FHA To Toughen Down Payment Rules

The Federal Housing Administration will raise the minimum down payment for its least credit-worthy borrowers, agency announced Tuesday.

Borrowers with credit-rating scores below 580 will be required to put down at least 10 percent. Those with a credit score above 580 will be able to continue to put down only 3.5 percent. The changes are intended to shore up the agency's finances.

The FHA also will increase its upfront mortgage insurance premium from 1.75 percent to 2.25 percent. The agency is expected to seek congressional approval to raise annual mortgage insurance premiums, paid by borrowers over the life of the loan, above the current 0.55 percent maximum. The amount it will seek has yet been announced.

Source: Reuters News, Corbett B. Daly (01/19/2010)

FHA Property Flipping Waiver

Saturday, January 16th, 2010

Since the announcement around 5:00 p.m. EST on Friday, January 15, my phone has not stopped ringing. The consensus is that this FHA property flipping waiver is a huge boon. Lots of people are citing links to it but very few people have actually taken the time to read it, break it down, digest it and offer comments about where they think the business is going as a result of this recent property flipping waiver.

Allow me to share with you a few bullet points:

1. This waiver is very good news.

2. This waiver does NOT necessarily mean that you will be able to do back to back same day closes to an FHA end buyer.

Allow me to explain why. Upon closely reading this waiver, you will see that they require that the “seller holds title to the property” thus the investor seller must be the owner of record.

Considering the past policy interpretations of the FHA underwriters, I believe that this means that they may very well expect to see the investor/seller be the owner of record as of the date the contract to sell to the FHA insured buyer is executed. This means that you can close on Monday, go into contract on Tuesday, and hopefully close in 30 days. This is a vast improvement over 91-140 days.

The next salient point is that if you are selling it for 20% more than what you bought it for, you are going to face a higher level of scrutiny in the underwriting process. So, if you can buy a property for $300,000, resell it for less than $360,000 you are going to be fine – but still be prepared to have to come up with the $300,000 and hold the property for a period of time, if you choose to sell to an FHA end buyer.

Sophisticated title companies such as Old School Title and a few other ones that I work with may be able to expedite the process through unique and proprietary business practices that they use to work with FHA underwriters. If you are not working with a cutting edge and industry-leading title and escrow company, now is the time to get with one.

Going back to the actual three page flipping waiver, you will note that the rationale behind this waiver is the recognition that people can buy properties, substantially rehab them and improve the value of them in less than 90 days, so don’t be surprised to see certain FHA underwriters still looking for proof of what you have done to enhance the value. You may in some instances be able to rely on the Freddie Mac Attachment A argument from October 2009 regarding the difference in value is the market reaction to you paying off all of the liens and clearing up the title issues, thus increasing the value of the property. Or, you may have to show receipts for paint and carpet with accompanying before and after photographs.

By now, I hope you realize that I do not see this property flipping waiver as the sudden opening of the bank vault with no security guards anywhere in sight. Rather, I see it as a significant but limited move by our nation’s “housing authority” to try to address the illiquidity in the residential real estate market.

I want it to be very clear that everyone will still need their short term brokerage funding, particularly 30-60 day funding, maybe less, to capitalize on this policy change by the FHA. You will still have to buy and fund this deal and then go through the process of selling to the FHA end buyer. However, it’s a whole lot easier to find 30-60 day money than 90-120 day money.

To summarize the salient points of this waiver:


1. All transactions must be arm’s length.

2. Assignments of a contract for sale will trigger a red flag.

3. The seller holds title to the property.

4. Entities such as LLCs, corporations, and trust must be properly established and operating in accordance with applicable state and Federal law.

5. There is not a pattern of previous flipping activity for the subject property, so if the property has been wholesaled two or three times in the last 12 months I doubt you are going to get an FHA loan on this. If you bought it via a short sale from someone who was losing it in foreclosure, I think you will be in good shape.

6. The property must pass at a minimum the FHA inspection. The program does not apply to reverse mortgages.

7. Most importantly, items 6 and 7 in the waiver make it very clear that this elimination of the 90 day resale restriction clearly applies to private sales of property for resale, therefore the entire restriction set forth in 24 C.F.R. § 203.37a (b)(2) is waived for a one year period.

8. The title company that you use and the particular lender that your C buyer selects will become crucial as to whether you will only need 30 day money or whether you will need money for longer.

Downsizing your Home? The Tax Credit is For You Too!

January 17, 2010

The tax credit is not just for those buying a bigger home, it also works for those wishing to downsize. When the First Time Home Buyer Tax credit was extended and expanded late last year, most people thought the expansion was only for home owners who wanted to move up, those who wished to buy a bigger, more expensive home. In fact, the expansion simply includes those who have owned a primary residence and lived in it for at least five years consecutive years out of the last eight years. If current home owners want to downsize they can use the tax credit toward their new home, regardless of whether it costs less than the home that they are selling, regardless of whether it is smaller than the one that they are selling.

Everyone we talk to assumes the tax credit is only for purchasing bigger and better. Many people however, especially those whose children have grown and left the nest, want to downsize. After-all, who doesn’t want to make life simpler these days?

If you have been considering selling your home and moving into a smaller space, consider doing so before the tax credit expires. Place your new home under contract by April 30th and close by June 30th and you could have a few extra dollars in your pocket.

