Thursday, August 26, 2010

FNMA Nothing Down?

found at http://affordable
Washington -- A policy change last week by the giant mortgage investor Fannie Mae symbolized a market transformation of huge importance to home buyers across the country. By adding zero down payment mortgages to its standard line of product offerings for the first time, Fannie Mae closed the door on an era: From colonial times through the last century, conventional home mortgages took various forms, but they always required a cash contribution by the home buyer - the mandatory down payment.
The down payment served to assure the lender that the buyer had a personal investment in the property and would be strongly motivated to pay off the debt. In the 1980s and '90s, however, down payments began to shrink. Private mortgage insurers were willing to provide back-up coverage to lenders that allowed them to offer 10 percent, 5 percent and, more recently, 3 percent down payments.

Smaller down payments, in turn, helped fuel the unprecedented housing boom of the past decade, pushing the national rate of home ownership to its current historical high of around 67 percent. Houses that were impossible for young couples to buy with 20 percent cash out of pocket became readily affordable with 5 percent down.
Last fall, Fannie Mae's competitor, Freddie Mac, announced that it would push the envelope to the next level and buy zero down payment home loans as a standard product, but Fannie cautiously held back until last week. Now, virtually anybody anywhere in the country with a good credit history can buy a house with no cash down. Fannie Mae's program is aimed at first-time buyers. The maximum loan is $275,000. The buyers needn't invest any money in the house itself, but they have to be able to cover closing costs of 3 percent.

Even the closing costs don't have to be from their own pockets, however. It can be a gift or an unsecured loan from a family member or a nonprofit agency, assistance from an employer or a grant from a local government agency. All the buyers have to do is contact any of the thousands of mortgage lenders who do business with Fannie Mae. The key criterion for applicants is a good credit history.
People who don't pay their rent on time, who max out on multiple credit cards or who fail to pay their auto or student loans need not apply. Fannie and Freddie's programs represent just part of the zero down payment opportunities now available to aggressive shoppers. Hundreds of lenders, including most of the biggest and best-known mortgage companies, offer other types of nothing-down plans. Lenders using private mortgage insurance make standard loans as high as $375,000 that represent 103 percent of the price of the house.

That means you put zero dollars down when you buy a $364,000 new house, and the mortgage also finances the closing costs, up to a total of $375,000. Andrew May, vice president of product development for United Guaranty Corp., Greensboro, N.C., says the typical zero-down home buyers his company insures are financially solid 35-year-olds buying their move-up or second home. They "want the flexibility to do what they want with their cash," he says. They prefer to invest it in assets with stronger profit potential than their house - their own business ventures, for instance, stock funds or retirement plans. "These (zero-downers) are people who understand the meaning of Ôopportunity cost,' " says May.
That is, they know that a mandatory down payment of 10 percent or 20 percent could potentially cost them substantial financial returns elsewhere. Given the choice between sinking their cash into their residence or into a higher-yielding business venture, they vote with their high-yield instincts: They go nothing-down. Other mortgage insurers also offer coverage on loans over 100 percent of home value.

The industry's biggest insurer, MGIC Investment Corp., will insure up to 103 percent for people whose FICO credit scores are above 700 and whose overall debt-to-income ratios do not exceed 41 percent. FICO scores are the dominant credit-evaluation tools used by American lenders. The acronym stands for Fair, Isaac & Co., the firm that developed the software that produces the scores. A 700 FICO, on a scale that runs from the 300s to over 900, is considered excellent credit. Is the zero-down mortgage option for you? For some people - young couples with good incomes but no savings - it may be the only way to buy the house they want.

For others, keep these points in mind: Zero-down is going to cost you more in mortgage payments every month, not just in higher principal and interest charges, but in mortgage insurance as well. In the event of a job loss or economic downturn, you could find yourself on the wrong side of the bargain, upside-down on your home debt: Your mortgage may be more than your house is worth, and you may be forced to sell for a loss.

Wednesday, August 25, 2010

Shopping around for title insurance can cut closing costs

Good reading about why you need an owner's title policy:
If you finance your home through the normal lending process, a title search will undoubtedly turn up any liens for delinquent property taxes, unpaid loans and unsettled claims by subcontractors for labor and materials.

Titles aren't exactly riddled with hidden defects, but problems sometimes arise. Some of the more common hidden deficiencies include forged deeds recorded in the name of a fictitious owner, conflicting wills filed by heirs of a previous owner who had bequeathed the property to more than one person and missing heirs who turn up years later with a legitimate claim to a house.

This is why mortgage companies insist on a search of the courthouse records. Before they lend anyone any money, lenders want to be sure that the seller really owns the property and that there is nothing to cloud the line of ownership.

One in three title searches reveals a problem — such as an unpaid contractor or a forgotten tax bill, according to the American Land Title Assn. And for the most part, those issues are resolved before closing a home sale.

