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Patty Woods

FHA Pushes for Mandatory Financial Assessments on HECM Program

A proposed rule by the Federal Housing Administration (FHA) would require reverse mortgage lenders to perform financial assessments on seniors taking out Home Equity Conversion Mortgages (HECM). The assessment is aimed at ensuring applicants can pay property taxes and homeowner’s insurance.

Carole Galante, FHA commissioner, reported to Senate appropriators last week that the proposal should be available for public review in July or August. She stressed the FHA has urged Congress to pass legislation allowing the agency to immediately mandate stated reforms by mortgagee letters in hopes of regulating the troubled HECM portfolio.

In order to cover losses from technical defaults on HECM’s, the FHA may need to seek $943 million from the U.S. Treasury. Galante stated concern over the mandated time necessary for proposing and finalizing a rule of 18 months.

Senator Susan Collins, R-Maine, noted the FHA has known about the problems with HECM since the beginning of 2012. She said the agency should have proposed the rule in January of that year, noting it would have been a rule in place today if the FHA had been more proactive.

Legislation allowing FHA to run the HECM program by mortgagee letter has since been introduced in the House and Senate. Those in support of the House bill, H.R. 2167, are trying to get it on the suspension calendar for a quick vote.

To see if a reverse mortgage suites your needs, contact me at pwoods@mychartermtg.com today. I would be happy to help you decide if it is a viable source of additional retirement income.

FHA Scrutinizes Early Default Mortgages

FHA commissioner Carol Galante recently announced the Federal Housing Administration (FHA) will be reviewing all single-family mortgages that default in their first two years of repayment.

This policy is being followed due to pressing by the HUD inspector general, stating FHA needs to conduct reviews of all early payment defaults.

“We were able put in a very robust claims review process that meets all the IG’s recommendations and more,” Galante reported to the Senate appropriations committee last week.

David Montoya, the HUD Inspector General, is pressing for FHA to take these defaults further and require lenders to submit certifications when filing claims on defaulted loans. Because FHA is required to pay claims within 30 days, it does not allot enough time for the agency to review the file for proper underwriting.

Certifications requested by the IG would require lenders to review the defaulted loans and certify they met all underwriting conditions. This puts some responsibility back on the lenders per Montoya. Galante is willing to consider requiring these certifications.

Montoya continues to pursue lenders who made bad FHA loans from 2007-2009, costing billions in losses to the FHA mortgage insurance fund. Some critics believe the IG is claiming large settlements from these lenders for technical violations, Montoya claims he is looking for “material violations” involving borrowers who couldn’t afford their loans.

Montoya states he is looking at lenders that displayed a “wholesale disregard” for the FHA single-family program. “We are trying to pick the worst of the worst.”

With FHA 30 year fixed rates today at 3.25% and lower, finding an affordable mortgage amongst the chaos is possible. To see if you qualify for an FHA purchase or streamline refinance, contact me at pwoods@mychartermtg.com today. I would be happy to help you decide how to finance your home.

FHA Mortgage Changes Too Restrictive?

With the onset of changes from the Consumer Financial Protection Bureau (CFPB), restrictive guidelines ensuring safe and affordable mortgages may eliminate many potentially qualified home buyers.

Traditionally used by first time home buyers, FHA programs made up $233 billion of mortgages in 2012, up 22% from the year before. Some of the CFPB changes may affect the future use of FHA programs due to tightened guidelines. Below are just a few of the recent changes to FHA programs.

Mortgage insurance premiums (MIP’s) increased 10 basis points this quarter. Jumbo loans saw a premium increase of 5 basis points. Additionally, starting in July, FHA loans originated with MIP will have to carry the insurance for the life of the loan. Traditionally, once borrowers reached 78% equity in their homes, this insurance was cancelled. These changes have been brought about because of the higher default rates in the past five years with the FHA trying to better manage risk.

FHA also changed its minimum FICO score requirements. Now, if a borrower has less than a 620 middle score, the file will need to be manually underwritten, taking longer than the automated system, to complete a purchase or refinance. Accordingly, if the borrower has a higher debt ratio than 43%, they will need to meet additional compensating factors, including a higher level of reserves or a larger down payment. These borrowers will also be subject to manual underwriting.

