Wade’s World

As promised in December, the Federal Housing Administration has announced the details of changes intended to strengthen its capital reserves which were reported to be headed into dangerously low territory late last year.  The changes are designed to increase the FHA’s income from customers while reducing its portfolio’s risk.

FHA Commissioner David Stevens comments:

“Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important,”

“When combined with the risk management measures announced in September of last year, these changes are among the most significant steps to address risk in the agency’s history. Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing market’s recovery. Importantly, FHA will remain the largest source of home purchase financing for underserved communities.”

Announced FHA Policy Changes:

Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending

• The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.
• If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.
• This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing
• The initial up-front increase is included in a Mortgagee Letter to be released tomorrow, January 21st, and will go into effect in the spring.

Update the combination of FICO scores and down payments for new borrowers.

• New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
• This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
• This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

Reduce allowable seller concessions from 6% to 3%

• The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
• This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

Increase enforcement on FHA lenders

• Publicly report lender performance rankings to complement currently available Neighborhood Watch data – Will be available on the HUD website on February 1.

o This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly   available.

• Enhance monitoring of lender performance and compliance with FHA guidelines and standards.

o Implement Credit Watch termination through lender underwriting ID in addition to originating ID.
o This change is included in a Mortgagee Letter to be released tomorrow, January 21st, and is effective immediately.

• Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process

o Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.

• HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:

o Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders.This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite
o Legislative authority permitting HUD maximum flexibility to establish separate “areas” for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches

In addition to the changes proposed today, the FHA is continuing to review its overall response to housing market conditions, and continuing to evaluate its mortgage insurance underwriting standards and its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward.

-From Adam Quinones of Mortgage News Daily Jan. 20, 2010

http://www.mortgagenewsdaily.com/01202010_fha_increases_fico_mip.asp

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Imagine if you will for a moment, that you wanted to shop for the cheapest gas station to buy gas at. It seems easy enough at first. You can drive around and look at the big billboards and after you get tired of driving, you simply pull into the one that had the best price. That seems reasonable enough.

What if the store owner had the ability to adjust the billboard very easily with just the click of  a button and did so multiple times a day? Even MORE tricky right?

What if  when you pulled into the station that had the best price you saw as you drove around, and in the time that it took you to drive around, the price you saw at the others had changed?

Virtually impossible to shop simply on price right? Welcome to today’s mortgage market. You say wait a sec. What about those guys on the internet that you go to and they supposedly get you several quotes from lenders? Maybe a good idea, maybe not. 95% of those guys are not lenders at all, but just lead sellers. They take your information and sell it to all bidders. Your phone might be ringing for days and again, you will be getting quotes from different lenders over different time frames and ultimately, you really are not guaranteed the rate until you’ve made application and locked the rate at which time, even more time has passed and rates have changed again.

Sound like a sales pitch? It might, but it is just the facts when you are talking about a volatile market with VERY fluid interest rates. Take a look at the chart above to see a fairly calm day in the mortgage market. It still shows variance of around .125 or 1/8 of a point. That may not seem like much, but in order to buy down an interest rate that same 1/8 on a $200,000 loan, it would cost around $1000 to $1500. In the last year, we have seen the market move over .5% in one day. That means at noon you could have been quoted 4,5% and at 5 the same lender would be quoting 5%!

What is a shopper to do?

I recommend working with someone you can trust that is recommended by friends or family and that you know is a trusted professional. In this market, the timing that the lender used to lock your rate is more important than the rate that was quoted when you were shopping for it. How do you know you are dealing with a professional?

I am glad you asked. Tune back in for our next installment: Four questions to ask your lender to know if they are a True Pro or email me with “Shopping Letter” in the subject line for the free report.

wade@wadeconway.com

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Apparently all the talk about the $8000 first-time homebuyer tax credit being extended and expanded is coming to pass. According to a USA Today article…

“Senators agreed to extend the existing tax credit for first-time home buyers while offering a reduced credit of up to $6,500 to repeat buyers who have owned their current homes for at least five years”

Obama seems to be fully behind the extension of the tax credit, so it is will likely be finalized very soon. The proposed bill would extend the current $8000 tax credit for new homebuyers from it’s current end date of November 30th, 2009 to April 30th 2010.
$6500 tax credit for home buyersA different type of deadline

Just to clarify, they are discussing changing how the credit deadline works. Currently, you have to close on your home purchase by November 30th to be eligible. But under the new plan…

“The Senate agreement stipulates that buyers must have a sales contract on a house by April 30 to be eligible, but it gives them an additional 60 days to close the purchase. Looked at one way, the effective deadline of the credit under this agreement is actually the end of June.” (USNews)
Rules for current homeowners

As mentioned above, it would also allow current homeowners to get in the game by offering them $6500 if they have been in their current house for at least 5 years.