Sometimes, though, something is overlooked or there's a problem that could not be found in a search of the public records. This is why lenders not only require title searches but also an insurance policy in place that protects the lenders' investment should a problem surface sometime down the road.

But most borrowers don't realize that they can shop for title insurance, just like they can shop for lenders. For the most part, buyers choose whomever their real estate agent suggests. And there's nothing wrong with that. After all, agents want a quick, clean closing as much as you do.

But if you are hoping to save some money, it often pays to look around for the best deal. Timothy Dwyer, founder of Entitle Direct, a new Web-based direct-to-consumer shopping channel, says borrowers can cut their title insurance premiums by an average of 35% by using his service.

We'll get back to that in a moment. First, although it is nearly impossible to generalize about title insurance, here are some things you need to know:

•There are two types of title insurance: the required loan policy that protects the lender and the owner's policy that protects the buyer. The borrower pays for the loan policy, but who pays for the owner's coverage depends on local custom. In much of the West the seller buys the policy for the buyer, but on the East Coast the buyer typically pays.

If you choose not to take the owner's insurance you may be asked to sign a waiver, depending on your state. But you should realize that the loan policy won't protect you should a defect in the title present itself in the future.

If there is a claim, title insurers have two options. One is to cure the title defect by spending whatever it costs to correct the problem. If the defect can't be cured, the other option is to reimburse the insured for the difference between what the property was worth without the defect and what it's worth with the defect.

For example, assume there's a defect that can be fixed by spending $25,000. If the title insurer can establish that the value of the property with the defect is above the amount owed on the loan at the time the defect is discovered, the lender has suffered no loss. And if there is no loss, then in almost all cases the claim can be denied.

At the same time, however, the homeowner will now have a property with a title defect that reduces the value of the property if it is not cured.

Also, depending upon the nature of the title defect and the terms of the loan documents, the lender may require the owner to correct the title defect. Many deeds of trust contain a provision requiring the borrower/owner to warrant to the lender that the title to the property is "clean" and to maintain it that way for the life of the loan.

If the lender has this right and exercises it, the owner would be responsible for curing the defect. If you have an owner's policy, the title insurer would pay to rectify the problem. But if you have no coverage, you would have to pay out of your pocket whatever it costs in legal fees to make the defect go away.

•Insurance rates are one-time fees that are paid at closing and are set in different ways in different places. In Florida and Texas, each company is required to charge the same rate, so there may be a zero price differential. Thus, when shopping for title coverage, you will be shopping not for price but for service and competence of the closing agent.

Elsewhere, state regulators approve rate requests. Once a rate goes into effect, an insurer can lower its rate but never raise it.

•There are different rates for different situations. There's a basic rate for the lender's policy and a reduced simultaneous rate if lender's and owner's policies are issued together.

If you are refinancing, you won't need a new owner's policy because the one you bought at closing is good for as long as you and your heirs own the property. But even if you remain with the original lender, you will need a new lender's policy because the lender wants to be sure there are no new encumbrances on the property. However, you may qualify for a reduced refinance or reissue rate, depending on your state.

•Roughly 80% of the premium goes to the closing or escrow agent, who orchestrates the entire settlement. The agent researches the title, pays off the old lender and the seller, pays recording fees and taxes, files the necessary paperwork at the local courthouse and sends the buyer's down payment to the new lender. In addition, these agents charge a fee for closing the loan.

•Shopping for service is tough enough, but shopping for the cost of title insurance is nearly impossible. That is why former investment banker Dwyer started Entitle Direct, an online platform at where consumers can shop for prices. The company is licensed in 35 states, including California, and the District of Columbia. It is seeking approval in eight more states.

Of course, if you go with Entitle, you will have to close with the agent selected by the company.

On a $750,000 house in California with a $600,000 mortgage, for example, Entitle charges $1,647 for both lender's and owner's policies issued simultaneously, whereas a competitor might charge $2,480. That's a difference of $833, or 34%. By Lew Sichelman August 8, 2010

Distributed by United Feature Syndicate.

Copyright © 2010, Los Angeles Times

Tuesday, August 24, 2010

Banks Face Less Competition as Brokers Exit

An interesting article by Jeff Swiatek:

Mortgage broker is becoming a vanishing breed: Market downturn, subsequent regulations have squeezed many out of the industry.

Aug. 24, 2010, By JEFF SWIATEK The Indianapolis Star

In Indiana, the number of licensed mortgage brokers has fallen by nearly three quarters during the past five years. The decline was precipitated by falling home values and rising regulations. Banks appear to be the beneficiaries of the fallout.

Ken Blaudow has felt the pain of the housing finance industry turmoil.

