HUD Announces Possible Principal Reduction: The “FHA Short Refinance”

August 6, 2010 by Leave a Comment

HUD has been busy!  They just issued another press release stating that starting September 7, 2010, FHA will offer "certain 'underwater' non-FHA borrowers who are current on their existing mortgage and who's lenders agree to write off at least ten percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA insured mortgage".   This program will be available on FHA case numbers issued on or after September 7, 2010 and must close before December 31, 2012.

The biggest catch that I see is that this voluntary program requires that all mortgage lien holders consent to the refinance.  Any first mortgage being paid off must agree to reduce their principal balance by a minimum of 10% and the second mortgage must agree to be subordinated.   There's a maximum combined loan to value limit of 115%.  It will be interesting to see how the banks embrace this program.

Here are some other requirements for the FHA Short Refinance:

  • the home owner must have negative equity
  • the home owner must be current on their existing mortgage that's being refinanced.
  • owner occupied (primary residence) only
  • the mortgage being refinanced may not be an FHA insured loan (NOTE: if you're upside down on your FHA insured loan, you can do a streamline FHA with no appraisal).
  • existing lien holder must write off at least 10% of the principal balance
  • first mortgage maximum loan to value is 97.75% for the new FHA loan and 115% combined loan to value when there is a second mortgage.

Potential borrowers of this program will be subject to "Borrower Certification" which was enacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 21, 2010.  If the borrower has been convicted in the last ten years of any of the following: (a) felony larceny, theft, fraud, or forgery; (b) money laundering; or (c) tax evasion.  More details are expected to follow.

Last but not least, the Mortgagee Letter advises that borrowers need to be aware that, as with any loan forgiveness action, short refinancing under this program may be reflected as a negative feature on a borrowers credit score and that anyone who is considering this type of transaction should contact their tax advisors regarding the cancellation of debt and possible tax consequences.

It will be interesting to see how many banks will participate in reducing principal balances and how this will work with the Home Affordable refinances.  This could be a nice resource for home owners who don't have Fannie Mae or Freddie Mac securitized mortgage but want to take advantage of our current historic low interest rates.

Stay tuned…I'll keep you posted.

 

Filed Under: FHA, Refinance

FHA Making Promised Changes to Mortgage Insurance Premiums

August 5, 2010 by Leave a Comment

UPDATE August 10, 2010:  HUD just announced they are delaying the changes to FHA mortgage insurance until case numbers issued on or after October 4, 2010.

Federal Housing Commissioner David Stevens has issued a "Special Edition" press release confirming that FHA mortgage insurance will be adjusting  on all case numbers beginning next month.  

"It is our intention that effective on September 7, 2010, FHA's upfront mortgage insurance premium will be adjusted down to 100 basis points on all amortization terms and the annual mortgage insurance premium will increase to 85-90 basis points on amortizing terms greater than 15 years…"

Currently upfront mortgage insurance on an FHA insured loan is 2.25%.  Effective on new case numbers September 7, 2010 October 4, 2010 and later, the new upfront mortgage insurance premium will be 1.00%.   On a $400,000 loan the 2.25% premium pencils out to $9,000 which is typically financed (added to the FHA base loan amount); in a month the upfront premium will be reduced to $4,000.

At first, this sounds great–however, there's a trade-off.  The annual mortgage insurance (paid monthly) is increasing to 85-90 basis points (currently it's 50-55%).   An increase of 0.3% of the annual premium will increase the monthly payment (based on  a $400,000 loan amount) to $300 (0.90 x $400k =$3,600/12) from $183 (0.55 x $400k =$2,200/12) an increase of $116.47 per month.

Using an interest rate of 4.25% and a based loan amount of $400,000; it looks like this:

FHA Case Number BEFORE September 7 October 10, 2010:

$400,000 plus $9,000 = $409,000 amortized for 30 years at 4.25% = principal and interest of $2012.03 plus the annual mortgage insurance of $183 = $2,195.03

FHA Case Number issued September 7 October 4, 2010 and after:

$400,000 plus $4,000 = $404,000 amortized for 30 years at 4.25% = principal and interest of $1,987.44 plus the annual mortgage insurance of $300 = $2,287.44.

The new FHA mortgage insurance premiums have an increase in payment of $92.41 based on this example.   This impacts both purchases and refinances using FHA insured mortgages.

