New Higher FHA Loan Limits Signed Into Law Friday

President Obama signed into law Friday H.R. 2112, a bill that among other things has raised the mortgage limit on Federal Housing Administration (FHA) loans. On October 1st of this year, the lending limits for high cost areas was slashed, with the national maximum being reduced from $729,750 to $625,000 and San Diego County's maximum also declining from $697,500 to $546,250. This bill will extend the pre-October 1st high cost area limits from now through December 2013. This increased limit only applies to loans backed by the FHA, as Fannie Mae and Freddie Mac loans were not included in this bill.

This raising of mortgage limits was done for those in high cost areas who simply cannot get a home for the same prices as those in other areas of the country. FHA was created to help low and middle income families acquire loans with very little down payment, encouraging home buying for those who can afford their monthly mortgage payment but otherwise might struggle to come up with the down payment. San Diego is a prime example of a high cost area. The national limit for FHA basic standard mortgages is now 271,050.00. A quick Zillow search of single family homes yielded 21,279 homes on the market in San Diego County. Of those only 9,844 were priced lower than the national limit, the majority being condos or apartments. San Diego is an expensive market to live in, therefore what is considered middle class housing here is higher than in places such as the Midwest. This bill will remove the penalty of living in an expensive region of the country and provide opportunities to purchase great homes for the middle class. If one couples the FHA loans low down payments with the historically low interest rates, this bill will enable more middle class families to afford homes in the county.

This bill will be beneficial to San Diegans, as there will be far more homes eligible for FHA loans and refinancing. Another Zillow search for homes between the prices of $546,250 (previous limit) and $697,500(new limit) shows 1521 homes. This means that 1521 homes in San Diego are now eligible under the FHA programs that were previously ineligible. The FHA wants to encourage home buying, as it stimulates economic growth. With so many more eligible homes home buying should increase, helping both our local and national economies after what has been a rough few years. Purchasing a home now while prices, down payments, and interest rates are low is an excellent investment in the future, and the FHA can make this possible for you.

More Personal Information in the Credit Report

Consumers applying for a mortgage will be sharing more of their personal information with lenders next year.

FICO scores have been based on a person's credit history. But now, tools are being developed to help the lending industry dig deeper.

Fair Isaac Corp., and CoreLogic recently announced a joint project that will result in a separate score that will be available to mortgage lenders and will include payday loans, evictions and child support payments. In the future, the status of utility, rent and cellphone payments may also be included.

Experian, Equifax and TransUnion have recently begun providing estimates of consumer income as an option to the credit report. Experian has also begun including data on on-time rental payments in its reports as of this year.

All this new information could have positive or negative impact for consumers: It may open the door to homeownership to some consumers who otherwise lack sufficient credit histories, and it may help more affluent homeowners who show little use of credit.

On the negative side, the extra information could make a borderline borrower look even worse on paper.

The FICO-CoreLogic partnership will not result in a credit score that will eliminate a borrower for a mortgage backed by FNMA, FHLMC or FHA. This is because the report required for such a loan does not rely on the additional CoreLogic data. It could affect mortgage fees or interest rates charged by lenders who use a risk-based pricing model.This model rewards the most creditworthy borrowers with low rates and tack extra fees onto loans for those with lower credit scores.

It will be interesting to see if the new information will actually expand the number of people who can get a mortgage.

New Home Affordable Refinance Program (HARP II)

Yesterday, Oct 24, 2011, President Obama announced changes to the Making Home Affordable Refinance Program (HARP) so that a person can refinance a first mortgage that is upside-down.

That mortgage must be owned by Fannie Mae or Freddie Mac on or before May 31,2009.

The changes announced yesterday also extend the program to the end of 2013, and will allow a refinance of a first mortgage with no cap on the loan-to-value (LTV) ratio.

Another important enhancement is the elimination of certain risk-based fees for borrowers who choose a shorter term (see examples below) and lowering fees for other borrowers.

No lenders are offering the program yet, although some major lenders have stated they are working on it’s release.

