The Mortage Gurus

New Major changes for FHA Loans April 5th

2010-03-03T06:16:00.000-08:00

For all loans that start after 5 April FHA has changed a fee and a regulation. After that time the maximum seller contribution to help pay closing costs is now 3% of the loan-the same as with conforming loans. Also, they are raising the UFMIP (a one time charge to do the loan through FHA) from 1.75 to 2.25%. This means that on an average home loan of 150,000 the fee added to the loan goes from 2625.00 to 3375.00.

Note on the trends in home buying

2010-02-24T11:34:00.000-08:00

Yesterday's comments were about housing sales going up for the past few months. Today's news is that NEW home sales are down a lot. Just another indication that the values available with existing construction are huge.
I don't think that people should ever buy a home with the expectation that the home will increase in value short term (2-3 years) but as the glut of homes disappears and as interest rates go back up (thanks to the government rates are artificially low) homes will increase in value.

Seasonally adjusted home prices up in December

2010-02-23T17:20:00.000-08:00

S&P/Case-Shiller Home Price indices track what is happening in the 20 major statistical areas (MSA's) of the country. The raw data shows prices falling by .2%, but when you factor in the seasonal influences (fall and winter are the slow time for housing) they were up .2% in November and .3% in December. Very welcome news indeed.

I have noticed a big increase in the number of people coming to this website and asking me to contact them. This is an indication that homes will sell much better this spring than last year.

Comments from David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s:

“As measured by prices, the housing market is definitely in better shape than it was this time last year, as the pace of deterioration has stabilized for now. However, the rate of improvement seen during the summer of 2009 has not been sustained,” “In the most recent months we are seeing fewer and fewer MSAs reporting monthly gains in prices. Only four cities saw month to month improvements in December over November, when you look at the raw data.

"We are in a seasonally slow period for home prices, however, so it is not surprising to see better statistics in the seasonally-adjusted data, where 14 of the markets and the two monthly composites all rose in December."

Housing is going through a seasonally slow time, so unadjusted price declines are not necessarily setting off alarm bells. What does increase skepticism about the health of housing is the fact that home buyer demand has really failed to react to outlooks for rising interest rates and the soon to expire home buyer tax credit (which might be extended again).

This is still a buyer's market, just becoming less so as time goes on.

FHA Rehab loans

2010-02-19T11:05:00.000-08:00

The FHA 203(k) loan program is gaining in popularity for several reasons. The main reason seems to be the purchasing of so many homes that have been abandoned or are purchased from banks as foreclosures. Many times these homes need some or a lot of work to make them meet the expectations of the buyer and/or of the lender. Here is where the Rehab loan comes into play. The total loan size can be 96.5% of the value after the repairs/upgrading has been done.

For example, a home is purchased for 100,000 and when fixed up will be worth 135,000. The loan can be for as much as 130,275. In this case as long as the work costs less than 30,000 the buyer purchases a home that they want for the price they can pay. The great thing is that normally investing 20,000 into a 100,000 home increases the value at least 30%.

Another sign that Housing is getting better

2010-02-17T17:08:00.000-08:00

For the past year it seems that the only news articles about the Real Estate market was negative. Now it seems that 2 out of 3 news "sound bites" are positive. And when the sound bites are investigated closely, the news really is positive. Take todays comments:

The National Association of Home Builders reported that housing starts jumped 2.8% in January to an annual rate of 591,000, which was more than expected.

Housing starts were expected to have reached an annual rate of 580,000 units in January, according to a Briefing.com consensus of economist forecasts.

Building permits, a measure of houses yet to be built, fell 4.9% to an annual rate of 691,000 units in January, which was better than expected. The rate of permits was expected to have slipped to 620,000 in January.

It is interesting to me that once interest rates start going up, people get more confident that the time to buy/refinance was yesterday and they better get back into the market. As this happens the housing market will really have reached the bottom, making this the perfect time to buy. Rarely do we have a mix of historically low interest rates and the lowest home values in years.

