Tuesday, April 27, 2010

As FHA tightens requirements, Private mortgage insurance companies return to market

Beginning this month, down payment requirements on FHA-insured loans have been increased. Although borrowers with credit scores of 580 or above will still be able to make the traditional 3.5% down payment, those with lower scores will need 10% down.

In addition, the upfront mortgage insurance premium has been raised from 1.75% to 2.25%. The premium can be financed as part of the mortgage.

FHA has asked Congress for authority to increase the maximum monthly insurance fee from the current 0.5% level. The agency is seeking permission to hike the monthly charge to 1.55%, but has said it needs to raise it to only 0.9% at this time.

FHA is reducing permissible seller concessions from 6% of the loan amount to 3%. This change conforms to industry standards, and means that even if a seller were to agree to pay all of the borrower's closing costs, the borrower could count only that portion equal to up to 3% of the loan amount as if it were his own money.

Meanwhile, several private mortgage insurers have returned to backing 5% down payment loans to borrowers anywhere in the country.

Today, while FHA loans are generally considered to be the less expensive alternative, that's not always the case. Savvy borrowers would be wise to consider both before jumping to a decision.

Generally, PMI pricing is more affordable for borrowers making a down payment of 10% or more.

Source: Lew Sichelman, United Feature Syndicate 4/25/2010

Monday, April 26, 2010

FNMA to shorten waiting periods for some troubled borrowers to get new home loans

Good news for people who have given the deed on their house to the bank because of financial problems, or done a short sale to avoid foreclosure: You may not have to wait 4 to 5 years to requalify for financing to buy a home.

It could be as little as 2 years. FNMA issued a bulletin to lenders April 14, saying it is relaxing the previous rules that prevented loan applicants who had participated in short sales or deeds in lieu of foreclosure from obtaining a new mortgage for extended periods of time. The new rules are scheduled to take effect July 1.

Homeowners who've done short sales — such as under the Obama administration's new Home Affordable Foreclosure Alternatives program — will also be able to qualify for a mortgage in as little as two years.

The fine print: To qualify for a new loan in the minimum two years, most of these borrowers will need to come up with down payments of at least 20%.

However, if borrowers can demonstrate that their mortgage problems were directly attributable to "extenuating circumstances" — such as loss of employment, medical expenses or divorce — they may be able to qualify for new loans with minimum 10% down payments in just two years.

The main potential complication is in FNMA's credit rehabilitation requirements. To qualify for a new mortgage, FNMA expects borrowers to reestablish their credit enough to get passing grades from the company's automated underwriting system, which considers credit bureau data among other factors.

Source: Kenneth Harney, Washington Post Writers Group 4/25/2010

Thursday, April 15, 2010

Next Wave of Foreclosures to hit So. Cal. 4- 2010

Bank of America, the nation's largest mortgage lender, ramped up its foreclosure activity in March, sending hundreds of letters warning delinquent borrowers in the region that it could sell their homes at auction in as little as three weeks, according to North County Times analysis of data from ForeclosureRadar.

The bank said the increased activity was a natural consequence of borrowers running out of options.

Analysts and real estate agents said the moves by the Charlotte, N.C., banking giant, which controls a large share of the Southern California mortgage market, could signal a final reckoning for homeowners who have been protected by government programs for months or even years.

Last month, a Bank of America division called ReconTrust N.A. sent out a flurry of "notices of auction," which alert owners of the date their homes could be sold in foreclosure proceedings.

The notices went to 230 homeowners in North San Diego County, a 69 percent increase from February, and to 391 owners in Southwest Riverside County, up 67 percent from February.

By comparison, in March 2009, ReconTrust sent a total of 31 such letters to both regions combined.

ReconTrust was formed as the foreclosure division of Countrywide Financial Services Inc., the company that helped drive the real estate boom of the 2000s with its no-documentation "liar loans" and enormous subprime portfolio.

As borrowers could no longer make payments on such loans, home values plummeted, dragging with them much of the national economy.

More foreclosures expected

When Bank of America agreed to take over Countrywide in January 2008, Countrywide said it managed 9 million loans valued at $1.5 trillion.

The purchase made Bank of America the largest manager of home loans in the nation.

Richard Simon, a Bank of America spokesman, wrote in an e-mail that he couldn't speak to the sharp increase of notices in San Diego and Riverside counties, but that the bank has expected more foreclosure activity.

"We have reported recently that we anticipate a rise in foreclosure activity through the coming months as homeowners are unable to qualify for loan modifications, fall out of modification programs or go into delinquency due to the ongoing stress in the economy," he said.

Bank of America has permanently lowered monthly payments for 12,700 borrowers through the Treasury Department's Home Affordable Modification Program, more than any other lender.