The requirements released to date are as follows:

1. 1st mortgage owned by Fannie Mae or Freddie Mac

2. No late mortgage payments within the previous 6 months

3. No more than 1 late mortgage payment within the past 12 months

4. 2nd mortgages must agree to go back in 2nd position

5. The loan cannot have been refinanced previously under HARP unless it was between March-May of 2009.

6. Condominiums continue to be eligible under the program.

Lenders are expected to receive guidelines, including implementation dates by November 15, 2011.

Some of the enhancements may be available as early as December 1, 2011,

However, availability of the loan for LTV's greater than 125 is not expected until after December 31, 2011.

The FHFA announcement can be found here:

http://www.fhfa.gov/webfiles/22721/HARP%20release%20102411%20Final.pdf

The program is only one of many refinancing options available to homeowners. It is unique in that it enables borrowers who owe more than the home is worth to take advantage of low interest rates and other refinancing benefits.

Examples*

Assume a homeowner currently has a mortgage on which he or she owes $200,000 and
has an interest rate of 6.5 percent – a monthly payment of $1264. If the house is worth $160,000, the homeowner has a current loan-to-value (LTV) ratio of 125 percent.

If this borrower refinanced into a 30-year fixed-rate mortgage with an interest rate of 4.5 percent, the monthly payment would decline to $1013. But, by refinancing into a 30-year loan, the borrower’s loan balance will not reach $160,000 for ten full years.

If the borrower chose a 20-year loan term at a rate of 4.25 percent (mortgage rates tend to be less for shorter term mortgages), the monthly payment would be $1238 ($26 less than the borrower currently pays) and the borrower’s loan balance would reach $160,000 in 5.5 years.

If this same borrower refinanced into a 15 year mortgage, assuming an interest rate of 3.75 percent, the monthly payment would be $1454 ($190 more than the current payment), but the loan balance would be below $160,000 in a bit more than 3.5 years.

*These examples are purely illustrative and are not meant to represent interest rates borrowers should expect to pay. They do show that some HARP-eligible borrowers, depending on their circumstances and priorities, may benefit from a shorter term mortgage.

Are FHA Mortgage Loans Assumable?

You can assume an existing FHA-insured loan, or, if you are the one deciding to sell, allow a buyer to assume yours. Assuming a loan can be very beneficial, since the process is streamlined and less expensive compared to that for a new loan. You must demonstrate that you have enough income to support the mortgage loan. In this way, qualifying to assume a loan is similar to the qualification requirements for a new mortgage loan. After closing, you will then be responsible for an annual premium - paid monthly - if your mortgage is over 15 years or if you have a 15-year loan with an LTV greater than 90%.

Here is how assumable FHA loans benefit the buyer:

The benefits are two fold. The buyer may get an interest rate that is much lower than the current interest rate they could get from a bank AND they have an accelerated pay off schedule because there are less years remaining on the note!

The FHA mortgage is one of the most expensive when it comes to closing costs, although the costs can be financed. To counter that cost, it helps to remember that your FHA mortgage is assumable. When you sell your property you will have an edge over your competition because of the assumable financing you can offer.

The value of assumability is as high as it is ever likely to be because of the broad consensus that interest rates in future years will be higher than they are now.

Loans insured by the FHA are assumable; conventional loans, with a few exceptions, are not. That means that a home buyer who finances the purchase with an FHA-insured loan and who sells the house later, when interest rates are higher, will be able to offer a potential buyer the right to assume his low-rate FHA loan.

After approval of the buyer by the FHA, the buyer would assume all the obligations of the mortgage upon the sale of the property, and the seller would be relieved of liability, provided the loan being assumed was originated after December 14, 1989. It will be just as if the loan had been made to the buyer.

Waiting Period After Short Sale of a Home Purchased with a VA Loan

Borrowers are required to wait for two years before applying for a new VA home loan. A qualifying credit score and a record of dependable payments during the waiting period following a short sale is required.