On jumbo loans, FHA is proposing a higher minimum down payment from 3.5% up to 5%. This, coupled with the higher MIP mentioned previously are both efforts FHA is taking to encourage higher levels of private market participation.

Finally, changes to time since a foreclosure has occurred will affect borrowers too. Now it is FHA’s policy to allow a borrower to purchase three years after being involved in a foreclosure. The agency is now talking about a 20% down payment required for anyone applying within seven years of a foreclosure.

While FHA guideline changes may seem restrictive, first time buyers can still qualify to purchase a home. With 30 year fixed rates currently at 3.25% or lower, a house payment is often lower than rent. Contact me at pwoods@mychartermtg.com today to see if you qualify.

Displaced Sandy Home Owners Granted FHA Extension

For those home owners with FHA loans displaced by Super Storm Sandy, the good news is, you are entitled to an extension. The bad news is, you may have to take action to have that extension granted.

Many lenders appear to have played “ostrich” regarding the Federal Government’s April extension. Lenders claiming ignorance of the extended deadline have sent out numerous late notices and foreclosure threats, causing undue stress on those just trying to rebuild their homes and get back to making their mortgage payments.

One example of such lender bullying was experienced by Kathleen Murphy in Ocean County, NJ. After repeated notices and battles with her mortgage lender, she rallied the public to push back. Murphy started an online petition at www.Change.org and has collected 19,000 signatures of support so far.

Currently, her bank agreed to extend her moratorium but Murphy explains it is an over-the-phone verbal message and nothing has been mailed to her in writing on the issue. Her bank has also reported her late pay history to the credit bureaus.

Murphy states, “As a result, I don’t feel safe with this. I feel they can still swoop in and take our home and it’s not right. We have done everything we were supposed to do.”

Reports have since confirmed Murphy’s bank has approved her extension on the payment moratorium. Said bank also claims to have helped over 20,000 of their affected customers with insurance claims, foreclosure prevention and payment assistance.

As FHA has historically reached out to disaster victims, their rates remain at all-time lows. A 30 year fixed rate FHA loan today at 3.25% and lower, is available. To see if you can still save money on your house payment, contact me at pwoods@mychartermtg.com today.

Is Fed’s Spending Spree Keeping Rates Low?

With the Federal Government purchasing nearly $80 million in mortgage backed securities, is it the only reason interest rates have remained low for so long? Are home buyers losing their purchasing power as we speak? The answer seems to be a resounding yes.

The real estate market is a volatile one as we speak. Last week, the Feds stated they would be slowing down their spending in the MBS (mortgage backed securities) market. Talks of early Quantitative Easing sent rates through the proverbial roof.

Add to that the fact that home prices continued to rise through the month of April, up 11% from just a year ago. Now what home buyers are faced with is a home that has escalated in price with a rate spike and you have the recipe for disaster when it comes time to put an offer in on a home. That prospective buyer in just one week’s time last week could have seen the purchasing power erode a good 10% or more.

Combine increased rates and increased asking prices with tighter lending requirements on conventional and FHA loans, and the perspective buyer and borrower that once was may no longer exist. As a borrower or a home buyer, being ahead of the curve with the right information from your mortgage professional or real estate agent is tantamount to your success.

Missing a lock period on the lowest rates in history does not have to end your home search. With FHA 30 year fixed rates at 3.25% and less, affordable house payments are still available. To see which program best suites your needs, contact me at pwoods@mychartermtg.com today.

FHA Pilots REO’s Off the Books

By use of a new pilot program with 11 participating lenders, the Federal Housing Administration aims to rapidly rid its portfolio of REO (Real Estate Owned) inventory.

Servicers of single family REO’s are selling these homes immediately upon completion of the foreclosure process. This is a radical departure from the old system in place which had FHA servicers conveying titles of said properties to FHA-approved contractors to manage and sell.

