Green Mortgage Northwest

A recent program endorsed by President Obama created a great FHA streamline program for those with an FHA loan. Anyone with an FHA mortgage that was funded prior to June 1, 2009 can now refinance at MUCH lower mortgage insurance rates.

Compared to current up-front mortgage insurance of 1% (soon to be 1.75% starting April 1, 2012), the number for the new program will drop to 0.1% of the loan amount. For monthly mortgage, that will drop to 0.55% from 1.15% (1.25% on April 1, 2012). Both of those are for 30 year fixed loans.

For a $300,000 loan that is the difference between $5,250 as the up-front funding fee versus $300 and $312.50 versus $137.50 for the new program, or $175 lower for Obama’s new program. That is a huge savings!

If you have an FHA loan from prior to June 1, 2009, this new Obama FHA streamline program will cut your monthly payment dramatically compared to the current rates FHA is charging. Drop me a line to see if it makes sense for you to refinance!

Get ready for higher interest rates. The government just passed the Temporary Payroll Tax Cut Continuation Act of 2011, which throws a guarantee fee (essentially a tax) on the government-sponsored enterprises (GSE’s), Fannie and Freddie for the next 10 years. How does this work?

Effective April 1, the Federal Housing Finance Agency, which oversees Fannie and Freddie, is increasing guarantee fees by 10 basis points on single-family residential mortgages. Instead of this money going to the GSE’s to help cover loan losses, this goes directly to the U.S. Treasury to fund the Payroll Tax Cut of 2% for people receiving W2 income. This means if you make $50,000/year, you are saving about $165…which sounds great for the politicians looking to trumpet lower taxes right before elections.

If you’re a homeowner refinancing or are buying a home soon, this is NOT good. This is translating to an increase of about .125% for mortgage rates, which means you are going to be paying $20-30 more per month for your mortgage. This translates to thousands of dollars extra over the life of the loan. Even worse, the fee increase is good for 10 years (!) to fund the paltry two month payroll tax cut extension.

This goes into effect April 1. However, because loans need to be delivered to Fannie and Freddie by then from the lender originating the loan, it means any loans started in mid-January 2012 are likely going to see the rate increase. If your lender has a sudden spike in their rates versus others that you’re comparing them to, this is the reason! Soon, every bank will pass this through to their consumers and make it a moot point for comparison purposes. Not so much if you’re paying the extra money per month on your mortgage…

USDA loans are being put on hold for awhile. Rural Development, part of the Guaranteed Rural Housing (GRH) program, sent out a letter last week stating that funds will be gone by the end of April 2010.

There isn’t even the possibility of “conditional commitments” because no one is sure when or if there will be more funding available.

For now, an FHA loan is the best option for a low-down payment loan. You can purchase a home with as little as 3.5% down and credit requirements that are more lax than conventional loan requirements.

HomePath loans are great options for those buyers or investors looking to purchase a foreclosed home owned by Fannie Mae. Here’s the rundown:

Eligible Properties:

1. All properties designated by Fannie Mae at www.homepath.com as eligible are good to go
2. Primary residences
3. Second homes
4. Investment properties

*Notice that there are NO condos, cooperatives or manufactured homes allowed by Fannie Mae for a HomePath loan.

Program Details

1. No appraisal required
2. No mortgage insurance required
3. Low down payments (minimum 5%)

This is a GREAT program for anyone looking to aggressively shop foreclosed properties. And not just that, but HomePath and Fannie Mae are offering the following incentives on top of the above:

1. 3.5% incentive for buyers who purchase and close between January 28, 2010 and April 30, 2010. The 3.5% can be used for:
   • Closing costs
   • Purchase of new Whirlpool® appliances
   • A mix of closing costs and appliances, up to a maximum of 3.5%.

*Sorry investors, only owner-occupied primary residences are eligible for the 3.5% closing costs credit.

Say goodbye to FHA anti-flipping requirements for a year. In an effort to expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties, HUD has announced a temporary waiver of the 90-day flipping rule. The waiver takes effect February 1, 2010, and lasts for one year. Unless the powers that be decide to extend it even longer…

The waiver is limited to those sales that meet the following conditions:

1. All transactions must be arms-length, with no identity of interest between the buyer and seller or any other parties participating in the sales transaction, including:

• Seller must hold title
• LLCs, Corporations and trusts must be established in accordance with state and federal law
• No evidence of previous flipping within 12 months
• Evidence that property was marketed openly, such as via MLS, auction or for-sale-by-owner.
• The waiver is limited to forward mortgages and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

2. If the sales price of the property is 20% or more above the seller’s acquisition cost, the waiver will apply only if the lender meets the following conditions:

• Significant work has been done to the home (documented by a second appraisal verifying that legitimate repairs and rehabilitation have been done to substantiate an increase of more than 20%); or,
• In cases where no work has been done, the appraiser must provide explanation to support the increase since the prior transfer; and,
• A property inspection must be provided to the buyer prior to closing. (The lender may charge the borrower for the inspection.) The inspector does not need to be FHA approved, but must have no interest in the property, must not receive compensation other than from the lender and may not be involved with the repairs recommended from inspection.

