From a recent WSJ article:

“…this political history may be repeating itself with the Federal Housing Administration, which yesterday announced that its capital reserve ratio has fallen to 0.53%. That cushion is far below the 2% of its liabilities that Congress mandates, itself a 50 to 1 leverage ratio, and down from 3% last autumn. The FHA’s mortgage guarantees in 2009 are four times higher than they were in 2007. Nearly 18% of its loans are 30 days or more past due, while mortgages guaranteed in 2007 are “on par with FHA’s worst-ever books from the early 1980s,” according to the Department of Housing and Urban Development’s report to Congress. The financial deterioration is the result of the agency’s plunge into high-risk loans over the last two years, asking dangerously low down payments of 3.5% from unqualified borrowers.”

Many different places are writing how borrowers who qualified just a few years ago for a subprime loan are now using FHA loans to finance their homes. Or, at least that is the impression that some people seem to be getting.

Seems to only make sense because there are no more subprime loan programs left… and someone should sound the alarm, right?

Maybe.

But I personally wouldn’t put those data points together and come to a conclusion.

You see, FHA guidelines are getting more strict, not less. Minimum credit scores that are required by many lenders are now 640 and the trend seems to be toward more tightening. The FHA streamline refinance now has much more stringent qualification criteria – not like the FHA streamline refinance that was around for at least the last decade.

So if indeed, FHA comes out and says they need a bailout, why do they need a bailout if they are not the new subprime?

My opinion – because many, many people are struggling with employment (either being unemployed or underemployed) and when many homes are worth less than the mortgage on the home – default numbers are going to skyrocket.

No matter if they are FHA loans or not.

From a recent WSJ article:

“…this political history may be repeating itself with the Federal Housing Administration, which yesterday announced that its capital reserve ratio has fallen to 0.53%. That cushion is far below the 2% of its liabilities that Congress mandates, itself a 50 to 1 leverage ratio, and down from 3% last autumn. The FHA’s mortgage guarantees in 2009 are four times higher than they were in 2007. Nearly 18% of its loans are 30 days or more past due, while mortgages guaranteed in 2007 are “on par with FHA’s worst-ever books from the early 1980s,” according to the Department of Housing and Urban Development’s report to Congress. The financial deterioration is the result of the agency’s plunge into high-risk loans over the last two years, asking dangerously low down payments of 3.5% from unqualified borrowers.”

Many different places are writing how borrowers who qualified just a few years ago for a subprime loan are now using FHA loans to finance their homes. Or, at least that is the impression that some people seem to be getting.

Seems to only make sense because there are no more subprime loan programs left… and someone should sound the alarm, right?

Maybe.

But I personally wouldn’t put those data points together and come to a conclusion.

You see, FHA guidelines are getting more strict, not less. Minimum credit scores that are required by many lenders are now 640 and the trend seems to be toward more tightening. The FHA streamline refinance now has much more stringent qualification criteria – not like the FHA streamline refinance that was around for at least the last decade.

So if indeed, FHA comes out and says they need a bailout, why do they need a bailout if they are not the new subprime?

My opinion – because many, many people are struggling with employment (either being unemployed or underemployed) and when many homes are worth less than the mortgage on the home – default numbers are going to skyrocket.

No matter if they are FHA loans or not.

From a recent WSJ article:

“…this political history may be repeating itself with the Federal Housing Administration, which yesterday announced that its capital reserve ratio has fallen to 0.53%. That cushion is far below the 2% of its liabilities that Congress mandates, itself a 50 to 1 leverage ratio, and down from 3% last autumn. The FHA’s mortgage guarantees in 2009 are four times higher than they were in 2007. Nearly 18% of its loans are 30 days or more past due, while mortgages guaranteed in 2007 are “on par with FHA’s worst-ever books from the early 1980s,” according to the Department of Housing and Urban Development’s report to Congress. The financial deterioration is the result of the agency’s plunge into high-risk loans over the last two years, asking dangerously low down payments of 3.5% from unqualified borrowers.”

