All Mortgage News-FHA/VA and Conventional

FHA Amends Anti Flipping Rule

2010-01-21T17:22:00.000-05:00

FHA Amends Anti-Flipping Rule

On January 15, 2010, FHA made some changes to the June 7, 2006 anti-flipping policy on property flipping.

For the past 3 1/2 years HUD has not allowed the resale of a property within 90 days due to flipping concerns. While the initial intent was to prevent the rapid escalation of the price of homes through questionable flipping of properties, it is now hindering the sale of homes since prices have fallen and more properties are the subject of foreclosure.

While there were several exemptions to the rule, almost all applied to Banks and Financial companies. This change will directly impact the small investor who buys properties cheaply and repairs them for resale.

Currently many HUD or Lender Repo's are sold "As Is" without warranties or repairs. Many of the foreclosed homes are purchased by investors who have the means to repair the homes but may not purchase the homes due to the 90 day holding requirement to sell to a new FHA Buyer and the cost and risks associated. These buyers have to account for the longer holding time and potential risk of vandalism. Thus the homes tend to sit vacant longer and hinders community stabilization and revitalization.

Beginning February 1, 2010, sellers that meet the new requirements may be able to sell the property prior the old 90 day rule. The sales must be an arms length transaction. The seller must hold title to the property (i.e. no double closing). There must not be prior evidence of flipping on the property and special rules apply if the increase from the sellers purchase price the buyers purchase price is greater than 20%.

This is a positive change from HUD. Homes may stay vacant less and buyers have more options. These transactions will be under more scrutiny but they can now get completed.

The full guidelines of the new FHA Anti-Flipping Rule is available though the link.

Default, Then Rent? What is wrong with people?

2009-12-13T09:27:00.000-05:00

The Wall Street Journal had a recent article titled, “Default, then Rent”. What is going on with people values?

What is truly interesting about this article is that people just see it as no big deal to walk away from their obligation. There are no morals. The stories that are highlighted are not the kind that will break your heart. These are not about people that had medical bills, huge unforeseen expense, dry wall problems like those in other parts of the country. No these are people who didn’t care.

One of the people highlighted is a School Teacher. Yes she is teaching your children. So what lesson is she teaching? She bought her big house on a “No Money Down” loan. Then she and her husband proceeded to spend thousands on upgrades.

Ms. Richey, the teacher, arrived in Palmdale in 1999. In 2004, she and her husband, Timothy, bought a two-story home on Caspian Drive, near Avenue O-8, with a no-down-payment loan. They took pride in the amenities they installed: a powder room with granite countertops, a backyard pool and play area, and the purple-and-turquoise fantasy playroom upstairs for their three daughters.

They had a $430,000 mortgage and their lender cut them a deal to offer them a payment of $3,300 per month. They felt this was too high. Maybe they should have thought about his before they bought the house? So they decided to walk away and stick the Lender with a foreclosure and the tax payers will pick up the bill.

However, before the foreclosure they found themselves a nice new house to rent.:

On one trip, they drove by the house at 3152 Club Rancho Drive. It was bigger than their house on Caspian, had a pool with three waterfalls, and boasted a cascading staircase that Ms. Richey says she could picture her daughters descending on prom night. The rent was $2,195 a month.

Showing a visitor the personal touches in her new home, including a $1,800 dining set she bought with some of her newly available income, she notes the advantages of being a renter rather than an owner.

"You take a risk for the American dream," she says. "I don't have to worry about paying property tax, homeowners' insurance, the landscaping, cleaning the pool or any repairs."

Remember this is a person that probably spends more time with you children that you do. What kinda values is she teaching? She sticks the lender and taxpayers with hundreds of thousands in losses and goes out and buys a $1,800 dining set?

One of the other people they discuss is walking away from his $430,000 mortgage, $4,800 a month payment. His new rental payment will be $2,200 per month. The good news, he is keeping his BMW 6 series car with its $700 payment. At least I guess both stories have a happy ending. One got a dining set the other got to keep his BMW.