“The current credit prevents home buyers who have owned a primary residence within the past three years from claiming the credit. The agreement, however, would allow current homeowners to claim up to $6,500 as long as the property they are vacating has been their primary residence for at least five years.”

If you are a current homeowner looking to get in on the $6500, it would likely have an effective date of December 1st, 2009.

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The House of Representatives has voted to pass legislation extending the home buyer tax credit until April 30, 2009.

Last night the Senate voted 98-0 to pass the legislation. Next the bill will head to President Obama to be signed into law on Friday.

While the bill extends the $8,000 tax credit for first time home buyers, it also makes available a tax credit to homeowners who have lived in their current residence for at least five years.  The credit for these buyers will be capped at $6,500.

Income levels will be extended from the current limits of $75,000 for a single purchaser and $150,000 for couples to $125,000 and $225,000 respectively.  Above those limits there are diminishing credits available.

Housing interests, especially the National Association of Home Builders and the National Association of Realtors, has pushed strongly for the extension and the Obama administration has also lobbied heavily for its passage. However, not everyone was in favor of it.

Some critics have charged that the tax credit has merely moved sales that would have occurred sooner or later to an earlier date and that, when the credit finally does go away, the market will experience another severe downturn. A diametrically opposed opinion would have it that, while 1.4 million claims have been made, few sales were actually inspired by the credit.  Others have argued that the current interest rates and low housing prices are enough of an incentive without spending tax money. The extension is expected to cost an estimated $11 billion on top of the $10 billion that has been spent to date.

There have also been charges of fraud in the operation of the program.  To combat this the new law has some expanded safeguards including a minimum age of 18 for obtaining the credit, a requirement that a settlement statement accompany the tax return claiming the credit and a prohibition on non-arms length transactions.

Another criticism of the extension has been that it ends just as the “spring market” is getting underway.  Diane Olick writing for CNBC’s RealtyCheck said it “is sort of like offering cheap snow boots in July.”

Robert E. Story, Jr., CMB, Chairman of the Mortgage Bankers Association (MBA), today issued the following statement in response to the passage in the U.S. Congress of legislation to extend and expand the homebuyer tax credit.

“At a time when we are finally starting to see some signs of life in the housing and mortgage markets, extending and expanding the homebuyer tax credit is a critical step to keeping the momentum.  This has been one of MBA’s top single family legislative priorities, and we are very glad to see that policymakers on both sides of the aisle see the importance of this measure.

“The existing credit for first-time homebuyers has helped move a segment of potential homebuyers off the sidelines and into their first homes.  By expanding it to qualified existing homeowners, we can help stimulate even more home purchases for qualified buyers.  I also want to applaud measures in the bill that will help eliminate fraudulent use of the tax credit.”

From Mortgage News Daily

http://www.mortgagenewsdaily.com/11052009_tax_credit_extension.asp

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Barry Habib

Barry Habib regularly featured on CNBC, long time mortgage broker, expert on rate movements and author of the most widely read mortgage industry news update with lock and float recommendations “Mortgage Market Guide” http://www.mortgagemarketguide.com/barryhabib/aboutbarry.html says you need to get that refinance in and locked immediately.

“Federal Reserve Chairman Ben Bernanke spoke on Capitol Hill last night and said that the low interest rate environment will likely be needed for a while. However, he went on to say that as the economy heals, the Fed will hike rates quickly to ward off inflation. This is exactly what we have been concerned about, and writing of and explaining those concerns to you for some time. We certainly agree with Mr. Bernanke’s comments – and while inflation is not an immediate issue, it will become a problem down the road. And the ending will not be pretty for rates.”