But the program as a whole is widely deemed a failure, because just 17 percent of applicants nationally have managed to qualify and keep up their payments, according to the latest Treasury report.

Data showing that Bank of America borrowers were falling out of HAMP and into foreclosure in rising numbers didn't surprise analysts.

"That makes sense," said Jamie Peters, a financial analyst who covers Bank of America for the investment research firm Morningstar Inc.

"'We've given them the chance, it hasn't worked, we need to move ahead' type of idea," Peters said.

Another analyst who tracks Bank of America, Shannon Stemm of investment bank Edward Jones, said the loans now being foreclosed are "older," meaning borrowers had plenty of time to try a modification, and the bank had to get the delinquent loans off their books.

"A lot of the bad loans we're seeing from a couple of quarters ago are getting to a place where (Bank of America) need to make a decision for what to do with that bad loan," she said.

Morningstar's Peters thought the bank might be taking advantage of a strengthening California housing market.

"It's going to be in part an assessment of the ability of the market to handle some more real-estate owned (foreclosed) properties," she said.

A local look

In San Diego County, the widely respected Standard & Poor's Case-Shiller Home Price Index in March showed home values rising at a 12.5 percent annual rate since hitting a bottom in May.

Riverside County also has begun to see a rise in the median home price, and real estate agents in both counties said they often get multiple offers on the lowest-priced homes.

Peters also noted that moving more foreclosed properties into the market in spring and summer, the traditional buying season, made a lot more sense than foreclosing in November.

But there will be a little more delay before these properties reach the market.

After a notice of auction is sent, state law requires lenders to provide public notice in a newspaper three weeks before the property is sold.

That explains why locally, foreclosures haven't suddenly jumped: Notices of auction sales in March were down 74 percent in North County and down 64 percent in Southwest Riverside County, compared with the same month in 2009.

Such notices go to borrowers who typically are unlikely to suddenly get caught up on their payments.

A notice of auction is the second warning of impending foreclosure, sent three months after a notice of default, which is customarily sent after borrowers have missed three payments.

A surge in available listings could give a lift to real estate agents, who have complained about frustrated buyers amid tight supplies of homes for sale.

"My Bank of America asset manager told me we'd really start to get hit with inventory in mid-May to June," said Teri Garcia, a real estate agent based in Escondido who sells Bank of America foreclosures.

"If they're sending notices of auction in March, that about fits," she said.

Garcia said the local supply of foreclosed homes has been low all through the winter. She was thrilled to hear that more homes might be coming onto the market this summer.

"Let's get them on the market, get them sold, and get through all this," she said.

By ERIC WOLFF , North County Times, April 13, 2010

Tuesday, April 13, 2010

FHA 203K Loan to Finance and Rehab property

The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work. The 203k can be used to refinance existing indebtedness and rehabilitate a dwelling.

Eligible Property

To be eligible, the property must be a one- to four-family dwelling that has been completed for at least one year.
Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place.

In addition to typical home rehabilitation projects, this program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling. An existing multi-unit dwelling could be decreased to a one- to four-family unit.

It can also be used to purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.

Condominium Unit

The Department also permits Section 203(k) mortgages to be used for individual units in condominium projects that have been approved by FHA, the Department of Veterans Affairs, or are acceptable to FNMA.

Condominium rehabilitation is subject to the following conditions:
- Owner/occupant and qualified non-profit borrowers only; no investors;
- Rehabilitation is limited only to the interior of the unit. ( except for the installation of firewalls in the attic for the unit);
- Only the lesser of five units per condominium association, or 25 percent of the total number of units, can be undergoing rehabilitation at any one time;
- The maximum mortgage amount cannot exceed 100 percent of after-improved value.

After rehabilitation is complete, the individual buildings within the condominium must not contain more than four units. However, this does not mean that the condominium project, as a whole, can only have four units.
The townhouse exception: A project could contain a row of more than four attached townhouses and be eligible for Section 203(k) because HUD considers each townhouse as one structure, provided each unit is separated by a 1 1/2 hour firewall (from foundation up to the roof).

Eligible Improvements

Mortgage proceeds must be used in part for
rehabilitation and/or improvements to a property. There is a minimum
$5000.00 requirement for the eligible improvements on the existing
structure on the property. Minor or cosmetic repairs by themselves
are impracticable and unacceptable; however, they may be added to the
minimum requirement (in addition to $5,000). The mortgage must
include one or more of the items listed below, with a cumulative
minimum of $5,000.

A. Structural alterations and reconstruction (e.g., additions to the
structure, finished attics, repair of termite damage and the
treatment against termite infestation, etc.)

B. Changes for improved functions and modernization (e.g., remodeled
kitchens and bathrooms).

C. Elimination of health and safety hazards (including the
resolution of defective paint surfaces and/or lead-based paint
problems on homes built prior to 1978).