While I understand that unforseen things happen, these types of people with little moral obligation is what is wrong with society today. Oh, the school teacher, she thinking about walking away from her two rental properties as well.

New Update on IRS Tax Credit

2009-11-30T14:02:00.000-05:00

First-Time Homebuyer Credit Extended to April 30, 2010; Some Current Homeowners Now Also Qualify

WASHINGTON — A new law that went into effect Nov. 6 extends the first-time homebuyer credit five months and expands the eligibility requirements for purchasers.

The Worker, Homeownership, and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase.

The maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary residence during the three years up to the date of purchase.

But the new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.

For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.

A new version of Form 5405, First-Time Homebuyer Credit, will be available in the next few weeks. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return.

A taxpayer who purchased a home on or before Nov. 6 and chooses to claim the credit on an original or amended 2008 return may continue to use the current version of Form 5405.

Income Limits Rise

The new law raises the income limits for people who purchase homes after Nov. 6. The full credit will be available to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.

For homes purchased prior to Nov. 7, 2009, existing MAGI limits remain in place. The full credit is available to taxpayers with MAGI up to $75,000, or $150,000 for joint filers. Those with MAGI between $75,000 and $95,000, or $150,000 and $170,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.

New Requirements

Several new restrictions on purchases that occur after Nov. 6 go into effect with the new law:

Dependents are not eligible to claim the credit.
No credit is available if the purchase price of a home is more than $800,000.
A purchaser must be at least 18 years of age on the date of purchase.

For Members of the Military

Members of the Armed Forces and certain federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and still qualify for the credit. An eligible taxpayer must buy or enter into a binding contract to buy a home by April 30, 2011, and settle on the purchase by June 30, 2011.

For more details on the credit, visit the First-Time Homebuyer Credit page on IRS.gov. or watch the IRS video below.

$8,000 First Time Home Buyer Tax Credit Extended

2009-11-10T12:21:00.000-05:00

The first time home buyer tax credit has been extended and expanded. The $8,000 credit has been extended by six months. There has also been an expansion to include current home owners who want to buy. Sorry, nothing for Investors. Current home owners can get a $6,500 tax credit when they purchase a new home. This is pretty similar to the article we posted earlier on the $8,000 Tax Credit.

The credit is available for homes that go under contract by April 30, 2010 and CLOSE by June 30th, 2010.
If you are a current homeowners, you can claim a $6,500 credit as long as the property you are vacating has been your primary residence for at least five consecutive years.
For the Rich there are Income limits: $125,000 a year for individuals, $225,000 a year for married couples.
Homes that cost more than $800,000 aren’t eligible for the credit. Again, sorry to the rich folks.
$6500 tax credit is not retroactive. What that means is that you only get the credit if you purchase a home after the Bills is effective.

While not perfect it will still create sales. However, there is nothing that is going to make people rush out an buy. This may just get a few more people off the fence.

What important role does a reverse mortgage play in Canada?

2009-11-05T13:40:00.008-05:00

Author: Peter Gomes

If you are planning to take out a reverse mortgage, you can free up some of the equity that is trapped in your house. Reverse mortgage plays an important role for older Canadians. It offers financial security to seniors. The proceeds of reverse mortgage in Canada can be used for meeting various financial obligations. It may include meeting unforeseen expenses or you can use the cash for home improvement, renovation, repairing work etc.

Reverse mortgage in Canada is different from the traditional mortgages that are taken out. There are many differences between reverse mortgage and traditional mortgage, the main one being mode of repayment. In case of traditional mortgage you should have a sound income that can support your monthly mortgage payments. In Canadian reverse mortgage, you don’t have to make monthly mortgage payments. And you can repay the mortgage if you change your residence or the mortgagee dies.

There are few requirements that are to be fulfilled if you are planning to opt for reverse mortgage. You need to be 60 years and above and the house in which you are residing should be your primary residence. The proceeds of reverse mortgage can be availed as –

Lump sum
Supplement to retirement funds
As supplement to Social Security
In form of “Stream of payments”.