There is no doubt that rates are going higher, and clients are simply foolish to not take advantage of the current environment, as it is highly unlikely that rates will ever be lower or even potentially equal to where prices have been over the past week.    -Barry Habib

The New York Federal Reserve purchased $20B in Mortgage backed securities in the latest week, bringing the year-to-date total to $924B out of the $1.25T allotted for the program. Here’s a key  point…let’s do some math. The Fed will purchase $301B more through the end of March 2010, which is 25 weeks from now. Simple math tells us that 301 divided by 25 equals about $12B per week in purchases, which the Fed may elect to do so as $24B every other week. This is obviously a significantly lower amount of buying of MBS, which in turn, will lead to softer Bond prices and higher mortgage rates. There’s no disputing the math.”- Barry Habib

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Recent changes to the lending process may result in longer closings, more paper work, and even mortgage loans being denied to customers with excellent credit and large down payments! As a Real Estate agent you paycheck is on the line!

Thankfully, I have reserved you a copy of the most important career impacting information you will ever have in today’s market! It is called How to Shorten the Sales Cycle and Get Paid Faster! If you want to save your paycheck go listen to this important pre recorded tele-seminar right now!

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Wade Conway

615-838-8777

Wade@wadeconway.com

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Well we have yet another change to the government programs to help homeowners out there. I think this just goes to show you about the inefficiency of government. This is the third program in less than 6 months that has been enacted with little or no effect on the housing business as of yet. It does look like it has some merrit, however, it is rewarding those that overbought in home by using the tax dollars of those that have not to bail them out.

Talk about the pinnacle of “victim mentality.” Why don’t we all just go out and buy more house than we can afford and apply for one of these governement bailout loans that are good until December 2009. I know my wife would like a bigger house. Wouldn’t yours? Nothing like having the “government” pay for it.

If Obama gets his way and the biggest tax hike in history that he is proposing gets passed, your mortgage deduction for interest will be severly cut, as well as the death tax and corporate taxes increased by over 100% some say, so you have to get it back somehow. If the government is rewarding ignorance, I guess well all have to become ignorant.

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“You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it.”

~ Dr. Adrian Rogers, 1931-2005

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Well the Pirate is down with another sinus infection. It seems like I get them every year about this time as the seasons change and the pollen starts flying. I got a little sick too when a loan that I was working on was fumbled by my substitute processor while the first stringer was scuba diving in Cozumel. It looks like it is back on course again but it came a day after a client backed out of a refi scheduled to close the next day.

It kind of hits me hard when I get two fall out so close to the same time frame. I have had dozens of folks that I have contacted and some that I have taken full aps on waiting for the magic potion from Uncle Obama to lower their rate and make their mortgage payments for them. I guess some are getting their wish and I’m sure I’ll be one of the many who help them out, but it seems like it is taking forever and some will not budge.

I guess a part of me feels like it is not right to bail out those that made the mistake of taking out too much mortgage in the first place. I feel like I lost a lot of business to the unscrupulous “brokers” that were offering them these crazy rates to begin with at costs that were not reasonable while the honest guys were overlooked as being too expensive.

I try to stress to folks the seriousness of the transaction and that it should not be bid out to the lowest bidder, but unfortunately, many folks did not care. They shopped for a mortgage like they were shopping for a toaster. Nothing matters but the cost. I guess people will realize now that is not smart, but they are getting bailed out without penalty. I guess it is only fair that most of the guys still left in the industry are the straight shooters and it is them that will benefit the most from trying to solve this mess.

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Well we have yet another change to the government programs to help homeowners out there. I think this just goes to show you about the inefficiency of government. This is the third program in less than 6 months that has been enacted with little or no effect on the housing business as of yet. It does look like it has some merrit, however, it is rewarding those that overbought in home by using the tax dollars of those that have not to bail them out.

Talk about the pinnacle of “victim mentality.” Why don’t we all just go out and buy more house than we can afford and apply for one of these government bailout loans that are good until December 2009. I know my wife would like a bigger house. Wouldn’t yours? Nothing like having the “government” pay for it.

If Obama gets his way and the biggest tax hike in history that he is proposing gets passed, your mortgage deduction for interest will be severly cut, as well as the death tax and corporate taxes increased by over 100% some say, so you have to get it back somehow. If the government is rewarding ignorance, I guess we’ll all have to become ignorant.

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