HUD 100 Down

2010-02-17T11:22:00.000-08:00

This is an FHA lending program that is a win-win. When a home is foreclosed on that has an FHA loan on it the loan is taken over by HUD. HUD checks out the property to see the condition and has an appraisal done to determine the value. Many times in order to sell the property if the buyer gets an FHA loan, the minimum down payment is only 100.00. Awesome, but there is more to the program that makes it even better for the buyer. Typically HUD will accept an offer that has most or all of the closing costs paid for by the seller (HUD) FHA rules are that these costs can be as high as 6% of the sales price. But here is another added plus. Many times the homes are listed and sold for less than the value that HUD appraised it for. The loan can be as high as that appraised amount.

For example.

Home appraises for 150,000

HUD accepts a sales contract for 125,000 but will only allow 3% of that to be paid for closing costs by HUD.

The loan can be for as much as 150,000 to cover the closing costs not paid for by the 3% allowance.

Currently there are lots of homes available in Salt Lake and Utah counties that will work with this program. For more information give me a call or shoot me an email.

Why is the rental vacancy rate rising in Salt Lake City?

2010-02-17T10:36:00.000-08:00

From MortgageDailyNews

"For two days in a row the news about housing has looked at least a little bit hopeful. On Monday the national real estate firm REMAX announced an increase of 6.5 percent in the sales of existing homes in December and Tuesday the National Association of Realtors® reported that pending sales were up 6.3 percent that month.

So perhaps home prices and interest rates have both fallen to the point that we will, when nice weather arrives, see a flood of potential homebuyers into the market - or maybe December just represented a fluky blip.

But there is another measure of what may be going on in the housing market; the number of rental vacancies.

A few weeks ago an acquaintance reported that the small mid-range apartment complex he lives in seemed unusually quiet; the parking lot very empty. He inquired of the super who told him that they had hit a staggering 75 percent vacancy rate. One after one the tenants, some of them long term had bought houses in the area. The gossip was, the super said, that his place wasn't alone. The big luxury complexes in town were so heavily hit that several were reported to have lowered rents.

Anecdotal information to be sure, but there is evidence that this is going on all over the country.

Business Week recently paired with Axiometrics.com, a Dallas apartment data company to gauge the state of the rental market. They came up with a list of 25 metro areas where not only are vacancy rates growing, but rents are falling.

Top on their list is Salt Lake City, Utah where the vacancy rate in the fourth quarter soared from 3.1 percent a year earlier to 6.8 percent, rents dropped and effective 5.7 percent over the year (an actual decline of 2.3 percent following an increase of 3.3 percent in 2007.) Landlords are reported to be offering over two weeks free rent on average."

FHA Tightening of Loan Programs coming soon

2010-02-12T13:56:00.000-08:00

Just a few weeks ago, the Federal Housing Administration announced that major changes to its loan programs are on their way. The FHA is very popular right now with close to one-half of Americans using this government program to finance the purchase of homes. These changes will make it harder for the average American to purchase going forward. Here is a summary of the changes:

The cost of FHA mortgage insurance is going up significantly. The first increase will be for the "up-front" premium and this will be implemented with applications taken after April 5, 2010;
Those with lower credit scores will be required to put 10% of the sales price down. Presently the requirement is for only a 3.5% down payment and the lower down payment requirement will continue for those with good credit histories. This requirement is to be implemented in early summer.
Also to be implemented early summer, sellers will be restricted in the amount of closing costs they can pay. Typically FHA has been one of the most liberal programs in this regard as buyers could decrease the cash required through seller closing-cost assistance. Soon sellers will be able to offer assistance up to 3% of the purchase price, instead of the present 6%.

While we understand that the economy is causing many of these changes and they are important to make sure this important program remains sound, we also are concerned that everyone who wants to purchase can do so with as little barriers as possible. This means that if you are interested in purchasing a home, now is the time to act so that you can do so under the present guidelines.