While a traditional mortgage is “Decreasing debt and increasing equity”, a reverse mortgage on the other hand is “Increasing debt and decreasing equity”.

When you take out a reverse mortgage in Canada, you have to continue paying your real estate taxes and also make payments for utilities etc. If you have opted for Ontario reverse mortgage, you cannot face foreclosure for missing your mortgage payments.

Reverse mortgage fees in Canada
The reverse mortgage fees in Canada usually vary from one lender to another. The initial set-up fee ranges between USD$1275 and USD$1485. A lender may also offer Equity Protection Option in some cases. This ensures that at any point of time at least a certain amount of equity remains in the property.

First Time Homebuyer Tax Credit Extension Getting Closer

2009-11-03T20:58:00.003-05:00

Last night the Senate voted cloture on a bill that includes the extension of the first time home buyer tax credit.

This is not the final vote, however it effectively solidifies the plan to extend the $8000 first time buyer credit through April 30th and expand the credit to move-up buyers on a smaller $6500 scale.

The extension is an expansion, giving some move up buyers $6500 more in purchasing power, but that's only up to the income cap of $150,000 for single filers and $225,000 for joint filers...again, covering an awful lot of Americans, but not everyone. Why not make it available to Investors who could then buy some of the dilapidated properties and repair them?

So is this a good thing or just another prop up that will ultimately just prolong the housing problems?

Sure it is going to create some more sales but the credit only extends primarily through the winter/slow housing season. How are move up buyer going to participate when they can’t purchase the new home until they unload the current one. It may take them until next spring to find a buyer.

While a lot of this focus has been on First Time Home Buyers, the real money to get the economy moving is with the move up buyers and Investors. The inventory of homes at the lower end of the market is mostly junk. Poorly cared for properties that need lot of work. First Time Buyers don’t want this stuff but an Investor might? With an almost 10% unemployment many of the newer foreclosures are happening in the higher bracket between $250,000 and $500,000. With the income caps of the program this will eliminate a chunk of this market.

Let’s stop being cheap on the programs and making a bunch of political statements about all the people that are going to benefit and then find out only a handful made it work. Put the program out for all to use with reasonable deadlines. Not everyone will take advantage of it but that’s their choice. Ultimately is will reduce the inventory of unsold homes which will lead to higher demand.

Economics 101 --more demand = higher prices

Mortgage Applications Drop

2009-10-28T22:45:00.002-04:00

Mortgage applications are dropping, that is slowing down, thanks to several factors that are making borrowing for a home less attractive. First, mortgage interest rates moved up a bit in the past week, causing some to think that perhaps the great deals are over. Even refinancing demand dropped as people began re-evaluating their situations and the interest rates became less attractive.

Second, especially for purchases, the first time home buyer tax credit still has not been extended. Though there are rumors that a deal may get struck in congress we all just have to play the wait and see game. It’s fairly obvious that if you haven’t already started the paperwork by now, you probably won’t close in time for the deadline based on lender turn times and the various appraisals and inspections. Even just changing things so that paperwork initiated by the November 30 deadline would probably help home sales. If it does not get extended I would expect further slowdown for a period of time as inventory still need to get worked off.

Third, credit requirements continue to tighten as Banks try and shore up their balance sheets and have little appetite for risk. As credit tightens, fewer and fewer borrowers will be in a position to qualify. Less buyers = less sales or Lower demand = lower prices

FHA 203-k loans -- Why they don't Close

2009-10-21T12:03:00.004-04:00

While the 203k and the FHA 203k Streamline are great programs, you hear horror stories about them all too frequently. Many people get frustrated. However, if you look behind the scenes there are only a couple of major reasons why they don’t close.

1) Under Estimating the REAL cost to repair the property. This is probably the biggest reason why these loans don’t close. The buyer likes the house and thinks they are getting a good deal. They estimate that it will take a certain amount of money to fix it up. When the real cost comes in the deal no longer makes sense.