D. Changes for aesthetic appeal and elimination of obsolescence
(e.g., new exterior siding).

F. Reconditioning or replacement of plumbing (including connecting
to public water and/or sewer system), heating, air conditioning
and electrical systems.

F. Roofing, gutters and downspouts.

G. Flooring, tiling and carpeting.

H. Energy conservation improvements (e.g., new double pane windows,
insulation, solar domestic hot water systems, etc.).

I. Major landscape work and site improvement, patios and terraces
that improve the value of the property equal to the dollar amount
spent on the improvements or required to preserve the property
from erosion.

J. Improvements for accessibility to the Handicapped.

When basic improvements are involved, the following costs can be
included in addition to the minimum $5,000 requirement for the
existing structure:

- Construction or rehabilitation of a detached garage or an
attached unit(s) to the existing dwelling (if allowed by the
local zoning ordinances).

- New cooking ranges, refrigerators and other appurtenances
(Used appliances are not eligible).

- Interior or exterior painting.

Luxury items and improvements are not eligible as a cost rehabilitation. However, the homeowner can use the 203(k) program to finance such items as painting, room additions, decks and other items even if the home does not need any other improvements. All health, safety and energy conservation items must be addressed prior to completing general home improvements.

Recently Acquired Properties

Homebuyers who purchase a property with cash can refinance the property using 203(k) within six (6) months of purchase, the same as if the buyer purchased the property with a 203(k) insured loan to begin with. Evidence of interim financing is not required; the mortgage calculations will be done the same as a purchase transaction. Cash back will be allowed to the borrower in this situation less any down payment and closing cost requirement for the 203(k) loan.

Mortgage Payment Reserve. Funds not to exceed the amount of six (6) mortgage payments (including the mortgage insurance premium) can be included in the cost of rehabilitation to assist a mortgagor when the property is not habitable during rehabilitation. The number of mortgage payments cannot exceed the completion time frame required in the Rehabilitation Loan Agreement.

Maximum Mortgage Calculation


Based on the lesser of:

1) The existing debt on the property before rehabilitation, plus the estimated cost of rehabilitation and allowable closing costs or

2) The lesser of the As-Is value plus rehabilitation costs or 110 percent of the After-Improved value multiplied by the appropriate LTV factor.

NOTE: If the property was owned less than one year, the acquisition cost plus the documented rehabilitation costs must be used.


The maximum mortgage amount is based on the lesser of 1) or 2) of the below multiplied by the appropriate LTV factor.

1) The As-is value or the purchase price of the property before rehabilitation, whichever is less, plus the estimated cost of rehabilitation or

2) 110 percent of the After-Improved value of the property.

Principal Residence (Owner-Occupant) & HUD Approved Non-Profit Organization. For purchases with 203(k) financing: the maximum mortgage amount is to be based upon the HUD estimate of value in 1) or 2) above, less the statutory investment requirement. For refinances under the 203(k) program: the maximum mortgage amount is to be based upon 97/95/90 percent of the HUD estimate of value in 1) or 2) above.

Cost of Rehabilitation

Expenses eligible to be included in the cost of rehabilitation are materials, labor, contingency reserve, overhead and construction profit, up to six (6) months of mortgage payments, plus expenses related to the rehabilitation such as permits, fees, inspection fees by a qualified home inspector, licenses and consultant and/or architectural/engineering fees. The cost of rehabilitation may also include the supplemental origination fee which the mortgagor is permitted to pay when the mortgage involves insurance of advances, and the discounts which the mortgagor will pay on that portion of the mortgage proceeds allocated to the rehabilitation.

Please email any questions.

Monday, April 12, 2010

Californians Get $10,000 Homebuyer Tax Credit

California Senate passed a new state $10,000 Homebuyer credit to pickup where the federal tax credit left off. Bill AB 183 passed on March 22, 2010.
The bill authorizes a credit against those taxes in an amount equal to the lesser of 5% of the purchase price of a qualified principal residence, as defined, or $10,000, for purchases made between May 1, 2010, and on or before December 31, 2010, or on or after December 31, 2010, and before August 1, 2011, subject to specified restrictions, including the submission of a certification to the Franchise Tax Board by either the taxpayer or seller, made under the penalty of perjury, that the residence has either never been occupied or that the taxpayer is a first-time home buyer. To qualify, the buyer must not be a dependent and must purchase a home that does not belong to a relative.
Last year's credit was also worth up to $10,000 spread over three years but applied only to new homes, not existing ones. The new credit is available to anyone who buys a newly built home or to first-time home buyers who buy a newly built or existing home.
To save $10,000, a homeowner must owe at least $3,333 in state income tax in each of the three years. A homeowner who owed only $2,000 in one year would lose $1,333 in tax savings that year. The unused credit cannot be used to reduce taxes owed in past or future years.