Housing pricing firming up

2010-02-11T09:54:00.000-08:00

From Inman News:

Fewer sellers cut their list prices for the fifth straight month in January, according to a report by real estate brokerage ZipRealty.

The report covered 27 of 36 U.S. metropolitan areas in which the brokerage operates. The statistics in the monthly report reflect the brokerage's multiple listing service data as of Jan. 4.

Sellers reduced the asking price on 40.4 percent, or 229,306, of available homes, down from 44.8 percent in December, to an average discount of $21,925, a rate 6.54 percent lower than the month before.

The median asking price of homes across the country was $258,634, a 0.97 percent decrease from December, and the average percentage reduction was 7.81 percent, a 5.22 percent decrease from December, the report said.

Although the raw number of homes for sale rose 2.87 percent from December, to 567,265, year-over-year inventory was down 22.3 percent.

"We have a lot fewer homes for sale right now than we did last year, and we are seeing more sellers sticking to their original list prices, rather than cutting them to try to attract buyers," said Pat Lashinsky, ZipRealty's CEO.

More comments on new FHA Anti Flipping Waiver

2010-02-08T11:18:00.000-08:00

From the Washington post:

The objective, FHA Commissioner David H. Stevens said, will be to speed up sales of renovated houses to first-time and other purchasers. With foreclosures at record levels -- an estimated 2.8 million filings last year -- many communities are faced with excesses of bank-owned properties sitting unsold, often in poor repair.

By waiving the 90-day rule, private investors will be more likely to bid on these houses, fix them up and sell them to buyers who will now be able to gain early access to FHA financing, which offers 3.5 percent down payments.

What's the significance of the 90-day timeline? It's huge, say investors who specialize in acquiring and renovating foreclosures and bank-owned properties. Paul Wylie, an investor active in the Los Angeles area, says his group generally can acquire and rehab a house and list it for resale within 60 days.

But under the FHA's previous policy, large numbers of potential purchasers couldn't bid on Wylie's properties as soon as they hit the market. Barred from using low-down-payment loans until after 90 days, these buyers were forced to look to conventional mortgage sources, which often required 10 percent down plus private mortgage insurance.

"A lot of the people who want to buy our houses just don't have 10 percent," Wylie said in an interview. "But they can afford a 3.5 percent FHA down payment." Bobby Taylor, a broker with Coldwell Banker Mountain West Real Estate in Salem, Ore., said the FHA's change of heart "is going to be absolutely terrific" for anyone looking to bid on a moderately priced post-foreclosure house in good physical condition. Some buyers will even be able to combine the $8,000 federal tax credit with 3.5 percent FHA financing -- provided that their contracts are signed by April 30 and closed by June 30, when the credit program expires.

The FHA's revised policy does not throw open the floodgates to all post-foreclosure renovations, however. Stevens laid down two key restrictions designed to protect end buyers and the FHA alike:

-- No game-playing or conflicts of interest among buyers, sellers, realty agents or others involved in the deal are allowed. "All transactions must be arm's-length, with no identity of interest" among any of the participants.

-- Price run-ups must be relatively modest and justifiable from the time of the investor's acquisition to what is paid by the applicant seeking FHA financing. Generally, the limit will be 20 percent.

When the price jump exceeds 20 percent, the FHA expects participating lenders to require extensive documentation of the renovation expenditures made by the investors to justify the hefty price increase. Lenders also are required to order an independent property inspection so the purchaser can understand the house's physical condition and the improvements made.

The takeaway for buyers and investors: Check out FHA financing early in the game on foreclosure turnarounds.

* * *

FHA "Anti Flipping Rule" waiver

2010-02-08T10:36:00.000-08:00

Effective from 1 Feb 2010 to 1 Feb 2011 the Anti Flipping rule is no longer in effect. What this means is that until now, no home could be sold and financed with an FHA loan until 91 days after the most recent purchase.

An investor can purchase a home, fix it up and resell it to a buyer that uses FHA financing, no matter how long the renovations take. This is a great change to the current way things are done.