Example: Mr. First Time Buyer finds a house that is currently for sale for $50,000. It needs paint, carpet, appliances, minor plumbing and electric work. He thinks he can get the repairs for $10,000. Fixed up home are selling for $75,000 in the area. He signs a purchase contract for $50,000. Now he start to get the real prices in and it is more like $18,000. The lender requires an additional 10% holdback on the repairs for cost overruns. Factor in the closing cost, inspection fees, appraisal and other cost and soon the deal is just not making any sense anymore.

You should try and get your estimates in line prior to making the offer to purchase. These deals are made or lost at the time of writing the offer. If the repairs cost more then you have to offer less for the house.

2) Being the guinea pig for the Loan Officer. This is not a common product. It takes a higher level of experience. Don’t just shop for a lender on these based on who offers you the lowest rate. Chances are if you shop that way it will never close and certainly not at the rate you are quoted.

You should interview loan officers for this product. How many have they done? When was the last one? Can they provide you a list of reference for the people that you have done these loans for? Can you talk to Realtors that they have works with on this type of loan?

While all mortgage loans have bumps, you are looking to see that they solved them. If they won’t provide the references then they probably have never done this loan product. They may say they can not give you the information on past clients due to privacy reasons. That’s fine, why don’t they call their client and ask if they could release the information to you so you could contact them. The Realtor should not be a problem as Realtors love phone calls from potential clients.

Some other great tips can be found on the Mortgage Loan Place Blog -- Tips for buying a fixer-upper home

Acorn Prositution Video

2009-10-06T10:22:00.001-04:00

Have you seen this appualing video?

Acorn is supposed to help people get low income housing loans. However, it appears that they have no interest in following the law. In fact the Acorn employee actually encourages them to create false tax returns.

Is this a cultural thing? Is this acceptable in inner city Baltimore?

Since 1994, Acorn has recieved over $53 million dollars of taxpayer money in the form or grants and loans to run their opperations. Furthermore, they are elligible to recieve another 8.4 Billion more from the stimulus bill. Did you get that -- we paid for these people to teach people how to break the law!

FHA Streamline Refinancing -- Changes Comming!!

2009-10-06T09:45:00.005-04:00

The FHA streamline loan program has been popular with borrowers and lenders because it allows them to refinance a FHA loan without having to completely re-qualify for a new loan. For Lender's this meant a quick, easy and profitable transaction. For borrowers, this was a low documentation, no fuss, easy process. For example, it used to not require income verification, asset verification or credit scores.

Well that is about ready to change!! Recently, FHA announced that they were changing the guidelines for the FHA streamline program. While the official date of change is November 17th, expect Lenders to start modifying their program guidelines much sooner.

Highlights of the changes to the FHA streamline program include:

mortgage

cannot have even one 30 day late payment in the preceding 12 months

maximum of one 30 day late payment in the last 12 months and NONE in the last 3 months.

TOTAL

In order to be eligible, the property must be occupied by the borrower: investment properties are not eligible and second homes are not eligible.

All employment, income , and necessary assets now must be certified by the lender — or in other words, expect to provide proof of income and the ability to make the payments.

So once again we see lending getting tighter. Obviously the benefit here is better qualified borrowers but it is not going to help those that need the help the most.

Party in Malibu with Wells Fargo Executive

2009-09-15T14:47:00.004-04:00

A Senior VP from Wells Fargo was holding parties at a foreclosed Malibu California home. Wells Fargo, which received $25 billion in government bailout money last October, was criticized earlier this year for planning events at upscale Las Vegas hotels for top mortgage employees. Now the parties are at a Malibu beach home.

Cheronda Guyton, who had been responsible for Wells Fargo's foreclosed commercial properties, used the 3,800-square-foot beachfront house on Malibu Colony Drive on weekends for parties, one of which had guests arriving on a yacht, the Los Angeles Times reported, citing neighbors.

Wells Fargo release a statement saying, "We deeply regret the activities that have taken place as they do not reflect the conduct we expect of our team members."

