FHA Flipping Rule Limitations
Waiver has been extended to 12/31/2011.
The waiver to the FHA flipping rule is limited to those sales meeting the following general conditions:
* All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
* In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the sale meets specific lender conditions. (Typically, these will include a copy of the HUD-1 from the previous closing. If more than 20% markup, copies of receipts and contracts for rehabilitation.)
Conventional loans flipping rules will vary from investor to investor, 90 days from purchase is generally required.
Showing posts with label FHA Mortgage Loan. Show all posts
Showing posts with label FHA Mortgage Loan. Show all posts
Monday, February 28, 2011
Thursday, November 11, 2010
Credit scores to be revised amid soaring mortgage defaults
Found in the LA Times this article from Ken Harney
Reporting from Washington —
With foreclosures soaring — and homeowners with unblemished payment histories abruptly walking away from their houses with no warning to lenders — the two major producers of credit scores have begun changing how they evaluate consumers' risks of default. The revisions could affect you the next time you apply for a loan.
In late October, both Fair Isaac Corp., developer of the FICO score, which dominates the mortgage field, and VantageScore Solutions, a joint venture by the three national credit bureaus and marketer of the competing VantageScore, outlined modifications they were making to handle the vast credit disruptions caused by the housing bust, the recession, high unemployment and behavioral changes by consumers.
Get a daily snapshot of market numbers and trends, delivered right to your mobile phone. Text BUSINESS to 52669.
Overall, credit industry experts agree, consumer creditworthiness has deteriorated in the U.S. since 2006 — especially among what used to be considered the credit elite, people with the highest scores. For example, a study this year by VantageScore found that the probability of serious delinquency — defined as nonpayment for 90 days or more — had increased 417% among "super-prime" borrowers between June 2007 and June 2009. Default risk during the same period rose 406% for the second-highest-rated category of "prime" consumers, and nearly doubled for those at the "near prime" scoring level.
The driving force behind the score revisions, according to Sarah Davies, VantageScore's senior vice president for analytics and research, is the "significant change in consumer credit repayment behavior" that began during the housing bust and recession.
Not only are borrowers who previously were rated outstanding credit risks far more likely to default today, she said, but many homeowners are defying long-standing credit industry assumptions by going delinquent on their first mortgage payments while continuing to pay their credit card balances and second mortgages on time. Strategic defaults, or walkaways, by high-score borrowers also have been an unexpected development, she said.
To adjust its statistical models to these new realities, VantageScore says it conducted intensive research on 45 million active credit files obtained from the databases of its joint venture partners, Equifax, Experian and TransUnion. The research examined the same files — with personal identifiers removed — during set time periods between 2006 and 2009 to capture emerging behavioral patterns associated with defaults on various types of credit accounts. The resulting VantageScore 2.0, which is expected to be rolled out nationwide to lenders in January, focuses on the subtle warning signs of credit stress that might have been missed earlier and penalizes or rewards consumers with higher or lower risk scores than they would have received before.
Joanne Gaskin, director of mortgage scoring solutions for Fair Isaac, said her company's new FICO 8 Mortgage Score was based on similarly exhaustive research into consumer credit behavior changes over the last four years. When used by a lender to rate the risk of new applicants or existing mortgage customers, Gaskin says, the Mortgage Score is likely to be 15% to 25% more accurate in detecting signs of future default compared with the standard FICO model.
Though she would not discuss proprietary details about the early warning signs the new score monitors, Gaskin gave an example of how the new score might work: Say a borrower with a 720 FICO score has average balances on a first mortgage, home equity lines and other accounts that are higher than norms pinpointed by the revised scoring software. A 720 FICO is considered a good score by most mortgage lenders, often qualifying for favorable rates and terms. However, the same applicant might rate just a 680 FICO or lower if the lender used the new Mortgage Score. The lender would then have a choice: Reject the applicant, quote a higher interest rate on the mortgage or require a larger down payment.
Gaskin said the reverse could also occur: The FICO 8 Mortgage Score could come in higher than the standard FICO — indicating lower risk for the future — in situations where formerly troubled borrowers manage to put themselves back on a healthier credit track.
Experts in the credit industry say the new scoring efforts by Fair Isaac and VantageScore should prove to be a net positive for the housing and mortgage industries if they can do what they claim: spot subtle risk patterns and nascent hints of improvement.
But as a mortgage applicant you should know that your next score might not look anything like the score you thought you had. You might end up getting a better deal — or worse than you wanted — when lenders quote you rates and terms.
Reporting from Washington —
With foreclosures soaring — and homeowners with unblemished payment histories abruptly walking away from their houses with no warning to lenders — the two major producers of credit scores have begun changing how they evaluate consumers' risks of default. The revisions could affect you the next time you apply for a loan.
In late October, both Fair Isaac Corp., developer of the FICO score, which dominates the mortgage field, and VantageScore Solutions, a joint venture by the three national credit bureaus and marketer of the competing VantageScore, outlined modifications they were making to handle the vast credit disruptions caused by the housing bust, the recession, high unemployment and behavioral changes by consumers.