Many different places are writing how borrowers who qualified just a few years ago for a subprime loan are now using FHA loans to finance their homes. Or, at least that is the impression that some people seem to be getting.

Seems to only make sense because there are no more subprime loan programs left… and someone should sound the alarm, right?

Maybe.

But I personally wouldn’t put those data points together and come to a conclusion.

You see, FHA guidelines are getting more strict, not less. Minimum credit scores that are required by many lenders are now 640 and the trend seems to be toward more tightening. The FHA streamline refinance now has much more stringent qualification criteria – not like the FHA streamline refinance that was around for at least the last decade.

So if indeed, FHA comes out and says they need a bailout, why do they need a bailout if they are not the new subprime?

My opinion – because many, many people are struggling with employment (either being unemployed or underemployed) and when many homes are worth less than the mortgage on the home – default numbers are going to skyrocket.

No matter if they are FHA loans or not.

This is big news!

Early in May, HUD Secretary Shaun Donovan made a comment when speaking to a National Association of Realtors meeting about how HUD was considering this change to happen. Until Friday, everyone suspected that something was forthcoming, but no one new for sure until Friday when HUD issued their official Mortgagee Letter 2009-15 which outlined the rules of the program.

Being able to “monetize” the tax credit essentially means that you can use the money that you are going to receive for the credit when buying a home here in Arizona. It is expected that as a result of this tax credit, but to 160,000 families will be able to buy homes.

According to Reuters:

The National Association of Home Builders estimates that the $8,000 first-time homebuyer credit will stimulate 160,000 home sales across the United States — 101,000 purchases from first-time buyers and another 59,000 purchases by existing homeowners who sold dwellings to first-time buyers.

For people who are planning on “monetizing” the tax credit, the most popular question about HUD’s guidance is “can I use the tax credit for my down payment?” and the answer to that question is “yes — but  you must have your initial 3.5% down payment first. You cannot use the monetization of the tax credit for the 3.5% down payment.”

Another popular question is “how much does it cost to monetize the tax credit?” The answer to this question is best addressed by HUD in their Mortgagee Letter — they hit the topic head on:

Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the homebuyer.  In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive.  (Example:  $6000 to be refunded, with all fees and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)

While many people were hoping that the “monetization program” would allow people to use the tax credit for their down payment, it is difficult to say that HUD did a “bad job” thinking this program through. All in all, I give them high marks for doing whatever they can to help as many people as possible in buying a home without putting loan quality at risk because borrowers don’t have enough vested interest in the transaction.

If you have questions about the monetization plan, be sure to speak with a loan officer at a FHA approved lender – and here are a few other resources as well:

HUD Official Announcement

Official Mortgagee Letter 2009-15

New Home Buyer 8000 Tax Credit Down Payment: Answers To Questions

From a recent WSJ article:

“…this political history may be repeating itself with the Federal Housing Administration, which yesterday announced that its capital reserve ratio has fallen to 0.53%. That cushion is far below the 2% of its liabilities that Congress mandates, itself a 50 to 1 leverage ratio, and down from 3% last autumn. The FHA’s mortgage guarantees in 2009 are four times higher than they were in 2007. Nearly 18% of its loans are 30 days or more past due, while mortgages guaranteed in 2007 are “on par with FHA’s worst-ever books from the early 1980s,” according to the Department of Housing and Urban Development’s report to Congress. The financial deterioration is the result of the agency’s plunge into high-risk loans over the last two years, asking dangerously low down payments of 3.5% from unqualified borrowers.”

Many different places are writing how borrowers who qualified just a few years ago for a subprime loan are now using FHA loans to finance their homes. Or, at least that is the impression that some people seem to be getting.

Seems to only make sense because there are no more subprime loan programs left… and someone should sound the alarm, right?

Maybe.

But I personally wouldn’t put those data points together and come to a conclusion.

You see, FHA guidelines are getting more strict, not less. Minimum credit scores that are required by many lenders are now 640 and the trend seems to be toward more tightening. The FHA streamline refinance now has much more stringent qualification criteria – not like the FHA streamline refinance that was around for at least the last decade.