Stevens acknowledges that this is "short notice" however this shouldn't surprise anyone who's been a subscriber to The Mortgage Porter, this has been in the works.   A mortgagee letter is expected to follow soon.

Mortgage Master Service Corporation is a Direct Endorsed HUD approved lender.  I've been originating FHA insured loans for over ten years.  If I can help you with your mortgage needs on a home located in Washington, please contact me.

Filed Under: FHA, Mortgage Insurance

Paying Alimony? You May Want to Consider an FHA Insured Mortgage

July 15, 2010 by 3 Comments

UPDATE: You no longer have to FHA if you’re paying alimony... Fannie Mae and Freddie Mac have updated their guidelines. Check it out here!

Most mortgage originators know that if you have less than 10 payments remaining with alimony or child support payments, it may not have to be factored into your qualifying ratios (debt to income) as long as the payment doesn’t impact your ability to pay the mortgage following closing.  A borrower needs to be well qualified with plenty of savings for an underwriter to support this guideline. [Read more…]

Filed Under: FHA, Underwriting and Qualifying Tagged With: , , , ,

Historic Low Mortgage Rates May Help Seattle Area Homeowners

June 29, 2010 by Leave a Comment

The mortgage rates we're witnessing today can help many Washington state homeowners if they take advantage by refinancing.  Even if your home's value has declined due to your homes in your neighborhood selling for less, you may still have options thanks to the Home Affordable Refinance program (set to expire in 2011) and FHA streamline refinances. 

Many of the home owners I'm helping with refinancing are:

  • reducing their monthly mortgage and creating more monthly cash flow to help with their budgets;
  • converting adjustable rate mortgages or interest only mortgage to fixed rates;
  • shortening their mortgage terms;
  • paying off second mortgage by including them in their refinance or paying off debts.

The Home Affordable refinance(HARP) is available for conventional loans that are securitized by Fannie Mae or Freddie Mac–this is different than who you make your mortgage payment to (the bank or mortgage servicer).   The Making Home Affordable Program allows for negative home equity and may not require an appraisal.  If your current mortgage doesn't have private mortgage insurance, then the new Home Affordable refi will not have mortgage insurance either–regardless of the loan to value!  This program is available for owner occupied, rental homes and vacation homes.   NOTE:  Second mortgages cannot be paid off with this program, however they can be subordinated.

Here's an example of HARP refi quotes (as of 12:30 today) based on a loan amount of $400,000 and an appraised value of $381,000 (roughly 105% loan to value) using a 30 year fixed with mid-credit scores of 740 and priced with zero points (origination or discount):

Owner occupied:  4.750% (apr 4.813) priced with 0 points.

Investment property/non-owner occupied:  5.125% (apr 5.360) priced with 0 points.

If your current mortgage is FHA, then you can opt for an FHA streamlined refinance.  If you have a little equity, you can opt to have an appraisal and finance up to 97% of the appraised value to include your closing costs and prepaids.   If your home does not have equity, and you have the funds available, a "no appraisal" option is available.  With the no-appraisal streamline FHA refinance, closing costs and prepaids cannot be financed.  Your loan amount is limited to your current balance less a possible credit of your original upfront mortgage insurance premium and your new upfront mortgage insurance premium can be financed.  

Here are FHA refinance rates (as of 12:30 today):

4.500% priced with 0 points (apr 5.090) appraisal optional.  Loan amounts up to $417,000.

4.750% priced with 0 points (apr 5.518) appraisal optional.  Loan amounts $417,001 – $567,500 in King, Pierce and Snohomish Counties.

FHA currently will allow up to an 85% loan to value for a "cash-out" refinance, which may include paying off a second non-purchase money second mortgage.  "Cash-out" would not be a FHA streamlined refinance and would require an appraisal.

If you have enough home equity, you may not need to do a streamline or Home Affordable refinance.  But it's nice to know your options!   If I can help you review your mortgage scenario, for a refinance or purchase, on a home located in Washington state, or if you would like your personal rate quote, please contact me!

Filed Under: Fannie, Freddie and FHFA, FHA, Refinance

It’s Official: Freddie Mac Reports Mortgage Rates at Record Lows

June 24, 2010 by Leave a Comment

Mortgage rates continue to trend lower providing some of the lowest mortgage rates of record.   From the Alan Zibel of the Associated Press:

Mortgage company Freddie Mac said Thursday that the average rate for 30-year fixed loans sank to 4.69 percent, from 4.75 percent last week.