For complete details, visit the HUD website at http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf

The Federal Housing Administration (FHA) is raising the minimum down payment for borrowers with credit scores below 580. Any borrower with a score lower than 580 will be required to make at least a 10% down payment, compared with the current 3.5% requirement. The intent is to shore up the FHA’s finances.

The FHA will also increase up-front mortgage insurance premium (UFMIP) from 1.75% to 2.25%. Also being discussed is raising the monthly mortgage insurance premium from 0.55% to a higher amount. Pending approval by Congress, get ready for higher private mortgage insurance.

Update: the increased UFMIP is increasing effective April 5, 2010.

Many of you have heard that FHA condo spot approvals are now going away. While this isn’t entirely true, there are some big changes coming and they start February 1st – next Monday!

Here is an attempt to describe the changes and the impact they’re going to have:

Lenders will no longer be doing spot approvals. Instead, there are two options, both based on criteria put forth by the U.S. Department of Housing and Urban Development (HUD):

• DELRAP Approval (Direct Endorsement Lender Review and Approval Process)
• HRAP Approval (HUD Review and Approval Process) and

The big difference is this: for DELRAP, I work with the bank and their builder approval group to get an approval, which takes a couple weeks. For HRAP, it goes to HUD, this can take a month or two…if you’re lucky. And with all the new projects that will now need approval, the HRAP times will most likely increase.

Details:

DELRAP Review Eligibility and Process Requirements Process

• Brokers still have the option of working directly with HUD for an HRAP review for projects requiring a project approval (read: slow approval, harder to get)

OR

• Brokers can work with their bank’s account executive (AE) to get a DELRAP approval through the Builder Project Approval Group (BPAG). Once all required documents are received, BPAG will complete the DELRAP review or, if necessary, forward to HUD for a HRAP review and approval. BPAG will determine DELRAP eligibility based on a few additional bank overlays (underwriting rules) defined below.

Note – If an extension or recertification is requested on a project not originally processed as a DELRAP through BPAG, a full review of the project documents will be required.
BPAG DELRAP project reviews will be completed within about two weeks of a complete submission. Compared to the month-plus timeline for HRAP, which is likely to increase, that is pretty good!

DELRAP Eligibility

The following are ineligible for a DELRAP review and must be sent to HUD for an HRAP review:

1. Anything identified on the builder certification, appraisal, or other documentation obtained pertaining to environmental hazards.
2. Any unobstructed view of an oil refinery, propane distribution center, large gasoline storage tank(s), etc. Note – projects next to a gas station are eligible for DELRAP.
3. Superfunds (dumps or landfills) identified on the EPA Web site that have ongoing maintenance.
4. Project is located on wetland or national wetland and insufficient documentation approving the project’s location.
5. Historic districts and insufficient documentation approving the project’s location.
6. Budget without at least a 10% line item allocation for capital replacement unless a reserve analysis is obtained.
7. Fidelity bond coverage not in the name of the association, i.e. Management Company provided fidelity bond coverage.
8. Manufactured home projects.
9. On a case-by-case basis, any project within a potential noise issue that does not have sufficient mitigating factors.

My take on all of this: FHA condo financing is about to get tougher. If the project is not currently approved by HUD/FHA, it’s going to be difficult to get FHA financing.

Realtors – make sure you know whether a condo is FHA-approved before taking a client using FHA financing out to see it. You don’t want them to form an attachment to a property they can’t buy and set their expectations based on that.

For complete information on this, visit HUD’s press release on the topic.

FHA has a problem. There is a Congressionally mandated reserve amount for covering bad loans that is fast approaching. 17% of FHA loans are in foreclosure, compared with 13% of the entire market. Thus, FHA’s cash reserves as a percentage of their loan portfolios has declined below acceptable levels. As a result, change is coming:

1. FHA will hire first Chief Risk Officer in almost 75 years.
2. FHA will increase audited financial net worth requirement of approved FHA lenders by 4x – from $250,000 up to $1 million.
3. FHA will increase minimum credit score standards.
4. FHA will enact New requirements for ordering appraisals. Not quite HVCC-strict, but closer.
5. FHA will now require income verification on Streamline FHA refinances.

What does this mean? Those buyers on the brink of qualifying might lose their ability to buy a house due to credit restrictions. I would also expect to see tightened loan guidelines beyond just credit – big losses usually points to stricter standards.

The good news: Premier Mortgage isn’t going anywhere and can still do FHA loans. Our FHA appraisals still only take a few days…AND I can still qualify buyers who are close to debt-to-income limits using the PDC’s Mortgage Credit Certificate program. If someone can’t quite afford a home, let me know and I’ll see what we can do.

If you are interested, check out the full HUD press release.

Note: These changes won’t take place until January 1, 2010, so there is some breathing room still. Then again, that’s only 3 short months away.