Roseville Loan Guy » FHA

FHA fund is healthier than expected

Greg Cowart — Fri, 18 Nov 2011 17:43:45 +0000

This month the FHA has reported to Congress that the MMI Fund (Mutual Mortgage Insurance Fund), the backbone of its mortgage programs and what makes FHA mortgages possible, is going to return to its mandated capital reserve level faster than previously expected.

Currently the MMI Fund’s capital reserve ratio is 0.24% but that it would return to its mandated sooner than actuaries last predicted. “As was the case last year, the new actuarial study shows that FHA is expected to sustain significant losses from loans insured prior to 2009, and thus its capital reserve remains below the congressionally mandated threshold of 2% of total insurance-in-force,” an FHA official said. “However, the actuaries’ report concludes that, barring a further significant downturn in home prices, the MMI Fund will start to rebuild capital in 2012, and return to a level of 2% by 2014; outpacing last year’s prediction.”

“In the midst of a tough housing market the FHA MMI Fund continues to be actuarial sound.

“Because of the Obama administration’s strategy to protect the FHA Fund – tightening of risk controls, increased premiums to stabilize near-term finances and expanded loss mitigation assistance to avoid unnecessary claims – this past year’s endorsements had the highest credit quality ever recorded and will yield historically high levels of net receipts in the years ahead.”

The availability of FHA loans is a high part of our housing market and economy, both nationally and locally, and the health of the MMI Fund is also an important part of the housing market and greater economy. This is good news for both of those thing as well and, while we won’t see a more normal real estate market or economy for a while still, more and more news like this tells us the tide is turning!

~Greg

P.S. The FHA has never received any sort of taxpayer bailout! The MMI Fund keeps it solvent and without the need for any sort of congressional assistance. Truly an American success story…

Maximum Loan Limits are going down (but that is OK)…

Greg Cowart — Wed, 13 Jul 2011 22:53:25 +0000

If you have heard about the coming expiration of temporary higher loan limits for FHA, VA, Fannie Mae, and Freddie Mac mortgages put into place in 2008 as an attempt to not let the housing market in higher priced areas fall off a cliff, you may have heard reports of doom and gloom for the housing market. There have been numerous and varied contentions about the future state of the mortgage market once loan limits drop from the current maximum of $729,750 to $625,500.

The National Association of Homebuilders released a report saying it will be catastrophic however there isn’t really much to worry about for most American markets according to many economists and academics…

“As far as Fannie Mae and Freddie Mac are concerned, there is a tradeoff there between supporting the higher priced homes and weaning the housing finance system off of unusual limits it was put under during the crisis.” This is what Fed Chairman Ben Bernanke said to Congress this week. A study done by George Washington University suggested the same thing; the decrease in the maximum loan amount would raise the cost of borrowing for very few people (forcing them into JUMBO loans) and this world have no effect on most mortgage shoppers and a negligible effect on local housing markets.

FHA loans should see the same (lack of) change. According to the G.W. report “The FHA still could serve 95 percent of its historic targeted market even if the maximum FHA loan limit were reduced by nearly 50 percent” and “FHA’s expansion played a major role in keeping the housing market afloat during the economic collapse of 2008 and 2009. However, we now are left with large loan limits that were set when home prices at the top of the bubble. They don’t reflect current market conditions and are unlikely to assist the FHA in reaching its historical constituencies – first time, minority and low income homebuyers.”

“I understand the private sector is taking at least a significant number of the jumbo mortgage market but at a higher cost,” Bernanke also said.

Bernanke does admit that jumbo loans will come, “at a higher cost,” but we have to put in perspective what exactly that higher cost will be. Interest rates on mortgages today are already near historic lows at about 4.5% today and bond yields don’t look like they will be changing too much in the near future.

The bond market doesn’t seem to think the U.S. is really in danger of defaulting on its obligations, so rates should remain steady. If a jumbo rate is higher, even by a full percentage point, it’s still historically pretty low, and buyers looking at a higher-priced home likely expect to pay a higher interest rate already anyway. The jumbo market has always been like this, except before the temporarily loan amount increase the maximum loan amount was $417,000 (more than $200,000 less than the new lower amount will be) so in all reality no one, not even the homebuilders association, should complain.

-Greg

The Platinum Down Payment Assistance Grant

Greg Cowart — Fri, 08 Jul 2011 20:12:16 +0000

Almost no money down, literally? Yes, it’s true, and there are only a few places that can offer this program. What I’m talking about is the CHF Platinum Program (some companies have decided to rename it their own name to make it seem like something special only they can do for you, such as the Return to Homeownership Program and others like that, but they are all the same thing). However there are still only a handful of local lenders that can offer this program. Just know that if you hear/see something that sounds just like this but has a different name than Platinum Program, it’s probably the same thing.