Just last year, FHA servicers conveyed properties to FHA at the pace of 23,400 to 28,600 per quarter. In hopes of liquidating inventory on a quicker basis, the pilot program developed in 2011 allowed the FHA to bypass the management and marketing program for the properties. FHA then sets the reserve price on the properties just below their unpaid principal balance.

With these changes to more of a “third-party” sale, as FHA refers to them, fourth quarter numbers for 2013 show nearly 1,500 of these types of sales. In late April of 2013, FHA expanded this program to 11 servicers in hopes of continued rapid property liquidation. By late summer, the program is anticipated to be available on a national platform.

FHA commissioner Carol Galante reports to congress, “This method of disposing of these properties is expected to yield lower losses for the Mortgage Insurance Fund than selling them through FHA’s normal REO disposition process—as carrying costs associated with preserving, managing, and marketing an REO property were eliminated.”

With FHA 30 year fixed rates today at 3.25% and lower, finding an affordable mortgage for an REO or new home is possible. To see which program best suites your needs, contact me at pwoods@mychartermtg.com today. I would be happy to help you decide how to finance your new home.

Pre-Approval Letters Are Like the Tooth Fairy

Mark Greene, contributor to Forbes Magazine, says a Pre-Approval letter for a home buyer is pretty much a fairy tale. Greene states while it is a necessary stop in the process to purchasing a home, it is essentially a work of fiction.

Why, you ask? Well, simply put, a pre-approval letter only lets a real estate agent or seller know that the potential home buyer has meet with a loan officer to determine if they meet the minimum guidelines to qualify for a mortgage. So then, why bother? Should the pre-approval letter find the same fate as dinosaurs and become extinct?

The answer is a resounding no. A well versed mortgage professional and real estate agent should educate each potential home buyer with whom they meet. First and foremost, a home buyer should have a true handle on their financial situation. The meeting with a loan officer should happen before viewing homes with a real estate agent. Providing recent bank statements, two years’ worth of the following are essential, including W-2s, tax returns, employment history and housing information. Without having actual figures to analyze, a loan officer will not have a true idea of what a buyer can afford.

Back in the rush to sell real estate at the end of the 2000s, these steps were decidedly rushed. Realtors were out to sell and loan officers wanted the referrals from real estate agents to pad their wallets. If the pre-approval process today ever fell back to these, “line ‘em up, fill ‘em out, write an offer now” ways, decidedly, the prequalification process would be pointless. With the tight underwriting guidelines today, only the most scrutinized files are approved.

Finding a loan professional that puts you through all the paces is the best way to be the most competitive buyer you can be. With so many first time buyer incentives available, and FHA loan programs offering low down payment with rates at 3.5% and less, now is the time to buy.    To see how low your home payment can be, contact me at pwoods@mychartermtg.com today.

Young Americans, Optimistic or Home Buyers?

Mortgage Marvel reports an increased interest in younger Americans wanting to purchase a home this year in a recent online poll executed by Harris Interactive. In the 18-34 year old age group, 41% wish to purchase a home this year.

Of these young respondents wanting to purchase, close to 20% state their finances are less than perfect, but they believe they can still afford a home purchase. Across all age groups, of the 30% of respondents wanting to buy in the next year, nearly 15% wish to do so with questionable credit.

Another interesting statistic, of those with plans to buy in the next year, after reviewing their financial situation, 5% decided they could no longer afford to do so. Of those surveyed wishing to purchase a home with children under the age of 18, however believed 24% of the time that they could not afford to do so.

With the financial climate in a state of repair, and mortgage underwriting guidelines still tight, survey participants may be putting hopes before truths. People with less than perfect credit can still qualify for a mortgage, including those offered through FHA with low down payments required. With FHA 30 year fixed rates at 3.625% or less, now might be the time to buy. Feel free to contact me at pwoods@mychartermtg.com today to investigate your home purchase options.

Student Loans Create Ghosts of First Time Home Buyers

Many wonder if we aren’t creating a market of permanent renters based on the student debt load reported by the end of 2012 recorded at over $1 trillion. This number has almost tripled since the $350 million debt load reported by the end of 2004.