Some interesting questions arise about this incident is how did she get access to the property? How many parties was she throwing and for how long after the Bank acquired the property in May of 2009.

The fact that a Senior Vice President thought nothing of using this house for her own personal use is just astonishing. I'm surprised she just didn't move in. Nothing like having a someone else pay the mortgage while you party.

Third Largest FHA Lender Shuttered

2009-08-07T10:13:00.001-04:00

Earlier this week it was noted that the Third Largest FHA lender, Taylor, Bean & Whitaker was abruptly shut down. The day prior their offices were raided by the federal government looking into transactions with its warehouse lender. Both FHA and Freddie Mac suspended purchasing loans from them. Fannie Mae banned them a year of so earlier.
This abrupt closer is going to have some pretty significant ramifications to borrowers. Not just the ones who had loans waiting to be approved or funded by Taylor Bean but to those looking to shop using a Broker.
This is just another example how the once dominant mortgage brokerage operations are being squeezed. As the Third largest originator of FHA loans, which make up a large percentage of current transaction, most of their loans came from brokers. Thus brokers have fewer options now on where to place their loan. As a consumer or broker, with less competition, you will expect mortgage prices to rise. Also with fewer players in the market sorting through loans to approve you will see the borderline loan less likely to get approved as the lenders now have more to choose from.
In fact, we are seeing some lenders raise their FHA minimum credit scores to 640 for all transaction including FHA Streamline Refinances.
Remember, the deal is not done until all the checks have cleared.

Morgage Refinacing or Mortgage Refinancing -- that is the question.

2009-07-07T16:03:00.006-04:00

Morgage Refinancing or Mortgage Refinancing, which one is it? I can’t tell you how many times I see it spelled “morgage”. Hello people, spell check? It's morTgage.

In any case, both will probably get you on the path to what you want, but which is better, FHA or Conventional? Actually neither is the best. That rest with VA who has the most liberal terms that allow a Veteran to take out up to 100% of the value of their home in cash. Yes, the good old greenback.

As for the other two, Conventional will be more restrictive as you will not get mortgage insurance thus you will be limited to 80% max but more likely a lot of lenders will only go to 75% loan to value and you need a decent credit score not to get walloped on the rate. Below 700 and the adjustments start to get steep for a cash out mortgage refinancing.

This leave FHA, which is somewhere in between VA and Conventional for mortgage refinancing. FHA will lend up to 85% for a cash out refinance. You will have to pay the upfront mortgage insurance as well as the monthly MIP but at least you can get it done. A 620 credit score will get you a good rate as well.

So whether you want a morgage refinance or a mortgage refinance really just amounts to crossing your t.

Mortgage Insurance Guideline Changes

2009-07-07T10:26:00.003-04:00

Today I happen to stumble across a change from one of the MI companies that may become significant. I haven’t seen it from the others but it does not mean other do not have the same policy.

Most Mortgage Insurance companies now require a minimum 680 credit score in order to be eligible for mortgage insurance regardless of what an automated underwriting engine says. What is interesting is the United Guaranty otherwise know as UG has instituted a minimum 720 credit score for any Third Party Originated Loans (TPO), otherwise known as Brokered Loans.

Also, the maximum Debt Ratio on a TPO loan is capped at 41%, again regardless of the automated findings. Banks and directly lenders do not have this restriction.

This is why it is so important to know you credit score prior to applying for any loan. Because I know how important this is, I have arranged for you to get a 7-day FREE trial of 3 Bureau Credit Monitoring! Plus Credit Report & Score so you will be able to fix anything you need, prior to applying for credit.

Unfortunately, this is just another example of another nail being placed in the Mortgage Brokers coffin. Many unsuspecting consumers will get caught in the pinch as well. Most people use Mortgage Brokers to shop for the best rate and terms. By putting in these restrictions to the Broker Community, the MI companies have un-leveled the playing field. Either the Broker will get shut out of certain products or Lenders will raise the prices to consumers because they know they have a captured market. Thus the consumer ends up paying more in the end because there are fewer lending options and when there are fewer options, prices always rise. Get your 7-day FREE trial of 3 Bureau Credit Monitoring! Plus Credit Report & Score today.