This is such a great program and, as opposed to many Down Payment Assistance programs from agencies like SHRA and CalHFA, this grant is not only for the first time homebuyer, people not buying their first home can qualify, and is actually a grant. Not a 2nd mortgage that needs to be paid back over time or when the house is sold. This is true FREE grant money.

Of course there are some rules and not every buyer or property will qualify. However the vast majority of you that want to buy a home in this market should fit in under the guidelines.

Some of the pertinent features of the loan are:

The loan can be a 30 year fixed FHA or VA loan ONLY.
The grant is 3% of the total loan amount and the proceeds can be used for down payment, closing costs, prepaid items (taxes, insurance), and even earnest money.
The 3% grant is not a loan or second mortgage and does not need to be included in the loan calculations
No monthly payment: Since it’s not a loan there is no monthly payments and the grant does not have to be paid back

As far as eligibility, here you go…

Income limits (Sacramento, El Dorado, Placer counties $90,120)
Buyer does not have to be a 1st time homebuyer
Owner occupied primary residence in California
Single Family Residences, FHA approved Condos, Planned Unit Developments (PUD’s) are OK

And here is what is NOT allowed:

2-4 Units
Rental Homes
Co-ops
Investment Properties
Recreational, vacation, or second homes
Manufactured Housing

Underwriting

Underwritten by our Innerwork Mortgage (FIMC) Underwriting Staff
Run through FNMA Desktop Originator Automated Underwriting
Minimum FICO score of 640
Seller paid closing costs up to 6% to cover normal and customary fees is allowed

Please let me know if you have any questions about the Platinum Program. It’s not going to be the perfect fit for everyone, but will be for a lot of people and will not be around forever!

~Greg

Credit Scoring: Reason Codes

Greg Cowart — Thu, 05 May 2011 17:33:02 +0000

A FICO® credit score is a performance objective score. The performance objective of the credit score is the “likelihood of a consumer to have a 90 day late on their credit report in a 24 month period”.

Here are the 20 Reason Codes (or Score Factor) that can show up on a mortgage credit report.

1. Amount owed on accounts is too high
2. Amount owed on delinquent accounts
3. Amount owed on revolving accounts is too high
4. Amount past due on accounts
5. Derogatory public record or collection filed
6. Lack of recent revolving account information
7. Length of time accounts have been established
8. Length of time revolving accounts have been established
9. Level of delinquency on accounts
10. Number of accounts with delinquency
11. Proportion of balances to credit limits on bank/national revolving or other revolving accounts is too high
12. Serious delinquency
13. Serious delinquency, and public record or collection filed
14. Time since delinquency is too recent or unknown
15. Time since derogatory public record or collection is too short
16. Time since recent account opening is too short
17. Too few accounts currently paid as agreed
18. Too many accounts recently opened
19. Too many accounts with balances
20. Too many inquires in the last 12 months

65% of the score is controlled by 2 categories that make up a score. So if the consumer is looking for a few extra points the reason codes can lead you to areas where you may find inaccurate or unverifiable information that could be affecting the scores.

Call me and let’s review the “reason codes” that show up on your credit report, line-by-line.

~ Greg

Fannie Mae brings back closing cost assistance, and improves it even more!

Greg Cowart — Tue, 12 Apr 2011 18:20:57 +0000

I have some GREAT news. Government-chartered mortgage giant, Fannie Mae announced they are bringing back closing cost assistance to buyers of HomePath-eligible homes. People buying one of the Fannie Mae owned REO’s will receive a 3.5% credit towards closing costs. In most cases this 3.5% should be enough to cover 100% of the buyer’s costs, or even buy the interest rate down further! HomePath is already a GREAT program for local homebuyers, especially those with decent to above average credit. These loans already…

A.) require a smaller down payment than even FHA (3% compared to 3.5%)

B.) require no appraisal, saving $400-$500 as compared to pretty much any other loan

C.) have no Mortgage Insurance premium added on to the payment, realizing a significant saving over other low-down options

To qualify for the credit the offer must be submitted by 4.11.10 and escrow has to close no later than 6.30.11. to be eligible for the incentive. Also, while HomePath is available to investors (with at least a 10% down payment) ,the 3.5% closing credit is only available to people intending to live in the property as their primary residence.

“Terry Edwards, VP of Fannie Mae’s Credit Portfolio Management team said “attracting qualified buyers to the market and reducing the inventory of vacant homes remains essential to stabilizing neighborhoods and helping the market recover. Since interest rates remain low, the incentive will go a long way toward helping even more families buy a new home so this is a great time for Fannie Mae to offer some assistance.”