The owner of Indy Mortgage in Indianapolis had 85 employees originating home loans in 2003. Now he has three and is about to give up his leased office in Castleton and move his company into two bedrooms of his house.

"It's drastically down," he said of his industry. "And there are a lot of funky new rules."

At least Blaudow's still around.

Most of the mortgage brokers that seemed to populate every office building and commercial street in Indianapolis and many other cities just five years ago have vanished.

The number of Indiana mortgage brokers and loan originators licensed by the state has plunged 73 percent since 2005, from 4,008 to 1,080, according to the secretary of state's office.

Brokers and loan originators find lenders for people seeking a mortgage on a new home purchase and charge a fee for that service.

With a sharply reduced membership base, the trade group that represented them, the Indiana Association of Mortgage Brokers, is gone.

"The industry most assuredly has been thinned out," said Douglas Brown, an Indianapolis attorney and the trade group's former general counsel.

Much of the decline has been due to the implosion of the housing sector since 2007. Prices and sales plunged during the recession. Foreclosures hit record highs almost everywhere.

As government rushed in to respond to the crisis, caused in part by overselling of risky mortgages by brokers who got rich on exorbitant fees, regulations on the industry multiplied.

Indiana and other states in the past two years began requiring brokers to pass licensing exams and undergo background checks. A criminal record, even a past bankruptcy, can now prevent someone from writing a mortgage. If states don't already do it, a federal law coming in January will require licensing exams and criminal background checks nationally.

Many of the sometimes-exotic products that independent brokers used to push -- jumbo loans, subprime mortgages -- also have been restricted or banned.

The new industry that's emerging is much more conservative, regulated and, some would say, less consumer-friendly.

"I don't think (the changes) will be better for the industry. It costs more to do business. And the consumer has fewer choices. But those are the cards we have been dealt," said Al Thorup, executive director of the Indiana Mortgage Bankers Association.

One regulation in Indiana caps fees to brokers and others involved in processing a loan at 5 percent of its value. That makes lenders reluctant to give smaller loans, especially now that loan processing has become costlier and more time-consuming.

"I've got some lenders who won't go below $65,000," Blaudow said. "On a smaller loan . . . there's not enough money to go around" to pay closing costs, he said.

A study by Bankrate, a financial information supplier, found that mortgage fees are on the rise, jumping 23 percent in the past year alone. Nationally, the average fees that a homeowner paid for a $200,000 loan are $3,741, compared with $2,739 last year. This does not include fees for real estate agents typically paid by the seller.

Closing costs on a $200,000 mortgage in Indiana, with 20 percent down, average $3,465, slightly below the national average. But while Indiana ranked dead last among the states last year in closing costs charged by lenders, this year it came in 35th, suggesting its fees are rising faster than most other states'.

Bankrate says the jump in mortgage fees is due in large part to the increased scrutiny lenders must give every loan, under tougher guidelines from federal regulators and two quasi-government companies that guarantee loans, Freddie Mac and Fannie Mae.

"It takes five to six times the work to get a loan to close than it did two years ago," Blaudow said.

Credit histories must be dutifully compiled for all borrowers. And any number of new criteria can lead to a refusal to lend. One new practice closes the door on loans to anyone who's done a short sale -- a way of selling a house when the sale proceeds fall below the balance on the mortgage -- in the past three years.

Banks have actually fared well in the restructuring of the mortgage industry.

That's because many banks didn't engage in the riskier lending practices, such as granting adjustable loans at subprime rates to people with less-than-stellar credit, that some independent brokers and their companies did. Banks also have dodged some of the state regulations that have crimped brokers.

Brandy Schroeder, manager of the Greenwood and Plainfield offices for national lending giant Wells Fargo Home Mortgage, said she's looking to expand her staff of 22 loan officers "as quickly as I can staff up desks and space."

The new regulations on loan originators, who typically find buyers of mortgages and then broker the loans to banks or other buyers to hold long-term, "is taking away the competition" from banks, Schroeder said.

"You're happy because you're getting more business. But you feel bad for them," she said.

Banks also will be better able to bear a coming federal regulation that will require any company handling federal FHA or VA loans to have $2.5 million in assets.

Ron McGuire, president of F.C. Tucker Mortgage in Indianapolis, said the changes in the mortgage industry mean "we're back to the way underwriting was 20 years ago when you had to have a down payment, you had to have a job. And that's a good thing, there's no doubt."

But McGuire said he worries that the decline of independent brokers now gives a handful of large national banks more of a chance to dominate the mortgage industry in many markets, and that new government regulations, such as restrictions on the way loan officers are paid, are too heavy-handed and come too late to do much good.

Friday, August 20, 2010

New FHA MIP & UFMIP changes date changed.

HUD has announced that the changes reported in the previous post will now take effect as of 10/4/2010.