HUD $8000 Tax Credit NOT for Down Payment

2009-06-04T12:10:00.005-04:00

Here is the direct quote from HUD Secretary Sean Donovan’s May 29, 2009 press release: “Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate.” (emphasis added)

HUD has re-published Mortgagee Letter 2009-15 entitled “Using First-Time Homebuyer Tax Credits”. Remember, they originally published it then recanted. This Mortgagee Letter does have some changes that provide the regulatory framework for monetizing the $8000 first time homebuyer tax credit. However, it will be interesting to see if the public can make this possible.

While HUD's announcement does set out a framework for the policy, HUD does not provide the money. That is obviously going to be an issue making this program work. Don't run out and purchase a home thinking you are going to have a check waiting for you.

So who can come up with the money for the buyer? Non-profits or lenders could but, coming up with the money to make these loans when the tax credit proceeds cannot be assigned to a third party is very slim. (another nice provision) This would require that the non-profits or lenders advance the money to the buyer in hopes that the buyer, who is not obligated to, hands over their tax refund check when they get it. With the old seller paid down payment assistance(you know the one's that are now prohibited, the borrower never put their hands on the money. With this plan, the non-profits or lenders who would provide a second lien would have to hope they got repaid when or if the tax credit money arrives.

What about State Agencies? Gee about everyday you here how they don't have any money either.

The Mortgagee Letter also specifically points out that according to “12 U.S.C. 1709(b)(9), the homebuyer’s downpayment required for eligibility for FHA insurance may not consist of any funds (including funds derived from a sale of the homebuyer tax credit) provided by the mortgagee, the seller, or any other person or entity that financially benefits from the transaction (or by any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity).”

In English this means, the borrower must still contribute 3.5% of their “own money” into the transaction. Of course, as was always the case, this can be a gift from a relative or similar close relationship. So this really does nothing for providing the downpayment. The borrower must still have "Skin" in the transaction.

The proceeds from this monetization can be used for additional down payment or to buy down the interest rate or to pay closing costs. The best use of the money will be dictated by the transaction. For example, many borrowers who are “on the borderline” of approval through the automated underwriting system may be able to change the decision to an approval with a little additional down payment. Other people (i.e. those who definitely plan to stay in the house for a very long time) would be better off paying down the interest rate with the “free money” from the tax credit. Borrowers who know they are going to move in a few years, and who can get the seller to pay all the closing costs may be better off waiting to receive their tax refund the normal way by waiting until they file their next tax return. The tax credit money can simply be put into the bank for a rainy day.

So while a lot of press has been generated, the reality is that there will probably not be any big rush to buy homes because the people the can buy don't have any money and the people the want to move and buy a new home can't sell the one they have.

Housing Construction Plunged -- This is Good

2009-05-19T09:12:00.006-04:00

Housing construction plunged to a record low in April as a steep drop in apartment building offset a rebound in single-family construction. Permits for new projects also hit a new low.

The Commerce Department said Tuesday that construction of new homes and apartments fell 12.8 percent last month to a seasonally adjusted annual rate of 458,000 units, the lowest pace on records going back a half-century.

Even in last month's big decline, there were some signs of stabilization. Construction of single-family homes rose 2.8 percent to an annual rate of 368,000, following a 0.3 percent gain in March and no change in February. The stability in single-family construction likely will be viewed as a hopeful sign that the three-year slide in housing could be bottoming out.
The weakness last month came in the more volatile multifamily sector where construction plunged 46.1 percent to an annual rate of 90,000 units after a 23 percent fall in March.
Housing construction fell 30.6 percent in the Northeast, the largest drop for any region. Housing starts dropped 21.4 percent in the Midwest and 21.1 percent in the South.

The nation's top three homebuilders reported financial results earlier this month that give little hope the spring selling season will be strong enough to stop the red ink.

