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.

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.

Portland’s Build It Green home tour is happening next weekend, September 19-20, between 8-5 on Saturday and 11-5 on Sunday. Take a look at some of the finest examples of green building in the Portland area.

Visit the Portland Online website for more information and to see which homes are available for viewing.

I am working with three of the projects on the list as a preferred lender: Eightx17, K4 Condos and Ash Creek Home. All offer a variety of different green features and their own take on green building. Check ‘em out!

The tax credit expires November 30, 2009. Don’t wait until that last day though…and here is why!

1. November 30 is the Monday after Thanksgiving Weekend.
2. November 28-29 is a weekend. No closings on weekends.
3. November 27 is the Friday after Thanksgiving – most people won’t be working
4. November 26 is Thanksgiving – national holiday. No closings.
5. November 25 is the day before Thanksgiving – half-day for many people

So, that backs up the November 30, 2009 first-time home buyer tax credit deadline by 6 days to November 24, a Tuesday.

Don’t close on November 24th! Schedule your closing for the week of November 16 instead. Things go wrong and the last thing you want is a client missing the tax credit deadline.

Get those offers in and accepted by October 16th or there is going to be some seriously sad buyers out there at the end of November.

First Time Home Buyer Calendar

There is plenty of talk about the first time home buyer credit and whether it will be continued, expanded or cut off. One of the options out there is the (creatively named) Home Ownership Moves the Economy(HOME) Act of 2009.  HR 2801 was introduced by Howard Coble (R-NC).

This bill would continue the current tax credit for first time home buyer currently set to expire December 1, 2009. However, there will be a couple changes:

1. No more income restrictions
2. Buyers do not need to be first time buyers

For buyers who couldn’t qualify for the tax credit because of income or having already owned a house, this is a huge difference. Get ready for an even larger chunk of the population to enter the home buying fray if this bill passes.

With more disposable income, home ownership experience and potential equity in their current property, there will be an increase in buyers AND sellers. So if HR 2801 passes, get ready!

The Fed met on Wednesday to discuss the state of the US economy. Results are in: things are looking up! Cautiously, however…

The Fed kept rates the same, in the 0-0.25% range. However, a huge comment made by Chairman Ben Bernanke was that the Fed will slow, and then completely stop by the end of October, its purchases of US Treasuries and Mortgage-Backed Securities.

Big deal? YES. The Fed’s purchases of Treasuries and MBSs has been a huge driver of low interest rates in the past year or so. With this winding down, there is nowhere to go but up in interest rate land.

If you have clients waiting for lower interest rates, it is time to show them the difference a 5.5% and 6.5% interest makes on their monthly payment. For a $300,000 mortgage, this is an increase of $200/month in their payment.

In other words, a jump of 1% translates to about $35,000 in purchasing power lost, as every $10,000 in loan amount is roughly $60/month in payment.

Get those buyers moving. Not only is the tax credit going away for First Time Home Buyers, their interest rates are heading north as well!

For more info, read this article.

Portland First Time Home Buyers, get excited – there is another tax credit available to you called the Mortgage Credit Certificate (MCC). Not many lenders are offering it, so make sure you are working with someone who can help you out with it. I’m happy to explain and get you started on the process if you give me a call.

What Is It?

• Recurring Annual Tax Credit of 20% of Annual Mortgage Interest
• On Top of Federal Tax Credit
• Deducted from the Homeowner’s Total Tax Liability
• First Time Home Buyers Only
• Owner-Occupied Only

Example:

1. Sample Home Loan Amount                      $300,000

2. Sample Annual Interest Rate                      5.5%

3. Total Annual Interest Paid                           $16,500

4. Mortgage Credit Certificate Rate                20%

5. Annual MCC Amount (Line 3×4)                 $3,300

6. Monthly Credit Amount (Line 5÷12)            $275

*Many other scenarios exist—contact Dakota for additional details.

Eligible Homebuyer

First-time homebuyer, defined as not having owned a home in the past three years; this requirement is waived if the property is located in a “Target Area”

• Annual household income limit is based on family size as follows:1-2 Persons – $70,000; 3 or more persons – $80,500
• Must meet mortgage criteria for underwriting, credit and down payment requirements
• Must occupy property as “principal residence” within 60 days of the purchasing the home

Eligible Property

• Must be located within the Portland city limits
• Must be owner-occupied during the life of the loan
• Single-family units only, including condos and town homes
• Maximum purchase price – $361,125

There is a recapture tax that can apply in certain situations, but the large majority of people will not need to worry about this.

For more details, visit the PDC’s Mortgage Credit Certificate site or give me a call at 503-546-8480.

Has housing finally bottomed? After 3 years of terribly negative data, 19 of the 20 markets tracked by Case-Shiller improved last month. That’s 5 months in a row of good data and the best showing in over 3 years!

Case-Shiller is not perfect, however. It’s limited to 20 U.S. cities, which encompasses just 9% of the U.S. population. Also:

1. It is on a 2-month lag, so it indicates how housing was, not how it currently is.
2. It ignores locality, grouping city neighborhoods into one big lump. Considering how badly outlying areas are hurting compared to close-in properties (especially in Portland), this is a big deal.

It still is a good indicator of an improving economy. When housing cracks first started formed in 2005 and 2006, Wall Street continued at a torrid pace while Case-Shiller called for a collapse. Turns out, both sides were wrong, but Case-Shiller earned a ton of respect for its (overly doomsday) call.

These days, the Case-Shiller Index is the go-to barometer for home values nationwide.

Getting back to June data, because Case-Shiller says home prices are “on an upswing,” we can assume it means good things for the housing market, in general.

This isn’t all good news. For a first time home buyer facing higher prices and the expiration of the $8,000 tax credit, this means increased competition for properties.

If you’re on the fence about buying a home or wondering if the time is right, according to Case-Shiller, the “right time” may have been a couple months ago. With prices on the upswing, homes may only get more expensive.

If you have any questions or would like to get pre-approved for a loan, send me an email or give me a call!