Wednesday, August 11, 2010

FHA loan cost is going up

FHA loan cost is going up on Sept 7th, 2010, unless you have an accepted contract by this date and your lender has a case number. (Case numbers can only be obtained if there is an address.)
Monthly mortgage insurance will increase from .50% to .90% for loans over 15 year term. (Despite the new ability to charge 1.55 percent, FHA officials say an increase to 0.90 percent would be sufficient to self-insure its loans.)
In everyday terms, assuming a $200,000 mortgage, the math to a homeowner looks as follows:
* Current Premium (0.55%) : $91.67 monthly mortgage insurance premium
* Expected Increase (0.90%) : $150.00 monthly mortgage insurance premium
* Maximum Increase (1.55%) : $258.33 monthly mortgage insurance premium
The news is not all terrible, however.
FHA has also said it plans to reduce its upfront mortgage insurance premium paid at closing from 2.25 percent down to 1.000 percent.
On the same $200,000 mortgage, that would reduces closing costs by $2,500.
However, the potential for reduced seller paid closing costs from a maximum of 6% down to 3% will mean higher entry cost and higher monthly payments for minimum down buyers.
The California Tax Credit Application Deadline is August 15,2010. Funds are limited, and not all applicants will be accepted.
All in all, several compelling reasons for minimum down homebuyers to get into contract now!

Sunday, August 8, 2010

Home Affordable Foreclosure Alternatives Program Update

The Home Affordable Foreclosure Alternatives (HAFA) Program, a part of the HAMP program, provides additional options to avoid costly foreclosures and offers incentives to borrowers, servicers and investors who utilize a short sale or deed-in-lieu (DIL) to avoid foreclosures. HAFA alternatives are available to all HAMP-eligible borrowers who: 1) do not qualify for a Trial Period Plan; 2) do not successfully complete a Trial Period Plan; 3) miss at least two consecutive payment during a HAMP modification; or, 4) request a short sale or deed-in-lieu.

HAFA has been revised effective April 5th, 2010 in Supplemental Directive 09-09, replacing original Supplemental Directive 09-01.

In a short sale, the servicer allows the borrower to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the first mortgage. Generally, if the borrower makes a good faith effort to sell the property but is not successful, a servicer may consider a DIL. With a DIL, the borrower voluntarily transfers ownership of the property to the servicer - provided title is free and clear of mortgages, liens and encumbrances. With either the HAFA short sale or DIL, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.

HAFA simplifies and streamlines the short sale and DIL process by providing a standard process flow, minimum performance timeframes and standard documentation. A loan must be HAMP eligible and meet other requirements to be eligible for incentive compensation. Among the requirements: The property must be borrower's principal residence and the loan was originated on or before January 1,2009. The program sunsets December 31, 2012.

The borrower may receive a one-time payment of $3,000 in the month the Short Sale/DIL Loan Set Up transaction is received after the closing has occurred.

The guidelines for HAFA are detailed further in the documents found here:

Monday, August 2, 2010

USDA Rural Housing Bill Passes

One government housing program that had run out of funds months ago was revived by Congress yesterday.

The Senate yesterday passed HR 4899 to reestablish the popular U.S. Department of Agriculture Single-Family Housing Guaranteed Loan Program (Section 502 Housing) as a self-sustaining program.

The Rural Housing program had run through its $13.1 billion funding by early this year and many buyers hoping to finance home purchases using Homebuyer Tax Credits were unable to close their loans. Depleted funding has been a nearly annual occurrence for the program that guarantees loans for single family homes in designated exurban and rural areas. The new legislation will end the annual uncertainty by putting the program on a self-funding basis through enacting a 3.5 percent guarantee fee paid by the borrower. The fee, while substantial, can be included in the total amount financed.

Senator Michael Bennet released the following statement, "The Rural Housing Preservation and Stabilization Act increases the maximum loan guarantee fee that USDA's Rural Housing Service has authority to charge for new housing purchases from 2.0 to 3.5 percent and allows an annual fee of not more than 0.5 percent per year on the balance of the loan. The bill would also enable the Rural Housing Service to waive these fees for low-income borrowers for up to $679 million in loans. Together, these changes will enable the USDA-Rural Development's Rural Housing Service to continue offering loan guarantees through the duration of the year and to become self-funding."

Despite the low down payment required to participate in the program, it is generally considered to be a good risk by lenders because of the 90 percent government guarantee and because the loan size is limited to 115 percent of the area's median income. This keeps the loans small; the average loan size is $112,000. Last year the foreclosure rate for these USDA loans was a reported 1.72 percent compared to 3.32 percent for Federal Housing Administration loans.

The bill now goes to President Obama for signature. As we went to press, USDA had not commented on the action and we are still waiting for guidance from lenders.

Source: Jann Swanson on July 30, 2010, MND Newswire