That's the lowest since Freddie Mac began tracking rates in 1971. The previous record of 4.71 percent was set in December. Rates for 15-year and five-year mortgages also hit lows.

This provides many Seattle area home owners a great opportunity to reduce their monthly mortgage payments by refinancing.   Even if your home has depreciated, you may qualify for a Home Affordable Refinance with loan to values up to 105% or an FHA streamlined refi with no appraisal.   Mortgages currently without private mortgage insurance (originally with an 80% loan to value with the first mortgage) may qualify to refinance without private mortgage insurance even if their new loan to value is over 80%.

Home buyers who have locked in rates this past week will probably never have the need to refinance while they own their homes. 

Don't expect mortgage rates to stay this low for long.  Do contact your local mortgage professional and see if refinancing makes sense for your personal scenario.  If your home is located in Washington state, I'm happy to help you with your mortgage needs.   You can follow me on Twitter to see what rate scenarios I'm quoting live.

11:00 a.m. update:  Receiving an intraday rate sheet with pricing for the worse from one of the lenders we work with.  (I'm glad I work with more than one–not all of the lenders have increased pricing  yet).  It appears to be a slight adjustment, however we've been averaging 2-3 rate sheets per day…and they all add up.

1:30 p.m. update: Receiving the 2nd intraday rate sheet from the same lender with pricing for the worse.   Pricing with this lender is worse by over 0.3% in fee or 0.125% in rate from this morning's lows.

Filed Under: FHA, Refinance

The House of Representatives Passes FHA Reform Increasing FHA Mortgage Insurance

June 11, 2010 by 2 Comments

Yesterday I was interviewed by Alan Zibel with the Associated Press about the passage of House’s FHA Reform bill which, among other things, would increase the annual FHA mortgage insurance premium.   The Senate still needs to pass their version of the bill but there is no doubt in my mind that we are going to see FHA loans become more expensive for consumers.  Congress is wanting this bill in order to “improve the financial safety and soundness of the FHA mortgage insurance program”. 

HR 5702, or ”FHA Reform Act of 2010″, gives HUD the power to triple the current annual FHA mortgage insurance premium (which is paid monthly).  HUD will offset this cost by reducing the upfront mortgage insurance premium which was increased to 2.25% in April of this year.  HUD will offset the increase in the annual monthly mortgage payment by reducing the annual premium to 1.00%.  HUD feels this is helping home owners increase their home equity by 1.25% since a majority of FHA borrowers finance the upfront mortgage insurance premium.

Currently, the annual mortgage insurance premium for an FHA loan with 3.5% down payment is 0.55% (if you’re putting down 5% or more, the premium is slightly reduced to 0.5%).  HR 5702 will allow HUD to increase the annual premium up to 1.55%.  To calculate how much this would impact your monthly mortgage payment, take the loan amount and multiply the annual premium; then divide by 12 months. 

This is how upfront (UFMIP) and annual mortgage insurance pencils out on an FHA insured mortgage today based on a loan amount of $300,000 and an estimated rate of 5.00% (this morning’s rate is much lower).  Since we’re dealing with future figures, I thought 5 was a nice round number for comparison sake.

  • 2.25% UFMIP x 300,000 = $6,750 = principal & interest payment (UFMIP + loan amount) = $1,646.70
  • 0.55% annual MIP x 300,000 = $1,650 divided by 12 months = $137.50
  • PIMI (principal, interest & mortgage insurance) payment: $1,646.70 + $137.50 = $1,784.20

HR 5702 would allow HUD to almost triple the annual premium while reducing the UFMIP.  Worse case scenario, it could look like this based on the same criteria in my last example:

  • 1.000% UFMIP x 300,000 = $3,000 = principal & interest payment = $1,626.57.
  • 1.55% annual MIP x 300,000 = $4,650/12 months = $387.50
  • PIMI payment = $1,626.57 + $387.50 = $2,014.07

A increase in payment of $229.87 for the same loan even with the reduced upfront mortgage insurance premium!  Based on using an interest rate of 5%, $229.87 per month equals $42,800 in loan amount–meaning that if the borrower only qualified for the PIMI of $1784.20; their loan amount (borrowing power) has been reduced by $42,800.

