Posts Tagged ‘FHA’

Just a quick word about the impending changes to the FHA rules that are set to take effect on May 20th 2010. Specifically two items that are going to drive all but a select few from being able to originate FHA business. The first item is the increased net worth requirement for all FHA lenders from $250,000 to $1,000,000. I agree with HUD’s net worth increase. Most warehouse line providers will not look at an applicant before they have that same amount so why shouldn’t the government be up with the times. Second, is the elimination of the FHA correspondent program.

As of the end of this year HUD is eliminating the FHA correspondent program and making the FHA lender responsible for all approval criteria for a third party originator. The most significant part of this change is that it will prohibit loan correspondents from using FHA systems like the Technology Open to Approved Lenders (TOTAL) Scorecard and the FHA Connection software systems. Both systems are crucial to the mortgage origination process. So what does this mean? Less competition for the industry in turn means higher rates and fees to the consumer. My recommendation is to increase the net worth requirement for Loan correspondents and have HUD still oversee this category of originator. I know that I am not alone in my feeling but it remains to be seen if HUD will listen.

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As promised I want to explain how this new “temporary” HUD rule, of eliminating the 90 day flip restriction to get FHA mortgage insurance, will help with REO’s, Short sales, and conventional financing. First, investors will be able to buy a dilapidated home, fix it up, and sell it in a much shorter time frame. Right now the average time to sell a home that has been purchased by an investor after it has been rehabbed is 6 months. The main reason for this is HUD’s old anti-flipping rule which said an investor could not market a property until the 91st day of ownership. Now they can start to market the home as soon as they have taken title to the property. Why is this beneficial to the buyer/investor? It decreases the amount of time that an investor’s money is out on one property so the investor can invest in more properties per year which will decrease the supply of REO’s and Short Sales. This means that demand will go up thus increasing values. This will eliminate the glut of inventory the banks have on their books which will put the banks in a position to start lending money on homes again. This will enable Banks to satisfy their appetite with a mix of FHA and conventional products. I know that my opinion will be met with some skepticism, but this very same thing happened in the 90’s after the government bailed out the Savings and loans industry.

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The Department of Housing and Urban Development or HUD has had a policy for years that stated no new home purchases are eligible for FHA insurance until a 90 day waiting period had expired (from the closing date). HUD has since adopted a “temporary” policy that allows new purchases of homes to take place within the 90 day time frame. According to HUD Secretary Shaun Donavan, “this temporary policy will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration’s commitment to addressing foreclosure.” At issue is the vacancy that occurs when a home is foreclosed. President Obama’s aim is to help the urban blight that is taking place in many cities due to the increase of empty houses. By changing its stance, HUD has actually done a great service to the potential homeowner and the neighborhood as well. The only snag may be with the large banks (B of A, Wells Fargo, Citi, etc) that aren’t under any mandate to accept the new change. But it seems unlikely that the new change will not be adopted by the banks because FHA is insuring the deals. Next week I will tackle how this change will affect REO sales, Short Sales, as well as conventional financing.

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Happy New Year to all of you, I wish I was starting the first blog of the year with better news. I sat in on a panel of mortgage industry experts earlier this week and we all came up with the same conclusion. The U.S. government and large banks (B of A, Wells Fargo, Chase etc) are trying to run brokers and small bankers out of the mortgage business. HUD’s proposed a new rule for Full Eagle mortgage lenders net worth requirement is set to increase from $250,000 to 2.5 million. This will effectively eliminate all but the largest mortgage companies. In addition, HUD wants to eliminate the Mini Eagle or correspondent program all together. This will make the lender responsible for approving correspondents, brokers, or licensees. What this does is effectively run the broker and small banker out of the FHA market. Why? Supply and demand. The large Banks will get to choose who they do business with. Who will they choose? A broker network where they have to give up a portion of their profit to the brokers or their in house branches where they keep all of the profit. My bet is the latter. What will this do to the consumer who wants an FHA loan? It will force him/her to accept the fees, points and processing time that is given by these few lenders. In effect a monopoly will be achieved and it will drive brokers from the market and cease all real competition. I am a firm believer in survival of the fittest but I also believe in consumer rights. If HUD’s proposal does get passed then the only loser will be (as usual) the little guy. I recommend you email your congressman or President Obama and let them know that this proposal cannot be passed.

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As we wind down towards the end of 2009, it is important to note which direction interest rates tend to go as we inch closer to 2010. After Thanksgiving the month of December sees Mortgage Bond traders on Wall Street tending to take more time off as Christmas approaches, with the week between Christmas and New Years being a ghost town for all of Wall Street. What does this mean for people who are trying to figure out when the best time to lock the interest rate on their loan is? The easiest way to describe this time is “be cautious”. Rates normally go up during the last month of the year but there have been exceptions. Last year being one of them, we saw rates slightly dip during December but if you look at a bond chart you will see the rates were all over the board. If you don’t have time to watch the market or you don’t understand how the bond market relates to FHA or Conventional (FNMA, FHLMC) interest rates, then by all means follow my Twitter account, @Hollander_FHA. I post a tweet a few times a day letting my followers know what is happening with the market. If you are unable to follow then my recommendation is to lock in your rates before Thanksgiving.

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Introduction to FHA loans:

FHA loans have helped lots of Americans to become homeowners who could not afford to do so with conventional loans. FHA or the Federal Housing Administration insures the loans offered by FHA approved lenders to borrowers on both new and existing single and multi-family housing. However, one of the most important facts here is that FHA does not offer any loan directly to anyone; it rather insures the loans offered by private lenders who are approved by FHA. The mortgage insurance by FHA reduces the risk to lenders in offering loans to borrowers significantly and enhances the borrowing power of individual borrowers.