To find a list of HomePath eligible homes give me a call/e-mail or check it out yourself at http://Homepath.com. You can also ask your Realtor to do a search for HomePath homes for you (if you need a referral to a top-quality Realtor in your area let me know). I see a lot of these properties in the Sacramento and Roseville real estate markets. The lists are updated with new properties as they come to the market.

Fannie’s Press Release

~Greg

Housing in the US never as “undervalued” as it is today…

Greg Cowart — Mon, 21 Mar 2011 17:22:50 +0000

Continued depreciation of property values in 2010 has made housing more undervalued relative to income than ever before. Using the latest Case-Shiller home price index American housing was 21% undervalued when compared with disposable income per-capita.

This data includes the index published by the Federal Housing Finance Agency and shows that housing in the 4^th quarter of 2010 was 15% undervalued as measured against American’s disposable income. The results point to the idea that housing is exceptionally undervalued, and the gap has gotten bigger.

Current low housing prices, coupled with historically low interest rates (the 20 year average is 7% but a minimum down FHA loan can be had for 4.5% today), explains why the monthly mortgage payment on a median priced house bought with a 20% down payment has fallen to an all-time low of 13% of the median income. Real estate costs now appears close to fair value when set against rents according to the numbers (and I have seen plenty of people buy for less than they were paying in rent recently).

These low prices and rates mean there is plenty of scope for housing to perform well in the near to mid-term. Also, the Sacramento market currently has MANY more buyers than there are properties to sell in this low-mid price range, so the demand is there to keep it moving.

Looking at the long term, as I have talked about a number of times recently, a sharp fall in the mortgage delinquency rate throughout 2010 means there will be fewer homes in the foreclosure pipeline, and as current foreclosure pipelines continue to shrink we should see a return to a more normal real estate market in the Sacramento region. This will not happen overnight but with less and less first payment defaults, there will be less and less foreclosures going forward.

So, with home prices as “undervalued” as any time in history, what are you waiting for?

~Greg

FHA 5/1 ARM, a fools bet, or are you a fool to ignore it?

Greg Cowart — Mon, 07 Mar 2011 17:23:50 +0000

This is an answer to a question posted to me in Zillow.com. A homeowner in Southern California was pondering a 5/1 FHA ARM with their loan officer. Of course it’s sad to me that one would have to turn to a bunch of strangers on a website to ask this question when their LO should be able to provide this information (but it doesn’t surprise me knowing as many loan officers as I have over the years). Anyways, here’s my answer…

“Anna,

I’m going to have to make a couple small estimates without knowing everything (which I could not know without actually having an application and ordering some documents from HUD) but this should be pretty close to accurate give when you’ve told us.

Right now your P&I + MI is $4147.02. As an estimate I used $457,000 as a new loan balance, should you be able to refinance into a 5/1 ARM at 3.85%, and came up with a P&I of $2142.45 + MI of $342.75 for a total of $2,485.20 and a difference of $1,661.82 a month!

Looking at this we know that the FHA 5/1 ARM is fixed for 5 years and can change by a maximum of 1% every year after the first 5 years. So it would actually be a full 7 years before the rate could increase to what it is today, a full 8 years before it could be higher than it is today, worst case scenario. So we’re looking at a 5/1 ARM with close to 8 years of rate safety. Not too bad.

Lets dig further… So you’re saving $1,661.82 a month for the first 60 months of this loan. If you were to be disciplined and save this for those 60 months, even if you earned NO interest you would have saved about $100,000 compared to your current payment before the payment could adjust even 1%. Over 8 years, by the time your payment could be more than it is today, you’d have saved about $140,000. Again, this is while earning NO interest on that money along the way (which you obviously wouldn’t do).

So, worst case, 8 years from now you have $140,000 (probably a lot more) saved and your payment has finally risen to be slightly higher than it was in 2011. Will the market have recovered enough to sell? I don’t know but I’d assume so. Has your income increased? Again we don’t know but we can pretty safely assume so. If not, you have $140,000 in the bank to bridge the gap now that, 8 years later, your payment is finally higher than it was in 2011.

Again this is not taking into account tax savings, compounding interest on the money saved, the fact that your rate is not guaranteed to increase by 1% annually (it can be less, or even go down), or the fact that you’ll also be paying down principal faster, etc. I’m looking at this very conservatively, the wealth building opportunity could, and probably would, be even bigger.

I would asses the refinance with your financial planner and create a plan, a plan you will force yourself to stick to, if you want to make the most of it. Maybe you only save $1,000 a month from the $1,661 and use the other $661 for whatever you want. You’d still save $60,000 over the first five years and put another $40,000 in your pocket for whatever you want to do. Either way the 5/1 FHA ARM is a great opportunity if utilized correctly, as I illustrated in the above scenario.