According to Alan Zibel of the Associated Press, the annual mortgage insurance premium will start off at a lower 0.9%: 

FHA officials want to raise that fee to 0.9 percent, though the bill would give them the power to hike it as high as 1.5 percent.

Even with the annual premium at 0.9%, the monthly mortgage payment (PIMI) would increase to $1,851.57.  (300,000 x 0.9% = 2,700/12 = $225 monthly mortgage insurance plus 1% UFMIP payment of $1,626.57).  This would increase the payment by $67.37 per month based on my example.

Based on HUD Commissioner David Steven’s testimony in March, their goal is to be “more in line with GSE and private mortgage insurers’ pricing”.  

Often times, I’ve recommend FHA loans over conventional mortgages requiring private mortgage insurance because even though FHA has annual and upfront mortgage insurance, the pricing and overall payment has been lower (plus many FHA loans are presently assumable).  

In my opinion, making FHA more like a conventional mortgage will impact many borrowers for the worse and delay the recovery in the housing market further.

Filed Under: FHA, Legislation, Mortgage Insurance Tagged With:

How to Buy a Seattle Home with $10,000

April 28, 2010 by 2 Comments

NOTE: Mortgage rates quoted in this post from April 2010 are outdated and no longer valid. For a current mortgage rate quote for a home located anywhere in Washington, please click here. Also, other programs available since this post was published. 

I recently had someone getting ready to buy their first home ask me if $10,000 would be enough for a down payment.  If she had served in the military, she could possibly qualify for a zero down VA loan; this was not an option for her.  USDA loans also offer 100% financing but the area she’s considering is not classified as rural. 

An FHA loan will currently allow her to buy a home with as little as 3.5% of the sales price.  Until this summer*, sellers can contribute up to 6% of the sales price towards allowable closing costs and prepaids (*in a few months, this will be reduced to 3%).

So how much with $10,000 buy?  How about a sales price of $285,000.   Here’s how that pencils out.

$285,000 x 3.5% required minimum down payment = $9,975.  This is the buyers minimum required investment if utilizing an FHA insured loan.   A parent can gift funds towards this amount, but the seller cannot.

The rate (as of writing this post 4/28/2010) for an FHA insured 30 year fixed mortgage is 5.000% assuming we’re closing in 30 days (APR 5.620) and priced with zero points to help keep the closing costs down.   Pricing the loan with zero points means that you’re asking the seller to contribute $2,750 less than they would if your rate was priced with a point (1% of the loan amount).  This may make your offer more acceptable.

Based on this scenario, if the Seller contributes $5,500 towards allowable closing cost and prepaids, you’ll wind up needing approximately $10,000 for your down payment and remaining closing costs.

I did use 6 months for property taxes, which will vary depending on when your first mortgage payment is due.  And I used 15 days of prorated interest which is based on closing in the middle of the month.   Closing towards the end of the month reduces the prorated interest (your cost)…of course the trade off is that you don’t own the property until it’s closed.

The total monthly payment, including PITI and mortgage insurance, is going to be around $2,000 (depending on interest rate, taxes and home owners insurance).  My scenario has a payment of $1981.  

In addition to your down payment, you may be required to have reserve funds after closing of at least two months proposed mortgage payments.  Based on this scenario, that would be around $4,000 in the bank (stocks, 401k, etc) after closing. 

Also of note, your first payment will not be due until the month after closing unless you close on an interest credit.  This is a great opportunity to “pay yourself” by putting that mortgage or former rent payment into your savings account.  Owning a home does come with expenses…some not always planned.

If you are interested in buying a home located in Washington state, I’m happy to help.   Please contact me or apply on-line by clicking the tab at the top this page.

Filed Under: FHA, First Time Home Buyer, Residential Purchase Tagged With: ,

Can I Convert My Existing Home to an Investment Property to Buy My Next Home?

April 27, 2010 by 13 Comments

EDITORS NOTE: These guidelines have changed. If you’re buying a home in Washington state, please contact me for current guidelines.

This is a common question I’m asked these days…mostly because many home owners don’t have as much equity as they would need in order to sell their current residence.  With home prices being at their lowest in years, many want to take advantage and buy their next home and simply rent out their current residence.

[Read more…]

Filed Under: Fannie, Freddie and FHFA, FHA, Investment Property, Residential Purchase, Underwriting and Qualifying, USDA Tagged With: ,
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