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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.

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.

Pre-Approvals Really Do Pay

Summer is just around the corner. Your current home seems like a prison more every day. You decided to go for a drive this weekend and found your dream home. You and your significant other decide it’s time to write an offer. In the mad pace of today’s seller’s market, your real estate agent agrees to meet you in an hour to write the offer without finding out your lender information.

On your way out the door, you too realize the oversight. Should you go to meet the real estate agent or try to meet with a mortgage professional instead, since doing so may mean you miss out on the home you love? Regardless of how great you feel about your current financial situation, you know the right answer is to be prepared.

The real estate market is tight. With inventory shortages across the country it is tempting to put the cart in front of the proverbial horse, so to speak, and find a home you love first. In doing so, however, as a potential home buyer, you are falling further behind in the buying process.

Lenders today are far more critical of files once they arrive in underwriting. Although conditions are similar to a real estate “boom” as in the late 2000s, with home values rising and lack of inventory driving offer prices upward, creditworthiness carries a much greater weight than before.

Even if you haven’t had a problem qualifying for a mortgage or credit in the past, today’s guidelines are much more stringent. What might not seem like a problem or pitfall with your finances or job history may require further documentation to get the approval you seek, so always get pre-qualified.

Another disservice which potential home buyers fall victim to is having an outdated pre-approval. Some documents required for a lender to pre-approve a loan expire, usually after 90 days. These documents include pay-stubs, bank statements and credit reports. Additionally, appraisals must be recertified for value after 120 days.

The take away is evident for the savvy home buyer out house hunting in today’s market. Meet with your mortgage professional first. Always provide them with a complete two year job history. Have your most recent bank statements and pay stubs available. Be prepared to explain any periods of credit delinquencies, housing or work history gaps or anything out of the ordinary. If your credit history has been less than perfect, there might still be options available to buy that home you desire, so speaking to a mortgage professional gets you on the right track before you buy.

A little bit of preparation on the front end, makes closing delays on your dream home less likely. With FHA 30 year fixed rates today at 3.625% and lower, you may not have to live without your new home any longer. To see what loan program is right for your home purchase, contact me today at pwoods@mychartermtg.com.

First Time Home Buyers, Some Words of Caution

According to the US Department of Housing and Urban Development (HUD), 2012 was the year of housing recovery. Numbers from the beginning of 2013 provide further evidence of recovery and growth with housing starts on the rise, mortgage defaults and delinquencies on the downturn, and a slight increase in mortgage rates.

Although this is excellent news for the US economy, for first time home buyers in the market this summer, this news is less than stellar. Experts at Trulia, a web based company specializing in real estate value, believe new housing starts and substantial appreciations in value in larger metropolitan areas such as Miami, San Francisco and Seattle may make renting more attractive than buying. These premium markets will essentially be out of reach financially for most.

Additionally, with existing housing shortages in the majority of the country, and a shortage of new homes being built to sustain the number of home seekers, it’s a sellers’ market. Many first time buyers may simply be outbid on hot properties by home seekers in a better financial position to offer more than list price.

Consequently, these three pieces of advice for first time buyers this summer make sense. First, follow the golden rule of real estate. Buy for “location, location, location.” Is the home close to areas important to you, including work, shopping, schools, public transportation or anything else that fits your lifestyle? Is the home in a desirable neighborhood? Is the neighborhood mostly residential? These are all important questions to answer before making that offer.

Second, surround yourself with professionals you trust that understand your needs. Interview real estate agents to find someone who can zone in on what you want in a home, who can accommodate your schedule and who wants to help you find the best deal in your price range. Shop for a mortgage professional who can provide you with options for your home financing, someone who responds promptly to your requests and who takes the time to explain the requirements of obtaining the best mortgage for your needs.

Finally, have your financial “house” in order, so to speak. Know your credit situation. Have a handle on any negative marks against your credit and be prepared to explain them or correct them. Have your down payment funds saved or explained in a gift letter, if applicable. Have a two year job history and proof of income and funds on deposit ready. Get pre-qualified for your home with a mortgage professional BEFORE you start looking at homes so you know what you can realistically afford. But perhaps most important, be prepared to make your highest and best offer on the home of your dreams, even if it is higher than the list price.

With so many options to finance a home with little money down, it pays to get pre-qualified now. FHA 30 year fixed rates today are at 3.25% and lower, and with a 3.5% down payment, house payments are highly affordable. To see which program is best for you, contact me at pwoods@mychartermtg.com today. I would be happy to help you on your way to home ownership.

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