Atlanta 37th among home price reductions as trend eases - Atlanta Business Chronicle:

Atlanta 37th among home price reductions as trend eases - Atlanta Business Chronicle:

Record Number of Foreclosures in 2009

Total foreclosures in 2009 reached 2.8 million, a 21 percent increase over 2008 and a 120 percent rise compared to 2007, according to foreclosure sales Web site RealtyTrac in a year-end report released Wednesday.

RealtyTrac also reported that fourth quarter foreclosures decreased 7 percent from the third quarter, although they were up 18 percent compared to 2008. December 2009 foreclosures were up 14 percent over December 2008.

The 10 states with the highest foreclosure rates in 2009 were: Nevada, Arizona, Florida, California, Utah, Idaho, Georgia, Michigan, Illinois, and Colorado.

California, Florida, Arizona, Illinois account for 50 percent of the foreclosures. The other 10 states with the largest numbers of foreclosures are Michigan, Nevada, Georgia, Ohio, Texas, and New Jersey.

“A massive supply of delinquent loans continues to loom over the housing market, and many of those delinquencies will end up in the foreclosure process in 2010 and beyond as lenders gradually work their way through the backlog,” says RealtyTrac CEO James Saccacio.

Source: The Associated Press (01/14/2010)

Last chance to refinance below 5%

January 10, 2010


NEW YORK (CNNMoney.com) -- If you want to refinance your mortgage into a loan with a sub-5% interest rate, better hurry. Your window of opportunity is closing fast.

Lenders are still advertising rock-bottom interest rates, but for most borrowers, rates are rapidly rising into the 5%-plus category.

During the week of Jan. 7, the average 30-year, fixed-rate loan closed at 5.09%, according to mortgage giant Freddie Mac. That is significantly higher than the 4.71% it averaged at the beginning of the month, and experts say rates will go higher yet.

"Interest rates are up and they're not going to go down below 5% again," said Mark Zandi, chief economist for Moody's Economy.com, not for a while at least.

While homebuyers are still excited about these low mortgage rates, people who already have a loan and want to lower their costs are scrambling to lock in.

Refinancers act when the difference between the rate they're currently paying and the new one is at least a point or two wide, otherwise the costs of going through the refinancing wipes out any savings. In fact as rates rose in December, refinancings plunged, down more than 30%, according to the Mortgage Bankers Association.

A big reason for the jump is that a government program that has kept rates very low is winding to a close. The Federal Reserve has been purchasing mortgage-backed securities since early 2009, scooping up as much as $1.25 trillion worth. That has dampened rate increases by providing a ready market for the securities.

But the Fed's program lapses on March 31, when it cedes the playing field to private investors, who will almost surely demand higher rates. The Fed has already been slowing its purchasing, and that has corresponded with the recent rate increases.

As Treasurys go . . .

Not just mortgage rates have turned north. Treasury yields have as well, another indication that mortgage rates are headed skyward.

The yield on the benchmark 10-year Treasury has grown steeply over the past few weeks. It stood at 3.2% at the beginning of December and has soared to 3.84% as of Tuesday, a 20% jump.

Mortgage interest does not track Treasury yields in lockstep, but the two tend to mirror each other's movements.

Mortgage securities rates are always higher than Treasury yields because investors demand a premium above practically risk-free Treasurys.

The difference between mortgage rates and Treasury yields is usually somewhere near 1.7 percentage points, according to Keith Gumbinger of HSH Associated, a publisher of mortgage information. The current spread of about 1.2 percentage points is quite narrow.

That's bound to change, according to David Crowe, chief economist for the National Association of Home Builders. He believes mortgage rates will go up to about 5.5% by late summer. But other factors could push them into a larger-than-expected jump.

Economy bouncing back

For example, as the economy improves (it's hoped), businesses will expand production, hire new workers and open new sales outlets. All that requires borrowing in capital markets and the demand for lending will expand interest rates of all kinds.

A recovering economy also boosts corporate profits, making stocks a better bet for investors.

"Stocks tend to do better when the economy improves," said Stuart Hoffman, chief economist for PNC Financial Services. "Mortgage rates will rise to attract investment."

Hoffman's forecast is for rates to stay quite constant the rest of the winter and then elevate gradually during the spring buying season, the busiest time of year for home sales. He said they should hit about 5.5% by the end of June.

After that, the increases will slow, according to Hoffman, but still approach 6% toward the end of the year. He believes they'll cap at around 5.75% and are not likely to fall back to the 5% level again.

Principal Cuts May Prevent Foreclosures

At least 7 million borrowers will lose their homes this year and next unless there is a broad increase in property values or lenders become much more willing to cut the principal on mortgage loans, an analyst with Amherst Securities Group told the U.S. House Financial Services Committee last month.

That testimony has motivated Federal Deposit Insurance Corp. Chair Sheila Blair to consider incentives for lenders to cut principal on $45 billion in mortgages her agency has acquired from seized banks.

“We’re looking now at whether we should provide some further loss-sharing for principal write downs,” says Bair. “Now you’re in a situation where even the good mortgages are going bad because people are losing their jobs.”

While principal reductions are rare, some banks are doing them. In the third quarter of 2009, about 21,000 home loans were modified by reducing the principal, according to Mortgage Metrics, a government publication.

Mark Zandi, the chief economist for Moody’s Economy.com, suggests that banks receive a federal match of $1 for every $2 in principal reductions they offer to home owners.

“You’re not going to wipe out all the borrowers’ negative equity,” he says. “This just gives them enough hope to get them committed again.”


Source: Bloomberg, John Gittelsohn and Prashant Gopal (01/07/2010)