Note that there cannot be more than one transfer like this in a 12 month period of time and the increase in sales price can be no more than 20%

Comments on Reverse Mortgages

2010-02-04T08:26:00.000-08:00

Reverse Mortgages have been around for a long time now (since 1961) but only recently gained popularity. For mortgage holders, mortality, mobility of the underlying borrowers and the net liquidation value upon sale of the underlying properties are the the main risk factors. As a consumer I would highly advise that you find out what if any tax liabilities are involved, grill your loan officer on the differences between obtaining a line of credit, taking a lump sum, monthly payment, etc. If he or she doesn't know this then it's time to find a better lender. For example, for Seniors that depend on Medicaid or other State/Federal programs, its important to know if a Reverse Mortgage will impact your eligibility for the assistance. If you keep money in a line of credit (generally the safest bet) it will not count as an asset for Medicaid eligibility. It would be considered a loan and not a resource for Medicaid spend down. However, if you transfer the money to a bank account or investment it would represent an asset. In effect that would trigger a spend down requirement. Reverse Mortgages are in many cases the key to a senior being able to live comfortably or struggle to make ends meet. My mother had one and the minute she got it her attitude changed. She started doing things that she had put off for ages. My brothers and sisters attitudes changed towards me however. They got negative because their thought, correctly, was that they would not get as much when she died.

Rates may be going up

2010-02-04T08:12:00.000-08:00

Feb. 4 (Bloomberg) -- Mortgage rates in the U.S. rose for the first time in five weeks, threatening to slow the housing market’s recovery as government incentives near expiration.

The rate for 30-year fixed U.S. home loans rose to 5.01 percent for the week ended today from 4.98 percent, mortgage finance company Freddie Mac said in a statement. The average 15- year rate was 4.40 percent, according to the McLean, Virginia- based company.

Rising rates make it more expensive for consumers to buy homes. Sales of existing homes climbed 5 percent in 2009 after falling for three years. Demand rose as buyers took advantage of an $8,000 government tax incentive and low mortgage rates.

“The spring will probably look really good,” said George Mokrzan, senior economist at Huntington National Bank in Columbus, Ohio. “My concern is more the second half of the year. The tax benefits go away and I think the mortgage rates will probably go up.”

Time to lock in that rate?

2010-02-03T07:32:00.000-08:00

Seems that home buyers and homeowners may be trying to get a jump on a possible increase in mortgage rates after Federal Reserve policy makers last week reiterated a pledge to withdraw support for the market by March 31.

“There may be greater urgency to refinance now because the door to cheap mortgage money may close,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report

Another possible reason for an increase in home sales and refinancing at this time is that the FHA UpFrontMortgageInsurance premium is going from 1.75 to 2.25 the first part of April.

And coming at almost the same time is the deadline for qualifying for the 8000 and 6500 home buyers tax credit is the end of April.

Mortgage applications on the rise

2010-02-03T07:25:00.000-08:00

Article in Bloomberg news sounds positive:

Homebuilders are seeing some signs of improvement. D.R. Horton Inc., the second-largest U.S. homebuilder by revenue, reported its first quarterly profit since 2007 on sales and profit margins that exceeded analysts’ estimates.
“Our goal this year is profitability in each and every quarter and for the entire fiscal year,” Donald J. Tomnitz, president and chief executive officer, said during an earnings call yesterday. “We expect our September quarter will be the most challenging as a tax credit support for home sales will have expired.”

The Mortgage Bankers Association’s index rose to 620.7 in the week ended Jan. 29 from 513 in the prior week. The group’s refinancing gauge increased 26 percent, while the purchase gauge rose 10 percent.
The gain in purchase applications may be the first sign a renewed and expanded government tax credit is stirring demand after sales dropped late last year on expectations the incentive would expire.

