In the midst of rising costs for FHA and Conventional loans, we are finally seeing some relief with the FHA Streamline Refinance program.  This does not go in effect until June 11, 2012, but that’s right around the corner! To qualify for the savings:

• You must be current on your existing FHA-insured loan (no late payments)
• Your current loan must have been endorsed by FHA on or before May 31, 2009 (so if you purchased or refinanced after this date, you do not qualify)

What the savings are:

1. Instead of being charged the 1.75% Upfront Mortgage Insurance Premium (currently 1.0%, but it will be 1.75% on 4/1/12), your UFMIP will only be .01%.
2. Your Annual Mortgage Insurance amount (paid monthly) will be .55% (not the 1.25% that will be charged beginning 4/1/12).

These changes to the FHA Streamline program will be of significant help.  Since FHA costs have risen the past couple of years, it has really limited a lot of homeowners currently insured by FHA to refinance.

(Blog post has been updated to reflect the new change date of 4/9/12, per FHA Mortgage Letter 12-4)

It’s happening again… FHA Upfront Mortgage Insurance Premiums, as well as the monthly Mortgage Insurance charges, are set to increase on April 9, 2012.  If you need an FHA loan, get in now before the changes are in effect!

What exactly is increasing?

Firstly, the Upfront Mortgage Insurance Premium (UFMIP): It is currently 1.0% of the loan amount, but will go up to 1.75% on April 9th.  The UFMIP can be financed into the loan amount, which usually makes sense from a numbers-perspective.

Secondly, the Annual Mortgage Insurance (which is paid monthly) is also increasing.  It is currently 1.15% for Loan-to-Value (LTV) ratios above 95.0% and 1.10% for LTVs 95.0% and below.  On April 9th, it will increase by .10% for loans under $625,500, and will increase by .35% for loans above $625,500.

Why is it increasing?

“After careful analysis of the market and the health of the MMI fund, we have determined that it is appropriate to increase mortgage insurance premiums in order to help protect our capital reserves and to continue encouraging the return of private capital to the housing market,” said Carol Galante, Acting FHA Commissioner.  In addition, the “Temporary Payroll Tax Cut Continuation Act of 2011” has mandated the increase.  This is the same Act that brought us increased Guarantee Fees.

What does this mean to you, if you are an FHA borrower?

Let’s take a look at how it will change, assuming a purchase price of $500k with the minimum required down payment of 3.5%.  Numbers take into account just the mortgage payment (Principal & Interest) and Mortgage Insurance, as these are the items that are affected by the change.

Payment based on current charges

$482,500 base loan amount + financing FHA’s 1.0% UFMIP ($4,825) = Total loan amount of $487,325.

Current 30 Year Fixed FHA interest rate is 3.75% (APR 3.817%).

• Mortgage Payment: $2256.88
• Mortgage Insurance (1.15%): $462.40

TOTAL: $2719.28

Payment based on charges as of 4/9/12, assuming interest rate remains the same

$482,500 base loan amount + financing FHA’s 1.75% UFMIP ($8,443.75) = Total loan amount of $490,943.75.

• Mortgage Payment: $2273.64
• Mortgage Insurance (1.25%): $502.60

TOTAL: $2776.24

So purchasing (or refinancing) the same home after April 9th will result in an increase of $56.96/month.

If you need help or are seeking advice on an FHA loan, please let me know.

If you are purchasing a home and the appraised value comes in lower than the sales price, this can be a deal-killer for many buyers.  Lenders calculate the loan amount based on the lesser of the purchase price or the appraised value.  If you’re at the Loan-to-Value ratio limit; for instance, you’re just putting 20% down, then this will affect you more greatly than if you’re putting down a flat amount that has no affect on the LTV ratio and the type of loan or interest rate you qualify for.  Assuming it does make a difference, as it does for most buyers, then you will have a few choices on how to proceed:

1. Attempt to appeal the appraiser’s valuation.  Be prepared with at least 2 strong comps that are arguably “better” than the comps the appraiser selected.  “Better” means more similar to the home you are buying (in square footage, bed/bath count, lot size…) as well as closer to the home you are buying (more indicative of the neighborhood prices).
2. Negotiate the sales price down.
3. Pay the additional difference in the sales price and appraised value.
4. Back out of the contract.  If you have an appraisal report contingency and you did not remove it, then you do not have to forfeit your earnest money deposit.

This is actually the usual order of the process as well.  Appealing value takes a few days, but sellers have an interest and a hand in this as well; they usually will not want to negotiate the sales price down, but it has happened in the past.  If they refuse to reduce the purchase price, then the option goes back to you, to either pay the difference or walk out and find a new home.

A new law has passed that will directly affect every person seeking a mortgage securitized by Fannie Mae or Freddie Mac, or insured by FHA, effective tomorrow, 1/11/12.  Nearly every loan right now is held by one of these Government-Sponsored Entities (GSEs), so this will affect almost everyone.