Get a daily snapshot of market numbers and trends, delivered right to your mobile phone. Text BUSINESS to 52669.
Overall, credit industry experts agree, consumer creditworthiness has deteriorated in the U.S. since 2006 — especially among what used to be considered the credit elite, people with the highest scores. For example, a study this year by VantageScore found that the probability of serious delinquency — defined as nonpayment for 90 days or more — had increased 417% among "super-prime" borrowers between June 2007 and June 2009. Default risk during the same period rose 406% for the second-highest-rated category of "prime" consumers, and nearly doubled for those at the "near prime" scoring level.
The driving force behind the score revisions, according to Sarah Davies, VantageScore's senior vice president for analytics and research, is the "significant change in consumer credit repayment behavior" that began during the housing bust and recession.
Not only are borrowers who previously were rated outstanding credit risks far more likely to default today, she said, but many homeowners are defying long-standing credit industry assumptions by going delinquent on their first mortgage payments while continuing to pay their credit card balances and second mortgages on time. Strategic defaults, or walkaways, by high-score borrowers also have been an unexpected development, she said.
To adjust its statistical models to these new realities, VantageScore says it conducted intensive research on 45 million active credit files obtained from the databases of its joint venture partners, Equifax, Experian and TransUnion. The research examined the same files — with personal identifiers removed — during set time periods between 2006 and 2009 to capture emerging behavioral patterns associated with defaults on various types of credit accounts. The resulting VantageScore 2.0, which is expected to be rolled out nationwide to lenders in January, focuses on the subtle warning signs of credit stress that might have been missed earlier and penalizes or rewards consumers with higher or lower risk scores than they would have received before.
Joanne Gaskin, director of mortgage scoring solutions for Fair Isaac, said her company's new FICO 8 Mortgage Score was based on similarly exhaustive research into consumer credit behavior changes over the last four years. When used by a lender to rate the risk of new applicants or existing mortgage customers, Gaskin says, the Mortgage Score is likely to be 15% to 25% more accurate in detecting signs of future default compared with the standard FICO model.
Though she would not discuss proprietary details about the early warning signs the new score monitors, Gaskin gave an example of how the new score might work: Say a borrower with a 720 FICO score has average balances on a first mortgage, home equity lines and other accounts that are higher than norms pinpointed by the revised scoring software. A 720 FICO is considered a good score by most mortgage lenders, often qualifying for favorable rates and terms. However, the same applicant might rate just a 680 FICO or lower if the lender used the new Mortgage Score. The lender would then have a choice: Reject the applicant, quote a higher interest rate on the mortgage or require a larger down payment.
Gaskin said the reverse could also occur: The FICO 8 Mortgage Score could come in higher than the standard FICO — indicating lower risk for the future — in situations where formerly troubled borrowers manage to put themselves back on a healthier credit track.
Experts in the credit industry say the new scoring efforts by Fair Isaac and VantageScore should prove to be a net positive for the housing and mortgage industries if they can do what they claim: spot subtle risk patterns and nascent hints of improvement.
But as a mortgage applicant you should know that your next score might not look anything like the score you thought you had. You might end up getting a better deal — or worse than you wanted — when lenders quote you rates and terms.
Tuesday, May 18, 2010
The second last-minute credit report before closing
Up till now, realtors and homebuyers were infrequently affected by this practice. Starting June 1st, 2010, it becomes the rule rather than the exception. Your lender is likely to order a second credit screening immediately before closing. It is part of Fannie Mae's "loan quality initiative" to cut down on slipshod underwriting and fraud by borrowers. This second report is designed to find out whether you have obtained, or even shopped for, new debt between time of loan application and the closing. If you have made applications for credit of any type, the closing may be put on hold pending further investigation, and your transaction could potentially fall through.
How should a borrower prepare for the new credit check procedures? Just follow one basic rule: total abstinence. Resist new spending completely between loan application and closing. And don't apply for new credit or increase credit lines without discussing it with your lender first!
How should a borrower prepare for the new credit check procedures? Just follow one basic rule: total abstinence. Resist new spending completely between loan application and closing. And don't apply for new credit or increase credit lines without discussing it with your lender first!
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
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
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
REFINANCE:
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.
PURCHASE:
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.
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
REFINANCE:
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.
PURCHASE:
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, February 8, 2010
FHA Mortgage Insurance Premiums to increase April 2010
Up Front Mortgage Insurance Premium (UFMIP) will be increased form 1.75% to 2.25%. The change will occur April 5th, 2010. This applies to purchase money and refinance transactions.
The FHA will also request legislative authority to further increase the maximum annual MIP they can charge. If they are granted the authority, they will shift some of the raise from the up-front MIP to the annual MIP.
The FHA will also request legislative authority to further increase the maximum annual MIP they can charge. If they are granted the authority, they will shift some of the raise from the up-front MIP to the annual MIP.
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