profit from the resale is 20% or less no further action is required. However, if the profit is higher than 20%, the seller must provide proof of the improvements made to the property to substantiate the higher price. In addition, most lenders will require a second appraisal to make sure the buyer is not paying above-market pricing, and the lender is not getting into a negative-equity position. The silver lining of these changes is this: the increase in PMI will offset losses already incurred by HUD, and not decrease the volume of FHA borrowers. The lifting of the 90-day rule gives FHA borrowers a better chance of being able to buy a rehabbed home. Michael Mekler is an active loan officer. Reach Michael via email at mmekler@fhaexpert.net or call toll-free to 1-888-218-0094 Here are the 5 things you need to know about these changes:
This just announced from Washington regarding the tightening of the FHA lending guidelines: New Measures Will Help FHA Better Manage Risk, While Maintaining Support for the Housing Market and Access for Underserved Communities WASHINGTON – Federal Housing Administration (FHA) Commissioner David Stevens today announced a set of policy changes to strengthen the FHA’s capital reserves, while enabling the agency to continue to fulfill its mission to provide access to homeownership for underserved communities. The changes announced today are the latest in a series of changes Stevens has enacted in order to better position the FHA to manage its risk while continuing to support the nation’s housing market recovery. The FHA will propose to take the following steps: increase the mortgage insurance premium (MIP); update the combination of FICO scores and down payments for new borrowers; reduce seller concessions to three percent, from six percent; and implement a series of significant measures aimed at increasing lender enforcement. U.S. Housing and Urban Development Secretary Shaun Donovan previewed the changes in December of last year, noting that the FHA would announce additional details before the end of January. “Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important,” said Commissioner Stevens. “When combined with the risk management measures announced in September of last year, these changes are among the most significant steps to address risk in the agency’s history. Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing market’s recovery. Importantly, FHA will remain the largest source of home purchase financing for underserved communities.” Announced FHA Policy Changes: 1. Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending
2. Update the combination of FICO scores and down payments for new borrowers. New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
3. Reduce allowable seller concessions from 6% to 3%
4. Increase enforcement on FHA lenders Publicly report lender performance rankings to complement currently available Neighborhood Watch data – Will be available on the HUD website on February 1.
Enhance monitoring of lender performance and compliance with FHA guidelines and standards.
Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process
HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:
In addition to the changes proposed today, the FHA is continuing to review its overall response to housing market conditions, and continuing to evaluate its mortgage insurance underwriting standards and its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward. By now we’ve all had a chance to read, listen and watch the economists, gurus, and professors for some of the most prestigious academic institutions in the world analyze the economy. I know I have grown tired of listening to speculative predictions that swing from utopia to apocalypse. In this post, I will do my best to narrow down the items that should interest the masses the most: jobs; home prices; and interest rates. My biggest disclaimer is that although I have read outlooks from people all over the county, I am a firm believer that what happens in your state, county, and community stays there. For example, if solar energy becomes all the rage in San Diego in 2010 through rebates and incentives, we cannot assume that in Seattle, Washington, which only has a fraction of the sunny days that San Diego has, will benefit by a similar job creation in that field.
All in all, we all have important responsibilities. We must embrace our communities as micro-economies that if nurtured and supported, will flourish. As each city, county, state begins to heal economically, then naturally the national economy will heal as a whole. In addition, we can all make a difference in our communities by aggressively networking to support local businesses and entrepreneurs, and enjoying the simpler things in life, especially the ones you love. Michael Mekler is an active loan officer. Reach Michael via email at mmekler@fhaexpert.net or call toll-free to 1-888-218-0094 If solar energy affordability is a goal for you please contact me. There is an excellent chance that you can start saving hundreds of dollars a month almost immediately. For the last 6 weeks I have attended several webinars, live classes and spent countless hours reading the changes coming on 1/1/2010 with regards to the new lending disclosures. I did it because I had to. I know that once my first set of disclosures go out EVERYBODY related to the transaction will get a call from the consumer asking for an explanation of the credits and debits. The most challenging questions that all parties will be the following:
The bottom line is that the creation of new disclosures will create enough confusion to make one heads spin. In a world where the excellent Loan Officers just survives, you need to be extraordinary to do well. This of course means that as you are making your business plans for 2010 you must account for most of your time being in front of the Real Estate agents and consumers with extremely simple and easy to understand language for EVERY line item in the new Good Faith Estimate. At least for the first quarter of 2010 or until the dust settles a bit. Of course by then there will be a whole new set of rules. Over the last 12 months we have heard the saying numerous times “You don’t really know who is swimming naked until the tide goes out”. As a trusted professional in the business my approach has been, and will continue to be, to try to figure out the science behind how the tides work. I would love to share my experience and presentations that have already helped many Realtors and consumers in the last several years to simplify and take the stress away from the home buying transactions. mmekler@fhaexpert.net By Barry Habib and Sue Woodard Updated: Friday, December 18, 2009 False Illusions and What You Need to Know Homebuyer Alert… For prospective homebuyers who are on the fence about making a home purchase, the next few months represent a countdown of sorts for two reasons. The first of these, the coming expiration of huge tax incentives, may be a bit more obvious to most borrowers. 