While all this sounds gloomy, it's a process that we must go through if we are going to get to a bottom. We need to work off the current supply of unsold homes. We do not need builders building tons on new inventory that just sits vacant.

HUD Publishes Details then Pulls Them 2 days latter

2009-05-13T20:33:00.004-04:00

Well the details are out. Wait no their not. Ok well maybe. HUD published the details of using the future tax credit in ML09-15 on May 11th and then pulled in 2 days latter.

Maybe they are having second thoughts. Maybe they overlooked some key points like the fact that the borrower has nothing into the deal.

In any case you can read a copy of the original ML Letter here

FHA to consider using Tax Credit for Downpayment

2009-05-13T13:31:00.005-04:00

WASHINGTON, DC, May 12, 2009 - Today the secretary of the U.S. Department of Housing and Urban Development, Shaun Donovan, said that the Federal Housing Administration is going to permit its lenders to allow homeowners to use the $8,000 tax credit as a downpayment.
Donovan's remarks came in an address to several thousand Realtors(R) gathered this morning at The Real Estate Summit: Advancing the U.S. Economy, a special daylong session at the Realtors(R) Midyear Legislative Meetings & Trade Expo.

"We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a downpayment," Donovan said. According to Donovan, the FHA's approved lenders will be permitted to "monetize" the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.

Donovan said the Obama administration plans to further stabilize the housing market. "I do think we have some early signs that the market overall is stabilizing," said Donovan. "Since January we've seen both home sales moving up and down around a relatively stable number and we are seeing the first signs that the rapid decline in home prices is starting to abate."

As with anything the "Devil will be in the Details". How will the Lender "monitize" the downpayment? What this sounds like is that the Lender will make a 2nd mortgage loan to the buyer secured against the tax refund. Hey does this sound anything like the "tax refunds loans" that pop up each year at tax season?

I'm also pretty sure that these won't be free. Most likely there will be a payment or interest rate associated for "monitizing" the credit.

So we are coming back to 100% loans for those that have no money into the property, no savings and may have a shaky employment or credit history. While this type of arrangement might make sense for some borrowers, ie. those with the funds that just don't want to use them and have shown an ability to save and manage their finances, it will probably be opened up to the masses and we will see those first time buyers with little or no savings and now nothing in the deal buying the biggest house they can get. Are we just setting up for a crash in the future?

Why not do something simpler like making the tax credit available to anyone purchasing a 1-4 unit property. Whether a fist time buyer, owner occupant or investors. Even if it is not forgivable by opening it up to a greater list of buyers you will help eliminate the inventory of unsold house.

It's simple economics, supply and demand.

Upfront Fees on Loan Modifications NOW ILLEGAL in Los Angeles

2009-05-11T12:24:00.005-04:00

The Los Angeles City Council has made it illegal for mortgage and real estate brokers to charge an upfront fee when offering to help distressed homeowners obtain loan modifications. So why is this important? Because it basically puts these companies out of business.

Once a mortgage is modified, how would a loan modification company expect to get paid? There is no escrow company and generally the people are not bringing money to the table. The lender is certainly not going to become the collection agent for the modification company. Oh yeah, they could sue them in court or threaten to put a collection account on their credit which would harm their credit score.

That's too funny. You thing these people would care if their credit get trashed?

While there are scam operation out there, unfortunately the LA City Council has painted a broad brush that included legitimate operations. In the LA times it said: “Some of the services are legitimate, officials said, but others are not.” So we just make them all illegal. That makes sense!!

The real looser here will be the residents of the City who will no longer have access to firms that may be able to help them. While they can still try and work with the Government HOPE hotline at 888-995-HOPE. Last I heard they were getting somewhere around 13,500 calls per day. I'm sure they won't mind sitting on HOLD. Once they reach someone do they actually think they will be able and motivated to work on THEIR case.

The city would be better off trying to regulate or better yet, enforce the current laws than alienate an industry. Unfortunately if your don't pay your mortgage, you may have to pay someone to help you solve the problem you caused.