2010-02-02T15:54:00.000-08:00

The National Association of Realtors this morning released December Pending Home Sales data.A sale is listed as "pending" when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing. Pending Home Sales, Housing Starts and Building Permits are considered more forward looking/timely than other housing indicators like Existing Home Sales. Economists were expecting to see a small rebound in December Pending Homes Sales following a 16.4% decline in November, they got exactly what they were anticipating. The Pending Home Sales Index increased 1.0 percent to 96.6 from a revised for the worse read of 95.6 in November. This is 10.9 percent above December 2008 when it was 87.1.

FHA vs Subprime

2009-06-29T08:03:00.000-07:00

SUBPRIME:
Subprime real estate lending is generally defined as mortgages for individuals with weak credit. If we think of real estate loans in terms of prime financing for those with great credit and ALT-A financing for those with lesser credit or who want to borrow more than prime programs generally allow, then subprime loans are for folks with credit so weak that they cannot get either prime or ALT-A mortgages. To make up for their poor credit standing, subprime borrowers pay higher interest rates. We should have some type of subprime loans because over time people can improve their credit standing. That means there is the potential to refinance from subprime into something better, say an Alt-A or even a prime loan.

FHA:
FHA loans are different than subprime loans. In basic terms, to get an FHA loan you must have verified employment, income, and assets. Many times having extra assets will get you an approval instead of a denial. You must be able to show that you can pay your mortgage and that you’re financially responsible. . Lenders will verify income, assets, liabilities, and credit history for all parties on the loan. With an FHA loan, you cannot take an ownership interest in a property without qualifying for the loan. FHA’s mortgage programs do not typically have maximum or minimum income limits for qualifying, although you must have sufficient income to qualify for the mortgage payment and other debts. FHA does not have minimum credit score requirements. Some lenders will approve a loan when the FICO scores are 580, but most lenders will only approve when scores are 620 and above.

Once you qualify for an FHA-insured loan you’re getting a better loan product than the typical subprime or ALT-A mortgage. With the FHA there’s no prepayment penalty allowed and no surprise interest-rate hike. Interest rates are generally much lower. You’ll need 3.5 percent down from your own pocket or in the form of a gift and you’ll also need closing costs, but these are reasonable hurdles.

And You Thought The US Was Bad Off

2009-06-25T12:57:00.000-07:00

Now I fully admit that many of the banks in the US are poorly managed, but that doesn't mean we have the worst track record. A study just completed show that the the Royal Bank of Scotland on a daily basis loses more money than any bank in the world.

http://www.dailymail.co.uk/news/article-1195181/Nationalised-RBS-loses-money-bank-world.html

Not only is this sad because it's already 70% owned by the governement, but because like many US companies they are doing nothing at all to solve it ( I'm looking at YOU AIG, Enron, and well...there's not enough space). The most tragic is that the bank just held a £300,000 gala 6 months after a £20 Billion Bailout.

On a positive note, they did say that it was still only 10% of what they normally spent on their entertainment budget. The owners say they still have no clue what's causing them to lose cash.

~bangs head on desk~

8,000 Tax Credit for new home buyers

2009-06-25T12:43:00.000-07:00

First, FHA is insistent that homebuyers purchase with 3.5 percent down, money which must come from either their own pocket or in the form of a gift.
Second, you can only use the tax credit for a downpayment when the money is advanced to you by a state housing agency or an approved nonprofit. Otherwise the tax credit will go into your bank account sometime after your purchase.

So to buy with FHA financing and no money down several things have to happen. You have to be able to get a “bridge” loan from an approved third-party — that state housing agency or approved nonprofit — AND you can’t borrow more than $228,571.42. (3.5% of 228,571 is 8,000)

The following ten states have said their financing agencies will provide bridge loans for first-time buyers who use FHA financing include Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania and Tennessee.
Why haven’t more states offered to help purchasers? To provide a bridge loan a lender first has to have money. What is it that state housing agencies sorely lack? You guessed it, extra cash that can be advanced to lucky borrowers. The same is true for nonprofits, organizations not noted for a surplus of capital. I will keep you updated as more states have funds available to help housing sales improve.