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 homebuyers and up to $6,500 for repeat homebuyers. The credit can be claimed only on contracts that close by June 30, 2010. Secondly, beyond the waning benefit of the Federal income tax incentive, another form of stimulus will soon disappear, as the Federal Reserve winds down a program that has been keeping home loan rates artificially low. Rate Alert… The lowest rates of 2009 were driven down to their attractive levels because of the Fed’s Mortgage Backed Securities (MBS) purchase program. Home loan rates have an inverse relationship with the value of MBS. When these securities trade higher on the market, rates move lower and vice-versa. So when the Fed originally agreed to be a big buyer, it helped provide a market for MBS, which helped keep prices high and, as a result, helped push home loan rates low. And while the Fed continues that program through the end of March 2010, the reality is that the Fed‘s “extension” was really more of a rationing intended to prevent home loan rates from spiking as the program is phased out. It’s sort of like weaning the market off of its life-saving treatment instead of forcing it to go cold turkey. Already, some in the media have mistakenly reported the extension of the program through March as good news, telling consumers that rates will continue to decline, and remain low into the spring. This gives a false sense of security that homebuyers and refinancers simply cannot afford. The problem is… Those reports do not accurately report what’s going on or where rates are really headed. That can have a very costly impact on consumers who may miss out on historically low rates if they listen to these media outlets. Here’s what’s really going on… In May 2009, the Federal Reserve’s purchases of MBS peaked at an average of $25 Billion per week. As of November, the average weekly purchases dropped down to $14 Billion. At the end of November, the Fed had already used over 80% of the allocated funds for MBS, meaning less than 20% remained to be used over four months. Making the problem worse is that the Fed now has less money available to purchase MBS while at the same time, the supply of these securities has increased as a result of refinance and purchase activity that was triggered by lower rates. Why is that important? As the Fed now has fewer funds to last through the remaining months of the program, its ability to keep rates low will wane. First, we will probably see higher levels of volatility—with rates sometimes shifting dramatically in the middle of the day. That means it is more important than ever for buyers to work with a knowledgeable mortgage professional who has a finger on the pulse of the market at all times and can provide trusted, proven advice. Second, since MBS will have less support from the Fed, rates are likely to rise over time. In short, while rates are still very good, they may not be for long. First and foremost, work with a knowledgeable mortgage originator who studies and monitors the market. Second, don’t be fooled by media stories that only report the headlines and don’t understand the underlying implications of the Fed’s actions. If you ever hear something in the news but aren’t sure what it means to your situation, feel free to call or email me for in-depth answers and advice. Finally, if you haven’t yet explored how the current rate environment might benefit you or someone you know, let’s arrange a time to sit down and discuss your unique situation as well as your short- and long-term goals. Remember, rates are still very good, but they may not be for long. I remember it as if it was yesterday, when an account executive for the largest wholesale sub-prime lender in the world walked into my office pushing his sub-prime products. We started a discussion about the current interest rates at the time, 2005, and he attributed the latest surge in interest rates to the prime rate hike announced that day by the Fed Chairman Alan Greenspan. I will never claim to know it all, but as a loan originator I knew so much more than this well dressed and polished 20 year old punk that pulled up in a brand new Porsche. He bragged often about his $400K+ income and his ignorance was astounding. At the time I was jealous. Not because of what he had but because his ignorance did not affect his income. My goal here is to explain the way rates are set so that even an arrogant over-paid punk can understand the concept. In 6 words, rates are set by wall street. To simplify it, let’s just think about the Bulls and the Bears: they trade billions of dollars every day, doing their best to maximize opportunities and minimize risk. A Bull is somebody that is willing to bet the stock market is going to skyrocket (risk-taker). A bear is a more conservative trader that is more concerned with the down side (plays it safe, low-risk). There are 2 major markets; the stock market and the bond market. In a normal environment, when the traders are bullish they take money out of the bond market by selling treasuries and then buy stocks. Since the entire concept is based on supply and demand, the selling of bonds brings their prices down and the massive buying of stocks brings stocks prices up . The higher the demand the more people are willing to pay for it. Let’s put the stocks aside for a while because what truly drives interest rates up or down are the Government Treasuries. A bond, or Treasury, is an instrument that has a price but to complicate matters a bit it also provides a rate of return. So if you were to go to your local bank tomorrow to buy one 3 year treasury contract that gave you a 3% yearly rate of return you may have to invest $100 so at the end of the first year you would be able to cash in $103. Of course the bank and/or financial institution needs to make money so they take your $100 and lend it to somebody buying a house and charge them and interest rate of 6% so the bank can make the “spread” of 3%. If you have followed me so far the rest is a piece of cake. The bottom line is this. Generally, when economic data comes out, or politicians make economic related statements, wall street reacts by buying or selling bonds. When the price of the bonds go up it drives interest rates down. When the opposite happens and traders on wall street fear inflation the price of the bonds go down and it drives rates up. The below charts illustrate the historical correlation between the 30 year bond rates and the 30 year fixed mortgages. As you can see rates are still at historical lows.
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