Senate passes Bill for Lower Mortgage Rates

2009-05-08T08:00:00.005-04:00

Why wouldn't they? Nobody is going to introduce a bill for higher mortgage rates. It's just like all those bill that were proposed to eliminate Predatory Lending. Gee who wouldn't vote for that.

But what does it mean?

1) Mortgage services get some incentive and protection to try and work more with borrowers? -Good
2) Requires mortgagor certification to HUD that the mortgagor has neither intentionally defaulted on an existing mortgage, nor provided false information, nor (as under existing law) been convicted for fraud during the 10-year period ending upon the insurance of the mortgage under this Act. -- This pretty much handles all those "Stated Income" Loans. If you lied on your application about your income then you don't deserve the help. Let's take a look at those tax returns verses the loan application to see if there is some differences.
3) Bans from the HOPE program mortgagors whose net worth exceeds $1 million. -- Ok so rich people don't get the deal. Probably shouldn't have defaulted.
4) Authorizes the Secretary to establish a payment of up to $1,000 per insured loan to the loan servicer of the existing senior mortgage for every loan insured under HOPE. -- not a huge incentive but at least it is something.
5) Directs the Secretary to establish, if feasible, an auction to refinance eligible mortgages on a wholesale or bulk basis. -- at least they put in the feasible statement. Can you picture Christies packed with people for this auction. 2,2,2% ,now 1, how about 0% any takers
6) Nationwide Mortgage Fraud Task Force Act of 2009 - Establishes in the Department of Justice the Nationwide Mortgage Fraud Task Force to address mortgage fraud in the United States. -- Nothin' like big government. Yeah let's create another department -- that always works.
And my favorite to points for last:
7) Expresses the sense of Congress that mortgage holders, institutions, and mortgage servicers should not initiate a foreclosure proceeding or a foreclosure sale on any homeowner until foreclosure mitigation provisions of title II of this Act, and the President's "Homeowner Affordability and Stability Plan," have been implemented and determined to be operational.

8) States that the foreclosure moratorium should apply only for first mortgages secured by the owner's principal dwelling. Sets forth duties of the consumer to maintain property and to respond to reasonable inquiries.

Let stop everything and let people live for free in homes they could not afford until we see if government plans are working. Then we can pump all this property on the market that should have been foreclosed on and see how it affects things. And by the way Mr. In Forclosure who can't afford to make a payment... be sure that you cut the lawn and keep the place looking neat.

"We'll Just Refinance" Strategy Backfires

2009-05-07T14:21:00.004-04:00

This was such a common sales pitch to many subprime borrowers, "This is just a band aid loan". "We'll just refinance you in a couple of years once your credit clears up." The problem is that there is no way to refinance most of these folks.

Now the problem has hit the jumbo market as well. Since Jumbo mortgage were not sold to Freddie Mac or Fannie Mae there is hardy a market left for buyers of these types of mortgage on Wall Street.

[Borrowers] are becoming trapped by the same issue facing the poorest subprime homeowners: falling home prices erase equity and make it impossible to sell or refinance without losing money.
The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, Calif., show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.
“It’s the trickle-up effect,” said David Adamo, chief executive officer of Luxury Mortgage Corp., a home-loan bank in Stamford, Conn. “Just like homeowners in smaller homes, these homeowners anticipated being able to refinance mortgages to continue making payments and at a future date sell for a gain and put it toward their next home. That strategy backfired when the market for jumbo mortgages dried up.”
……..

Many of these borrowers took out loans they really could not afford. Loans like ARM's with low teaser rates or Pay-Option ARMs where they did not even make payments that covered the monthly interest. These people committed financial suicide when they signed their loan documents. Most should have know better but they let greed and keeping "up with the Jones" drive their decisions to live in McMansions. Others have had unexpected things happened to them such a job loss or illness but I would venture that the majority just bought the biggest house they could get at the time.

As more of these jumbo loans default, prices will continue to drop and Banks will continue to have losses. It's a simple supply and demand equations with the job outlooks as the wild card.