Key features of FHA Loans:

Lenders charge a higher rate of interest if the loan offered has any associated risk. Similarly if there is lower risk involved in offering any loan, the same lender charges lower rate of interest because of the lower risk or enhanced security of loan. In the same way, the loans offered by FHA approved lenders are insured by FHA which reduces the risk for lenders in offering loans. Therefore, these lenders pass on certain benefits to borrowers, which may be one or more of the following:

• 1. Low down payments
• 2. Low closing costs
• 3. Easy FHA Loan Requirements

FHA Loan Requirements: The eligibility criteria

In order to meet FHA mortgage loan requirements, you should have:

1. A permanent source of income e.g. through full-time and regular employment, with at least last two years in the same organization/employment

2. Proof of paying bills

3. Any long-term and running loan e.g. auto loans etc

4. Sufficient amount to pay as down payment

5. Sufficient monthly income and savings to pay the monthly mortgage along with other costs, if any, timely and regularly.

6. Any foreclosure should be at least 3 years old

7. Any bankruptcy should be at least 3 years old.

However, the actual requirements for FHA loans may vary from borrower to borrower and lender to lender. The above given conditions are an overview of common eligibility requirements to obtain an FHA Loan.

How do I know if I can get a loan?

The best strategy to check whether you can get the loan or not is to use any simple mortgage calculator available on the websites of lenders and calculate the amount you can pay as down payment and subsequently meet your broker or any reputed lender. Also, you can get assistance from housing counseling agencies approved by FHA. These counselors would help you evaluate your potential for loans. In addition, another method is to go to a lender and apply for a mortgage before searching for a home. This way, lenders can tell you how much you need to spend from your own.

Therefore, finally to conclude, since FHA loans are insured by FHA, the approved lenders have no risk in offering loans to different borrowers. Moreover since, these lenders have no risk, they even have lesser requirements so that you can meet the FHA loan requirements. Therefore, today it is very simple and easy to qualify for FHA mortgages. Even people with bad credit or those having previous bankruptcy or foreclosures are also eligible for FHA loans. Infact, through FHA loans, people with bad credit get an opportunity to improve their credit record.

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If you are a first-time homebuyer now would be the time that you should be putting in your offer on your first home. Why now? There are a number of reasons that I will explain. One, President Obama’s $8,000 tax incentive ends at the end of November and it doesn’t appear that he will extend the deadline. In order to qualify you must be a first time home buyer or not have owned a home for the last 36 months and you need to close by the end of November. Most real estate closings are done within 45 days so you need to find a house soon in order to take advantage of the incentive. Two, mortgage rates are at their lowest levels in months and are close to their 30 year lows. FHA, VA and Conventional loans can be used to qualify. Three, Home prices are at their lowest levels since the early 90’s. Four, Fed chairman Ben Bernanke said today that he believes that the economy is on the road to recovery. If you don’t act soon you may miss the opportunity.

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To refinance or not to refinance, is this weeks topic. With current mortgage interest rate trends the way they are I thought it was important to write this weeks blog about the benefit of refinancing now as opposed to waiting for a month or two. It doesn’t matter if you have an FHA, VA or Conventional loan, now is the right time to refinance or streamline your existing loan. Most economic indicators show that we are starting to pull out of this recession. With President Obama’s reappointment of Fed Chairman Ben Bernanke it is obvious he feels our economy is on the right track and the Fed Chairman is doing a good job. With an improving economy, inflation looming and a reappointed Fed chairman, can a hike in the Fed Funds rate be that far behind? No! I believe that by the first quarter of 2010 our economy will have improved to such a degree that the Fed will see inflation as a threat and raise the discount rate thus raising our mortgage rates. I know that this is all very confusing but it is safe to say that interest rates are near an all time low. So why gamble?

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After a turbulent week we closed with interest rates climbing a little. This was due to better than expected economic news and the fact that Fed Chairman Bernanke stating that the economy was close to a recovery. That sent the stock market up and the bond market down. This ultimately raised mortgage rates. I believe that this was nothing but smoke and mirrors with the national unemployment rate rising to 9.5% unemployment rate rose to 11.2% in California and over 12% in Nevada. These numbers have not been seen since the early 80’s. The reason for my disappointment is this. If mortgage rates continue to climb and we see FHA rates climb to 6% it will halt approximately half of the loans currently in process. The reason for this is they will no longer qualify. My belief is that today was just another dip on the current rollercoaster ride that has become the FNMA 30 year mortgage bond market. Til next week.

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Foreclosures have risen 7% from June to July. In fact, they are up by 32% from July 2008. This means that this is the third time this year that foreclosure activity has set an all time new record. Nevada, California, Arizona, Florida and Utah are the top 5 foreclosure states. Coupled with the fact that Fed chairman Ben Bernanke decided to leave the fed funds rate at .25% and alluded to the fact that he will recommend that the rate hold through the rest of 2009. This means that conventional and FHA Interest rates will hold steady for the rest of this year. Of course there are bound to be peak and valleys in the FNMA 30 bond market and rates will adjust accordingly. The bottom line is this: The American economy is just starting to bottom out and our recovery will be slow. BUT with rising foreclosures and low interest rates the time to purchase a home is now. This will put money back into the economy and it will help our recovery.

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