The Temporary Payroll Tax Cut Continuation Act of 2011, signed into law by President Obama on December 23, requires the Guarantee Fees charged by Fannie and Freddie to increase from what is currently being charged.  What this means is that the charge will be passed directly on to you, as a consumer, which means that getting a loan will cost you more.  Some of these charges will result directly in interest rate increases, so you will essentially be paying this fee over the life of the loan.

If you are currently locked in on a loan and need to extend your lock, this will affect you as well due to increased extension costs.  What I find interesting is that this tax law has nothing to do with mortgages or the GSEs’ risk loss; it’s simply a way for the government to tax homeowners.

The Guarantee Fees will start increasing the closer we get to a certain date, which I believe is March 1, 2012, but some lenders are implementing the increases beginning tomorrow, depending on how long you need for your lock.

We’ll know more as lenders start implementing the increases. Some will try to soften the blow by taking on part of the increase fee; others will pass it on in full to you.  So despite any market changes or improvements, this law will only aid in increasing overall fees and/or interest rates.

You can read the statement made directly by the Federal Housing Finance Agency here.

I am a member of the National Association of Mortgage Professionals, and received this email in my inbox this morning.  The NAMB President wrote a letter to President Obama regarding Obama’s use of singling out mortgage brokers when discussing financial reform laws.  It’s a good letter that points out some of the differences between mortgage brokers/bankers and retail lenders (i.e., the person that works for a large bank, such as Wells Fargo or BofA).  I have always strongly believed that any person working with you on your mortgage loan should be licensed and should have to meet educational requirements. The NAMB President points out some other items as well, so I would like to share this letter with you for your knowledge.

December 12, 2011

Mr. Barack Obama

President of the United States

1600 Pennsylvania Avenue

Washington, DC  10024

 

Dear Mr. President,

In your statement last week concerning financial reform, you stated “And a key component of that was making sure that we have a watchdog in place who can police what mortgage brokers and payday lenders and other non-bank financial entities are able to do when it comes to consumers.” I am a little confused.  You have singled out Mortgage Brokers twice now in your comments.

NAMB-The Association of Mortgage Professionals has been around since 1973 which includes over 100,000 LICENSED mortgage brokers/originators in America.  Some basic facts for you to consider in making your statements are: NAMB supported the SAFE Act and even helped craft the bill.  We serve the urban and rural areas of America and make it possible for these people to have the same advantage of mortgages as those living in the city sectors.  We have never created, approved, or closed a loan.  The Georgetown University study stated that Mortgage Brokers saved borrowers thousands of dollars when it came to their mortgage needs.  And the obvious differences on using a broker for your mortgage is that Mortgage Brokers are licensed by their state through the NMLS system, take continuing education, take a national and state test to be able to be licensed, have a criminal background check with fingerprints, and have their credit checked.  Mortgage Originators that work for a depository bank are only registered with the NMLS.  And a lot of those that work for these banks failed to pass some of these items, tests, background checks, etc., and that really sets Mortgage Brokers apart from those depository institutions.

There are thousands of mortgage brokers in America that have never participated in sub-prime loans or have used any of the exotic products that Wall Street or the Mega Banks created.  And most of the companies that did these loans were not mortgage brokers.  You consistently use the term Mortgage Broker to relay information having to do with the Housing industry and that is not fair.  Let me give you an example.  When a drug creates a problem in the medical industry, the FDA goes and contacts the maker of the drug and deals with the company.  They don’t go to Walgreens or CVS and shut them down and make them the scapegoat for selling the drug.  The same is true with the Mortgage business.  We only sell what is available from the banks and wholesale lenders.  We have never developed or created any of these products.  We do not underwrite them or approve them.  Yet it seems that every time something negative comes out about the mortgage industry, it is a Mortgage Broker that is the scapegoat.

Members of the NAMB are small businesses employing on the average of 3-6 employees.  These employees make on the average $22,000 – $35,000 per year, some smaller.  You need to understand that each mortgage loan originator is in effect an entrepreneur. We work very hard to help our customers to fulfill their dreams of home ownership.  Each member of NAMB agrees to abide by a Code of Ethics and to adhere to the Professional Standards and Best Lending Practices.  This adherence to these standards assures consumers that the member is acting professionally in the performance of their duties.  These guidelines go beyond legal requirements and are designed to emphasize the adherence to principles that consumers should expect when choosing a mortgage broker.

In conclusion, I am not stating that there should not be someone that oversees the entire mortgage origination channel, but maybe it should be more of a level playing field.  It would be easier for all of America to be able to deal with apples versus apples and compare the same things when going to any mortgage operation, be it a Broker Originator, Banker Originator, or Depository Originator.  Our Association would be pleased to sit with staff to educate them in the differences in the mortgage origination business, be it the what, who, where and how a mortgage broker operates and who they serve.

I look forward to your response.

