Now more than ever it is extremely important for all that apply for a home loan not to apply for additional consumer credit without consulting with you mortgage professional first.

On another completely separate report, and I believe this more speculative but who really knows these day, on a news report from ABC news on Tuesday June 1st , it was reported that now lenders are even researching the character of the applicants on Facebook, the  social media giant, to asses the traits and details of the character of individuals. If you have not seen the Youtube clip “what happens in Las Vegas stays in Facebook” I strongly recommend you follow the link.

One can’t stop to wonder what is next? Perhaps a DNA samples to asses the health and to project the life left of the borrowers…..

via San Diego foreclosures are plummeting, showing a positive sign..

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:

1. Changes are effective for case numbers assigned on or after April 15th, 2010.
2. New upfront mortgage insurance premium (UFMIP) will be 2.25% for all purchase and refinance loans. The premium for H4H and HECM is 2.0%.
3. This change applies to all standard FHA Single Family Programs except the following: Title I, Section 247-Hawaiian Homelands, Section 248-Indian Reservations, Section 223e-Declining Neighborhoods or Section 238c-Military Impact areas in Georgia and New York
4. Annual premiums will not change at this time
5. There will be no discount on the UFMIP for first-time home buyers with pre-purchase counseling.

6. Your email:
   

    

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

• The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.
• If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.
• This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing
• The initial up-front increase is included in a Mortgagee Letter to be released tomorrow, January 21st, and will go into effect in the spring.

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%.

• This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
• This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

3.  Reduce allowable seller concessions from 6% to 3%

• The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
• This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

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.

• This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.

Enhance monitoring of lender performance and compliance with FHA guidelines and standards.

• Implement Credit Watch termination through lender underwriting ID in addition to originating ID.
• This change is included in a Mortgagee Letter to be released tomorrow, January 21st, and is effective immediately.

Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process

• Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.

HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:

• Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders. This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite
• Legislative authority permitting HUD maximum flexibility to establish separate “areas” for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches

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.

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.

1. Jobs. Yes, I do believe that solar energy will be a major catalyst for job creation in Southern California.  2009 was a year in which the prices for gas, and energy in general went up, so if you ask any solar panel installer, they had a pretty busy year. What prevented this industry from exploding and creating thousand of desperately needed jobs?  The lack of connection between someone like me =) who can readily finance these projects, and the solar energy installers.  Bridging this gap will take some time since consumers are not yet educated on how to obtain financing for such a project.   San Diego is a county rich in biotechnology research.  With the reduction of innovative life saving medications from the Pharmaceutical sector, Biotech represents the bulk of hope for the future of healthcare as well as local job creation.  If we widen our scope outside of San Diego, a very different picture materializes, depending on where you look.  Each county in each state represents its own micro-capsule of the job market, and therefore its own unique challenges and opportunities.
2. Home prices.  Unfortunately this is a “hangover” that will take time and a lot of bitter pills to get over.  Wall Street had a TREMENDOUS hunger, and paid originators top dollars for putting borrowers into risky loans.  It was not the Mortgage Broker that created the bubble.  I worked for a direct lender during the 2004-2007 years and the phone rang off the hook asking for the “1% percent payment”.  Lenders compensated handsomely for being top producing branches in closing these adjustable and sub-prime loans.  As a member of the management team I made it my mission to explain every detail of negative amortization consequences.  At that time, the consumer did not care.  The party ended eventually but most of these toxic assets, in my opinion, have been flushed out, and the affordability ratios are starting to make sense again.  Back in 2006 only 11% of the median household in Southern California could afford to make payments on median-priced homes.  Today this percentage has gone above 40%.  Keeping in mind that the national home ownership percentage is about 64%, this represents a significant improvement and the trend will continue through the first half of the year as long as interest rates stay low.  We will see a surge in purchases through June due to the now-expanded tax credit.
3. Interest Rates. One of the minds that I respect tremendously, Barry Habib, claims that this is the easiest prediction:  ”rates will reach at least 6-7% by the end of 2010″.  Barry makes several good points as to why this will happen.  Although the fed had announced that it will stop buying Mortgage-Backed Securities, what many believe is the single biggest factor for keeping rates at bay, in my opinion Bernanke has left the door ajar to the possibility of continuing to purchase these securities.  The amounts of mortgages that have been bought are massive, $1.13 trillion.  This accounts for, depending who you ask, anywhere between 70-90% of all mortgages since the program started in 2009.  But lets face it, these are massively problematic times, and the Fed Chairman and Secretary Geithner have committed to not make the same mistakes made during the Great Depression (acting prematurely in easing their economy-saving strategies).  In my opinion, this is not such an easy one to predict.  If rates go up, the real estate market could come to a halt and we know this is the single worst blow the economy would suffer. I don’t think rates will go higher than 6%.

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.

The most challenging questions that all parties will be the following:

1. Why is my Loan Officer sending me a form asking me to shop for services that I don’t even understand, ie Title Insurance, Escrow, Appraisers etc.?
2. The last page of the Good Faith Estimate gives me a grid to compare the best rate and terms. It appears that when if I go through a Bank I don’t get any credits but when I go to a Mortgage Broker  I get thousands back. Why?
3. My loan officer has explained that this document is just an estimate, and he calculated all the fees on the high side so that he does not have to submit a whole new set of disclosures if there are changes. How can I trust this is true?

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

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.
As the Fed’s program winds down and ends, we’ll likely see two things happen.

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.
What should you do to protect yourself?

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.