Sincerely,
Greg”

Neither the best of times, nor the worst of times…

Greg Cowart — Fri, 04 Feb 2011 20:03:26 +0000

This is a great article by one of our nation’s top independent financial professionals, Ric Edleman. Ric talks about today’s real estate market, the different perspective between buyers and sellers, and why this difference may be slowing down the normal real estate cycle.

Ric’s article <- click

Free or “No Cost” Refinance? Do they exist?

Greg Cowart — Fri, 15 Oct 2010 01:10:01 +0000

If you’re like me you can’t go anywhere without hearing ads for FREE and so-called “No Cost” refis. If only it were that easy. The truth is, there is no such thing as a no cost refinance. The lender is simply taking a higher rebate from the bank and applying it to your fees. But how do they get this higher rebate from the lender? By charging a higher rate of course. So, even though they are paying your closing costs for you, are you getting the best deal?

If anyone is interested in HOW this works and WHY this is a bad idea, please leave a comment here. Many mortgage companies have no idea how finances work, only how to market and get the phones ringing. These people are doing Sacramento area consumers a disservice incessantly blasting this message all day, every day. But hey, they just want to sell you a loan. It doesn’t matter if it’s the right loan for you or not.

Sure a no-cost refinance sounds great, but it simply isn’t. It’s one of the worst financial decisions any of us can make.

HUD making major changes… Are they good or bad for future homeowners?

Greg Cowart — Fri, 06 Aug 2010 18:31:51 +0000

I received a letter from the federal department of Housing and Urban Development (HUD) informing me that there are going to be sweeping changes to the FHA mortgage insurance program starting next month. This is something that has been talked about for some time but nothing had been finalized. The major change is in FHA’s Up Front and annual mortgage insurance premiums, the Up Front premium is being reduced my more than 50% (from 2.25% to 1%!) and the annual premium is being increased from 5.0% or 5.5% (depending on loan-to-value ratio) to .85% or .9%. But what is FHA mortgage insurance and what does this mean?

I was once told that FHA IS MORTGAGE INSURANCE. FHA is the government’s program that allows more Americans to own homes. They have both purchase and refinance programs designed to allow those with less of a down payment (equity for refiance customers) and/or lower credit scores than the conventional mortgage market will allow. To keep the program safe and tax payers off the hook for FHA losses, HUD employs a mortgage insurance premium to keep the program viable. EVERY FHA LOAN HAS MORTGAGE INSURANCE (MI). This MI premium keeps the program solvent, allowing for the program to continue and more people to become homeowners.

Recently, with the decline of conventional financial availability, FHA’s market-share has grown. So much so that they needed to make a change to keep the program running well. These changes will make a negligible difference to homeowners payments but will keep the program up and running for the long term. Up until these changes took place the UFMIP premium for an FHA loan was 2.25% of the loan amount. Although this amount is not required to be paid by the homeowner at closing it is financed into the loan, making the loan amount thousands of dollars higher than it otherwise would be and increasing the monthly payment accordingly. The annual MIP was .55% (or .50% with at least 5% down payment) but that is not being raised to .90% (or .85% with at least 5% down payment). This, of course, is going to increase monthly payments.

What does this mean? Well, not much in the beginning. Those obtaining FHA financing will have smaller loans, a good thing, but their monthly payment will be increasing but about the cost of a trip for two to the movies (without popcorn, candy, and drinks!). Not a bad price to pay to keep these programs viable and starting out with a smaller loan. But that still seems like a negative on the surface. Higher monthly payments, no matter how small the increase may be, is a negative.

However that is not looking at things in the long term. One thing to remember is, FHA’s mortgage insurance is only required to be in place for 5 years, or when the mortgage balance reaches 78% of the original purchase price, whichever comes last. Anyone that keeps their home long enough to realize the deletion of the annual MIP will see huge savings over today’s situation. To keep it simple, their monthly mortgage payment without the MIP will be less from day one because they are only financing the Up Front MIP of 1% of the loan amount, not a whopping 2.25% as they are today, so their loan amount is smaller. That principal and interest payment is the same for the life of the loan and when that MIP premium they are paying for the first 5 years falls off, their payment will be reduced drastically.

In the short term this change will not mean much to people; loan amounts will be a little smaller, the overall payment will be a tad higher, and this valuable program will stay in effect for more Americans to utilize to become homeowners or refinance to today’s incredibly low rates. Those that keep their homes/loans for 5, 10, 15, 20+ years will realize huge savings in the later years. Seems like a win-win to me.

Your Local Expert,
Greg Cowart