 

Sincerely,

Donald J. Frommeyer, CRMS

NAMB President

There is a special program currently available to police, firefighters, teachers and emergency medical technicians.  The program, called Good Neighbor Next Door (GNND), offers a 50% discount on the list price of a home for HUD-owned properties.  In return, the borrower must commit to live in the property for a minimum of 3 years as their sole residence.

Program Details

• 30 year fixed and 15 year fixed loan terms
• Minimum $100 down
• Closing costs may be financed

How you can participate in the Good Neighbor Next Door Program:

• Check the listings for your particular area:
• http://hudhomestore.com/HUDHome/GNND.aspx
• Follow HUD’s instructions to submit an offer
• You must offer the exact HUD list price when bidding on any GNND property.  You will then receive a 50 percent discount off of that list price
• If more than one person submits on a single home, a selection will be made by random lottery
• A sales contract is accepted by HUD
• The sales contract must indicate “Good Neighbor Next Door” to obtain the $100 down payment feature
• You will be required to sign a second mortgage note for the property discount amount.  No interest payments are required on this “silent second” provided that they fulfill the three-year occupancy agreement.

There are many other details to this loan program, such as requirements to be completed during the three-year silent second period, and property location in relation to your employer, but it may be a great opportunity for the right person. Contact me with follow up questions.

Some good news that may open up refinancing opportunities for homeowners with little equity or whom are underwater: the Federal Housing Finance Agency, Fannie Mae and Freddie Mac are enhancing the Home Affordable Refinance Program (HARP).  We’re calling it HARP 2.0.

HARP (and HARP 2.0) is specific to homeowners whose loans are currently owned by Fannie Mae or Freddie Mac.  Here are the program’s details and how to find out if you qualify:

• Firstly, access the Fannie Mae or Freddie Mac sites to determine if your loan is owned by one of the enterprises:
  • http://www.fanniemae.com/loanlookup/
  • https://ww3.freddiemac.com/corporate/
  • Your current mortgage must have been delivered to Fannie Mae or Freddie Mac on or by June 1, 2009
  • If you do not have Mortgage Insurance on your existing loan, it will not be charged on the new refinance, even with a Loan-to-Value ratio above 80.0%

What has been expanded:

• Unlimited Loan-to-Value ratios (currently, there is a ceiling up to 125% of your home’s value)
• Waiving the fees for borrowers that choose to take on shorter term mortgages during the refinance (some people do wish to go from a 30 Year Fixed to a 20 Year Fixed, for instance)
• If there is a reliable Automated Valuation Model, a new appraisal report may be waived
• Program extended through the end of 2013

The greatest benefit of the new expanded program is that there is to be no limit in the Loan-to-Value ratio. HARP 2.0 is not yet available, but lenders should start releasing operational details beginning in December, and the new expanded program should be in full effect near the beginning of 2012.

Bloomberg Businessweek issued an article stating that the Senate has approved a measure to increase our high balance loan limits.  The measure now has to be passed by the House to become law. My fingers are crossed! Since reverting back to the “permanent” limit of $625,500 for high-cost counties, there has been a slow down in refinances. Not all of it is due to the decreased limit, but for homeowners and buyers in the loan amount range of $625,500 and $729,750, this decrease has been extremely hurtful.

If passed, it will still only be temporary (until 12/31/13), but at least it would allow some people to take advantage of opportunities.  Read the full Bloomberg article here.

As many of your homeowners know, the 1st installment of property taxes is due to the county on November 1st; considered late after December 10th.  You should all have your property tax bills by now. I will send out another reminder via my blog when they are due, and again, when they will be considered late.

However, if you are in the process of refinancing right now and are scheduled to close any time this month and after, the new lender will want you to pay your taxes. Yes, even if you are closing prior to their actual due date of 11/1/11.  I have warned all of my clients that are in process of a refi right now, so at least they are prepared, but wanted to share this information with you as well.  Many of us wait until the last minute to pay taxes, but if you are refinancing, you will not be given that luxury.

The 3.5% credit towards closing costs (and buying down an interest rate, if applicable) is expiring soon!  For any Homepath real estate purchase, you can still qualify for the 3.5% credit.  So if your purchase price is $400,000, you will receive a credit from Fannie Mae for $14,000. That’s huge!

The details are listed directly on the Homepath website, but to bullet some of the more important aspects to receive this credit:

• The purchase must be for your primary residence (not a vacation home or investment property)
• Purchase must close by 10/31/11 (with how busy lenders are, you need to get into contract ASAP).  You also need to see if the seller is able to close in this time frame as well.
• Your real estate agent must request the incentive with the submission of your initial offer

Even if you cannot take advantage of the incentive, Homepath is an excellent financing tool for a home purchase.   You can search for homes directly on the website: www.homepath.com.  The interest rates are higher with Homepath, but it allows as little as 3.0% down payment with no Mortgage Insurance and no appraisal report requirement.

Happy House Hunting!