So if indeed, FHA comes out and says they need a bailout, why do they need a bailout if they are not the new subprime?

My opinion – because many, many people are struggling with employment (either being unemployed or underemployed) and when many homes are worth less than the mortgage on the home – default numbers are going to skyrocket.

No matter if they are FHA loans or not.

It depends.

You could easily mess it up if you don’t be careful — meaning you could use someone that is based in Mellville, New York as your loan officer to buy a house in Queen Creek, Arizona and end up having it be a disaster. Or, just as likely — you could use a local loan officer who isn’t competitive with the larger, national lenders.

There is at least one simple thing that you can do to avoid either of these situations — ask around.

Start by asking your Realtor. Chances are that she knows a small handful of good lenders who live and work locally because she deals with clients who are all in your same situation every day — they need a mortgage and don’t want to make the wrong choice.

After getting a recommendation from our Realtor, interview at least two different loan officers. You might be surprised to learn just how different each loan officer can be — and I am not talking about interest rates. Some loan officers really have no clue and some are stone-cold-experts and know what they are doing. Some are funny, some are boring. Some are easy to work with, some are abrasive. In the end, you really want someone that is easy to work with and can deliver on what they promise – so the first step is to interview at least a couple so you can compare and contrast.

After shopping for a local lender, you may also be well served to speak with a national lender with a loan officer who works somewhere that is probably out of state. When speaking with these loan officers, the best way to find out if they are going to know about helping someone who is buying a house in Arizona is to ask them one question:

How soon can you get my Realtor an LSR?

If they don’t know what you are talking about – that should put an abrupt end to your interview.

An LSR is a document that a lender is required to provide the Realtor in the transaction. It is Arizona specific and is just one of the few “little” things about the Arizona home buying process that is unique to Arizona.

On second thought — maybe a local Arizona loan officer is better.

Just make sure that you ask around first!

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www.PhoenixHousingBlog.com HomeSmart Real Estate CRobinson@HSmove.com Mobile 480-202-3558 Fax 602-710-2393 Twitter: AzRealEstate FaceBook: Candace Robinson

Can you use the 8000 tax credit as a down payment for your home?

Not yet.

But that may change soon.

Yesterday, Secretary of Housing and Urban Development Shaun Donovan gave a prepared speech at the National Association of Realtors Real Estate Summit. He said something that was probably beyond interesting when he mentioned that FHA was currently working on a proposal that may involve people being able to use the 8000 tax credit as a down payment.

An excerpt from that speech regarding FHA’s position on the 8000 tax credit being used as a down payment:

And we are taking action to further help the housing market recover. I’m excited to announce here at NAR that FHA’s policy on the “monetization” of the first-time homebuyer tax credit will soon be published. I know that you’ve been waiting anxiously to hear FHA’s position on the matter. We, like you, believe that this new tax credit is not only a tremendous opportunity for first-time homebuyers, but also an enormous benefit for communities struggling to deal with an oversupply of housing. According to estimates by the National Association of Home Builders, this new tax credit will stimulate 160,000 home sales across the nation – 101,000 of which will be first time buyers who will receive the credit. Another 59,000 existing homeowners will be able to buy another home because a first time buyer purchased their home.

We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a downpayment. So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to “monetize” the tax credit through short-term bridge loans. We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit. FHA will be publishing the details shortly.

Enabling first time homebuyers to use the 8000 tax credit as a down payment would be a big win for the market – it would allow many more people to move into a home who currently may not have enough for a down payment.

We will be sure to keep you posted on developments in this situation as the happen.

(h/t Mark Madsen at MyFHAMortgageBlog for sharing the video about the 8000 tax credit being used as a down payment and the guys at ThinkBigWorkSmall)

The time it takes to fund a loan from start to finish can vary dramatically between lenders. Some lenders are on “normal” turntimes, others are so backed up, it seems as if they may never unbury themselves from the pile of loans they are currently sitting in. There is no correlation between lender size and turn time. Big lenders have slow turn times, small lenders have slow turn times. Big lenders have quick turn times, small lenders have quick turn times.

