FHA to Increase Upfront Mortgage Insurance and Decrease Seller Concessions

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


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Snow Daze!!!

We got about 6″ of snow in Tennessee yesterday. We went and played fetch with snowballs with the dogs. They can’t seem to figure out where the snow balls go when they roll up in the snow on the ground. Bear loves eating the snow and Spunky just loves to dance around it it. This is the first time in years where there has been enough snow here to play in.

It is so beautiful looking out across the Tomlinson’s farm past the barns over the snow covered  hills back to the trees in the distance surrounding Cedar Creek. We got so much rain last week you could have rafted down the creek where I occasionally sneak off to  in the spring to fly fish in the clear shallow water for the bream. I would not want to be in that water now.

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Why it is difficult to Rate Shop in Today’s Mortgage Market

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.


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Pirate Looking at 40 Music City1/2 Marathon Challenge

So, I am thinking about training for and running in the 1/2 Marathon in late April this year. I am almost 40, terribly out of shape and probably 50 or more pounds overweight. A buddy of mine at church mentioned that if I wanted to try and do it, that it was time to start training now. My wife and I were talking about it and she said the only bad thing about running in a race like that is the cost so I looked it up. Sure enough, it costs $110 to run the half marathon so I got my viral mind ticking.

If I was to challenge 11 of my buddies that I could do the half marathon in less than 2 hours and 20 minutes that they each pay me $10 toward the entry fee. Not that I really could not afford the fee, but it would at least take that one objection away and make me have to find another not to do it.

Anybody want to challenge me to give it a shot????????

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$6500 home-buyer tax credit for current homeowners

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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House Passes Home Buyer Tax Credit Extension. Obama to Sign Friday

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


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Disneyworld, BlueGreen, Ghost Tours and World Golf Village

What do all of these have in common? They are all great places to stay or visit while in Florida. My wife, Steph and I just returned from 10 days in Orlando and St. Augustine. We hit all of the Disney Parks while staying at a timeshare called The Fountains on I-Drive in  Buena Vista. It was a great trip and we had great weather.

We visited St. Augustine, the oldest city in the US, for Halloween night for its famous ghost tours and ate a a great BBQ place called Scarlett O’Hara’s just down the road from Flagler College. What a beautiful campus and town. We also made it out to the World Golf Village for a quick visit. They had a great sale going on at the golf shop, but it was too late to visit the Hall of Fame so we just walked around the property and found yet another great BlueGreen condo development there.

We were not sure of what was going at the WGV as they were setting up an outdoor stage on Sunday evening. It was not until we returned home that I found out what the stage was for. They did the Hall of Fame induction ceremony the day after we left and fellow Kappa Sigma Lanny Wadkins was inducted into the Golf Hall of Fame. Congrats Brother Lanny! Sorry we missed it. I doubt I could have gotten in any way.

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Now, Really looking at 40

Well, I just passed 39 a few months ago so unless I am going to look back (which I am not) the only other choice is to look forward. And what is ahead of me? Among other things 40. Yep, I said it the bit four-oh. Duane Clark, a long time friend who I believe is also 39, and I had a great lunch a few weeks ago at Breaus. It was wonderful, by the way, thanks again Duane. I hope to return the favor soon. He told me that he bought a Harley not long ago. I guess that is one way to deal with it. It made me really want another motor cycle. I went on Craigslist and saw an older Goldwing in Lebanon for $2500. Maybe I need to join him.

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Golf Is Officially an Olympic Sport Again

Denmark Olympic Congress

For the first time in over a century, golf will be back as an Olympic sport. A strong presentation was made in person to the Olympic committee in Copenhagen headed by PGA Tour VP Ty Votaw also featuring PGA and LPGA tour stars Padraig Harrington, Suzann Petterson and Michelle Wie. Tiger Woods and Ernie Els also shared their sentiments via video from the President’s Cup.

Wie delivered a particularly moving speech casting a vision of herself dreaming of a chance to sink a putt to beat Tiger or Ernie.

“I can dream about doing something that neither Tiger nor Ernie (Els) have ever done, and that is to make the final putt to win an Olympic gold medal,” Wie said. “If this dream comes true, somewhere in the world there will be another 4-year-old who sees me on that podium and perhaps starts her own Olympic dream.”  -Michelle Wie

Jack Nicklaus also commented:

“I think it’s fantastic, an unbelievable day for the game of golf,”  “The impact is going to be felt all over the world, which is what I’ve always felt about the game. The game is a mature game in many countries, but it never had the opportunity to grow in many others. People of all walks of life will be inspired to play the game of golf, and play for sports’ highest recognition. For all sports, that has been a gold medal.”  -Jack Nicklaus

Golf will be back at the 2016 Olympics in Rio as well as the 2020 games where the location has yet to be announced. The format will be a 72-hole stroke-play tournament for men and women, with 60 players in each field.

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Mortgage Expert Barry Habib says You need to Refinance RIGHT NOW!

Barry Habib

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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