According to a recent Federal Reserve report on household debt and credit 39 million borrowers have student loans, 7 million of which are delinquent on paying them back. With student loan delinquencies reported on credit reports, qualifying for a mortgage is next to impossible.

Of new mortgages originated, homebuyers with student loan debt made up 9% of the population in 2005. In 2012, this number dropped to 5%. During the same time period, new mortgage holders with delinquent student loans measured 2% in 2005, dropping to almost 0% in 2012.

Experts believe that despite historically low rates and low down payment programs available, increased debt burdens carried by the newest generation of home buyers will keep them out of the market for a longer time period. Add to that the stricter qualification guidelines, and the recipe for tenants over owners reigns supreme.

People are on average waiting until they are 42 years old before buying their first home according the 2012 Annual Profile of Home Buyers and Sellers developed by the National Association of Realtors. In 2010, the average first time buyer was 39.

When the federal government became the direct lender of all student loans, after industry consolidation in 2011, very little competition is left to offer a long term solution to this debt. With student loan providers limited to six government-contracted lenders servicing 85% of all student debt, refinancing or principal forgiveness aren’t likely scenarios given the control these lenders now hold.

As costs of higher education continue to escalate, and a majority of high school graduates wanting a college degree, the age of the first time home buyer will continue to rise. Without debt relief in sight for those with student loans, the age they can afford to buy may effectively put them out of the housing market for life.

Many programs are available for first time buyers with higher debt ratios because of student loans. With FHA 30 year fixed rates at 3.625% or less, and low down payment requirements, now might be the time to buy. Feel free to contact me at pwoods@mychartermtg.com today to investigate your home purchase options.

FHA PMI Changes Deemed Unfair to Home Buyers

While FHA has offered consumers the chance to buy a home with little money down, it’s most recent changes to the mortgage insurance required on their loans is unsettling for those opting to use the program after June 1, 2013.

Traditionally, FHA required private mortgage insurance on homes purchased with less than a 20% down payment, as do conventional programs. However, once homeowners get to the point of 22% equity in their home, the mortgage insurance was dropped.

FHA is now requiring this mortgage insurance to remain on the mortgage for the life of the loan. Last month, FHA also raised its premium on mortgage insurance. It has been stated that all these changes have been set in motion to help FHA recover from a deep financial hole. However, the biggest boost to FHA’s finances will come from the permanent mortgage insurance requirement. This change will make an additional $10 billion in fees for FHA.

Contrast this lifetime MI requirement on FHA loans to the conventional market, which is required to drop the MI once a loan reaches 20% equity, and the exemption for FHA seems unjust. More importantly, it’s not truly evident why FHA needs the money.

Obama administrators estimated FHA needs of $943 million for 2014, excluding any gains the agency may have received from recent legal settlements. Most of these expected losses, however, are expected from FHA’s reverse mortgage program. The permanent MI reform, however, does not apply to the reverse mortgage program. Therefore, new FHA buyers are paying to bailout a defunct program which does not have the same expensive lifetime MI requirements.

Also, with improvements in the economy and rising home prices, FHA may not need such a large amount to recover its losses. Considering the higher lifetime costs of this loan, however, FHA may be even further pigeon holed into being the “high-risk” lender, thereby shouldering more losses down the road.

Some argue buyers with little down should take the FHA loan now in hopes of refinancing in seven years or so to a conventional program, once they build up the equity needed. With rates as low as they are currently, however, that conventional refinance rate may not be low enough to show much, if any savings upon refinance.

Does this mean FHA programs aren’t the best choice anymore to buy a home with little money down? Most experts agree this is not the case. Even if a borrower refinances later to a conventional mortgage without MI at a higher interest rate which results in a payment about the same as it is with the FHA loan they are replacing, the interest is still a tax deduction. There is the silver lining.

With FHA 30 year fixed rates today at 3.625% and lower, finding an affordable mortgage with low money down is possible. To see which program best suites your needs, contact me at pwoods@mychartermtg.com today.

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