Posts Tagged ‘mortgage’

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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I was asked yesterday what a deed in lieu of foreclosure was and is it a good alternative to a short sale? A deed in lieu of foreclosure is where a homeowner contacts his/her respective mortgage company and essentially deeds the house back to the mortgage company before the mortgage company forecloses due to non payment. A short sale is when a homeowner finds out what the market price is for his/her house, usually with the help of a realtor, and if the value of the home is less than what is owed they try to sale the home on a “short” of value “sale” or short sale. The lender that is carrying the paper has to agree once an offer comes in which usually takes about 2-4 months. Which one is better? For times sake it is the Deed in Lieu of foreclosure. But for liability sake it is a Short Sale. When a lender agrees to a short sale they almost never go after the homeowner for the deficiency or loss incurred by the lending institution. With a deed in lieu, the homeowner opens themselves up to a possible deficiency judgment that forces the homeowner to take the left over debt with them and pay it off over time. President Obama is supposed to introduce legislation that will make it impossible to get deficiency judgments against homeowners who short sale their properties.

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It has come to my attention that there is a bill that has been floating around that congress is calling for the banishment of Yield Spread Premium or YSP paid to Mortgage Brokers. YSP is the fee that a lender/bank pays a Mortgage Broker to either do a certain volume of business or sell a certain interest rate. While this may seem a good idea up front, as usual, Congress has missed the mark. I believe that there does need to be YSP regulation, but prohibiting the payment to brokers is only going to make the consumer pay more to get their financing. Instead of a consumer paying 1 point in origination they will have to pay 2 or even 3 points to get a deal done. Not to mention the fact that the banks and lenders who do not have to disclose YSP are immune to the regulation because they are not required to disclose YSP on a Closing Statement. What it amounts to is President Obama’s big plan for regulation in the mortgage market is being put solely on the Mortgage Brokers and very well could lead to more fees to the consumers. And once again the “little guy” will get squeezed while the big banks laugh all the way to Wall Street.

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Mortgage rates remained constant for the third week in a row. These low interest rates have been holding steady for the last three months. At the Federal Reserve’s policy meeting that was held on September 23rd, Chairman Bernanke told the media of the Feds plan to hold its benchmark interest rate “exceptionally low for an extended period”. The 30 year conforming interest rate is around 5.25% APR. FHA 30 year rates are not that far behind with rates around 5.625% APR. This means that the Fed is committed to doing its part to see our economy pull out of this recession. President Obama has said earlier that he expects unemployment to rise from the August rate of 9.7% until the end of the year, but during the first quarter of 2010 our country should start to see unemployment hold steady and start to reverse its course. I hope they are right.


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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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I was asked a question earlier this week, “Why are mortgage interest rates so volatile?” The answer is extremely complicated so I tried to come up with a way to explain rate volatility while not making her eyes gloss over with boredom. The easiest answer is profit and loss. Lenders only change rates when they believe they can make more of a profit (rates come down) or they are worried that their rate spread might be impacted (rates go up). This is a very simplistic way to view the mortgage market but in a pinch it will help a person who is not in the mortgage business to understand when the right time is to lock. For instance today the FNMA 30 year mortgage bond closed 25 basis points higher than when it opened this morning. This left lenders in a position to reprice conventional and FHA rates better. Why would they do this? In a word, profit. The lower interest rates are, the more deals they will close. But the lender will not allow their interest rate spread to be affected. So, by Monday if the Bond market is down, rates will go up. If you follow my twitter account @Hollander_FHA, you will see my tweets that tell you when to lock a rate or when to float with the market. When I say lock it means rates are going up and when I say float it means rates are coming down.

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