Borrowers must apply to have their VA loan eligibility restored by filing a copy of VA Form 26-1880 to the Winston-Salem Eligibility Center.

One thing could prevent a buyer from getting eligibility restored right away. If the VA paid a compromise claim as part of a short sale, the borrower may be indebted to the government as a result of that claim. The Department of Veterans Affairs may not restore eligibility if the applicant still owes money to the government.

Here is the specific wording:

“…although the veteran’s debt was waived by VA, the Government still suffered a loss on the loan. The law does not permit the used portion of the veteran’s eligibility to be restored until the loss has been repaid in full.”

If a VA loan applicant is notified that a debt to the government exists, or was aware of the debt prior to applying for the loan, the applicant should contact the VA directly to work out the details of repayment before applying for a new VA mortgage.

A borrower may still be able to take advantage of any unused VA loan eligibility. Any remaining entitlement may be allowed if a borrower did not use the full entitlement on the previous VA mortgage.

A borrower’s debt for a compromise claim may be factored into the debt-to-income ratio, unless the lender feels the compromise claim debt is too great compared to other financial factors. That debt may result in the need for a down payment, or a larger down payment than usual – requirements will vary from lender to lender.

Are VA Loans Assumable?

An assumable loan allows the buyer to take over the obligation of the seller's loan
with no change in loan terms. Generally, a loan without a "Due-On-Sale Clause" is assumable.

Advantages:

If loan rates have increased since the seller got the loan, the old loan may carry a lower interest rate than a new loan, and the buyer won't have to pay as much in fees.
Also, more of the monthly payments on the loan will be going toward the principal balance instead of interest because the loan term will be reduced by the time since the loan began.

VA Assumablility

There are two ways to assume a VA loan,but only one of them is a good idea for the seller.
First, if the new buyer is a qualified Veteran, he can "substitute" his eligibility for the eligibility of the seller. In addition, the new buyer qualifies through VA standards for the mortgage payment.
This is the safest way for a seller to allow their loan to be assumed. The new buyer is responsible for the loan and the seller has no further liablility for the repayment of the loan. By obtaining a "release of liability" from the VA, the seller can then use their full eligibility to purchase another home right away using their VA loan.

The second way is if the new buyer is not a veteran or qualified for a VA loan, they have no eligibility to give the seller. If the seller grants permission for the new buyer to take over their loan, the seller does not get back their eligibility to use on another home, and the seller is still liable for the payments should the buyer default!

For this reason, A VA seller and their realtor, should be very careful about offering their home with an assumable loan.

New California Maximum FHA purchase price with 3.5% Down 10/1/2011

County	Max FHA Price
Alameda	$648,187
Alpine	$480,259
Amador	$344,404
Butte	$303,886
Calaveras	$387,306
Colusa	$280,881
Contra Costa	$648,187
Del Norte	$280,881
El Dorado	$492,176
Fresno	$291,969
Glenn	$280,881
Humboldt	$339,637
Imperial	$280,881
Inyo	$382,539
Kern	$280,881
Kings	$280,881
Lake	$280,881
Lassen	$280,881
Los Angeles	$648,187
Madera	$280,881
Marin	$648,187
Mariposa	$333,679
Mendocino	$387,306
Merced	$280,881
Monterey	$500,518
Napa	$613,731
Nevada	$494,560
Orange	$648,187
Placer	$492,176
Plumas	$349,171
Riverside	$368,238
Sacramento	$492,176
San Benito	$648,187
San Bernardino	$368,238
San Diego	$566,062
San Francisco	$648,187
San Joaquin	$315,803
San Luis Obispo	$581,554
San Mateo	$648,187
Santa Barbara	$648,187
Santa Clara	$648,187
Santa Cruz	$648,187
Shasta	$283,627
Siskiyou	$280,881
Solano	$414,715
Sonoma	$539,845
Stanislaus	$286,010
Sutter	$280,881
Tehama	$280,881
Tulare	$280,881
Tuolumne	$343,212
Ventura	$619,689
Yolo	$492,176
Yuba	$280,881