Which is why it is more important than ever to know what lenders have what turn times.

There is an argument in the mortgage business that has been going on for ages between mortgage bankers and mortgage brokers. Mortgage brokers can send your file to any number of banks and their argument is that they can select the bank with the best price and best service — so being a broker is better. Mortgage bankers argue that because they have in-house underwriting, they have a relationship with the underwriter and thus their model is better.

In my opinion – the best model is to find a loan officer who works for a bank but can broker away files when needed.

And in today’s market – brokering files to lenders with fast turn times is one of the only ways that you may be able to meet your 30 day sales contract/close of escrow without having to file an extension. There is a process to obtain a loan and if you are a first time buyer and would like to know more about the buying process and/or need to be pre-qualified for a loan be sure to contact Justin McHood at 480-374-0303. To take advantage of the $8,000 buyer tax credit in 2009 as a first time buyer, be sure to contact Candace at 480-202-3558.<.p>

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There are plenty of things that your Realtor can help you with in order to make your offer to buy a home more attractive, but for the purposes of this post, I thought I would focus on just one of those things that your loan officer can do to help you.

Get Pre-Approved, Not Pre-Qualified

Getting pre-qualified is easy. You pick up the phone, have a conversation with a loan officer and based on whatever you tell him, he will tell you whether or not you are pre-qualified. The catch here is that in order to become pre-qualified, you don’t actually have to prove what you are saying — you just have to say it.

So if you called me, told me that you had perfect credit, made a million dollars a month in W2 income and wanted to finance a $200k house — I would say that you are pre-approved based on what you told me.

But if you came to the office, provided paystubs and tax returns documenting your pay history and I pulled your credit and verified everything – then you are pre-approved.

Pre-qualified = the lender takes your word for it.

Pre-approved = you have proven it to the lender.

Getting pre-approved takes more work on your part, but when you are just one of 5 offers to a seller? Getting pre-approved can make all the difference.  There is usually no fee for getting pre-approved and it is a fairly simple process and well worth your time.

Unless of course you don’t mind submitting multiple offers on multiple houses and just hope that one of them sticks.

But the truth is, closing costs are whatever you want them to be.  Sound crazy? Maybe, maybe not. The truth is – when you buy a house, everyone is going to make money. The appraiser is going to make money. The title company is going to make money. The Realtor is going to make money. The inspector is going to make money. And of course, the bank is going to make money.

But the difference about the bank making money is that you actually have a choice as the borrower on how much the bank makes and whether you want to pay now or pay over the life of your loan.

Lender Closing Costs: What If Your Pay Now?

If you elect to pay your lender closing costs at closing, you can reasonably expect to pay between 1 and 2% of your loan amount in lender closing costs.  These are usually split between origination fees (typically between .5% and 1%)  and processing/underwriting fees (typically about $1,500)

Lender Closing Costs: What If Your Have The Bank Pay?

Having the bank pay your closing costs is simple – and they will be happy to – in exchange for a slightly higher interest rate. Many times, the lender will explain it something like this: your lender fees will be $X and your interest rate will be 5% — or — your lender fees will be $0 and your rate will be %5.5.

Which is a better deal, having the bank pay your closing costs or you paying them yourself?

It depends.

Generally speaking, the longer that you are planning to have the loan, the more sense it will make for you to pay your closing costs and have as low of an interest rate as possible. If you plan on only having the loan for a few years — it will usually make more sense for the bank to pay your closing costs in exchange for a slightly higher rate.

Lender Closing Costs: F-R-E-E

Ok, so now for the big secret. The truth is, there is one other party who may be willing to pay your closing costs… the seller! It is not uncommon for a seller to pay your lender closing costs in exchange for you buying the house. There are a number of different ways to negotiate this, so be sure to work with your Realtor to get great advice here on this one.

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