FHA Adopting Appraiser Independence

October 12, 2009 by 1 Comment

FHA appraisals will soon seem similar to those of Fannie and Freddie's HVCC.   I'm hopeful from reading the Mortgagee Letter 2009-08 that FHA's route of improving the relationship between appraisers and loan originators will be healthier than HVCC's (where the banks are profiting from their ownership interest in the unregulated AMCs).

The new requirements go into effect on loans with FHA case numbers issued on or after January 1, 2010.  From the Mortgagee Letter:

"Historically FHA prohibited mortgagees from accepting appraisal reports completed by an appraiser selected, retained or compensated, in any manner by real estate agents.  To ensure appraiser independence, FHA-approved lenders are now prohibited from accepting appraisals prepared by FHA Roster appraisers who are selected, retained or compensated in any manner by a mortgage broker or any member of a lender’s staff who is compensated on a commission basis tied to the successful completion of a loan….

FHA does not require the use of AMCs or other third party organizations for appraisal ordering, but recognizes that some lenders use AMCs and/or other third party organizations to help ensure appraiser independence."

This could be my favorite part:

FHA-approved lenders must ensure that…the fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal.

Currently with HVCC (Fannie/Freddie) many appraisers are losing 40-60% of their appraisal fee to AMCs.  Imagine if the AMCs had to disclose this on the HUD to the consumer on conventional loans.  If an appraisal cost $500, the AMC is earning around $250 just for ordering an appraisal.  

Will FHA help right the wrongs of HVCC?  Let's hope so.   You can read some interesting comments on my post about this matter at Rain City Guide.

 

Filed Under: Appraisals, FHA

How Much Home Can I Afford?

October 8, 2009 by 2 Comments

This is a common question from first time home buyers.  When working with home buyers who are just beginning the process, after discussing credit and other information, I like to ask in return:

  • What type of monthly mortgage payment would you be comfortable making?
  • How much money are you planning on using for a down payment and closing costs.

To me, it’s better to solve for your potential sales price rather than finding a home or getting your heart set on a certain sales price first before knowing what you actually qualify for.

For example, Seattle Sally has saved up $75,000 and would like to use $40,000 towards a home purchase.  She has been paying anywhere from $2,200 – $2,000 a month for rent and would like to keep her payment around $2000. 

NOTE: Rates quoted below are from October 2009 and are outdated. If you would like a current mortgage rate quote for your home located in Washington, please contact me.

Beginning with a conventional scenario, a payment of $2038 (principal, interest, estimated property taxes, estimated home owners insurance and private mortgage insurance) with about $40,000 for down payment and closing costs would produce a sales price of $325,000.  This is based on a 30 year fixed rate of 4.625%* (apr 4.790).

A sales price of $365,000 with a 10% down payment and the sellers contributing towards closing costs would produce a payment of about $2283.

The only issue I would have with the conventional financing is that private mortgage insurance is that these days, pmi underwriters are picking all mortgages to pieces.

FHA would provide a total payment of $2076 with about $40,000 for down payment and closing costs and a sales price of $325,000.  This is based on a rate of 4.875% (apr 5.400).

If we have the seller pay most of the closing costs and prepaids, a payment of $2287 would produce a sales price of $365,000 with Sally bringing in approx. $38,000 for down payment and closing.

One thing to consider, beyond more forgiving underwriting, with FHA is that your mortgage will be assumable.  Imagine having a rate of 4.875% a few years from now when rates will most likely be much higher.  If you are a seller competing with other similar home on the market, and you can offer an assumable mortgage at a tempting rate–this will be a serious advantage.   Once inflation happens, mortgage rates will be much higher.

If Seattle Sally’s credit score comes in lower than expected (this is all based on very preliminary information) FHA may become a better option as well.  

*rates quotes are as of 1:30pm on October 8, 2009 and are based on mid credit scores of 740 or higher.  Rates can and do change often.  Follow me on Twitter to see live rate quotes.

For your personal rate quote on a home located anywhere in Washington, click here.

Filed Under: Fannie, Freddie and FHFA, FHA, First Time Home Buyer, Mortgage Insurance, Residential Purchase Tagged With: , , , , ,

Don’t Delay Your FHA Streamline Refi

September 29, 2009 by Leave a Comment

HUD has announced revised guidelines for FHA streamline refinances that will go into

Piggybankbelt

effect with case numbers issued on or after November 18, 2009 (60 days following September 18, 2009 the date of the Mortgagee Letter).   FHA streamline refinances take place when an existing mortgage is insured by FHA and is refinanced to a new FHA insured loan. 

Here are a few of the changes:

  • Employment and income will now be verified.
  • Credit scores will be disclosed.
  • Funds for closing must be verified.
  • The borrower must have made at least six payments on the FHA insured mortgage.
  • There must be a "net tangible benefit".  This can be:
    • a reduction in total mortgage payment of at least 5%;  
    • refinancing from an adjustable rate mortgage to a fixed rate; or
    • reducing the term of the mortgage (from a 30 to a 15 year amortization, for example).
  • Streamline refi's without an appraisal loan amounts will be limited to the outstanding principal balance minus the UFMIP (upfront mortgage insurance premium) refund plus the new UFMIP.  In order to have closing costs rolled into the mortgage, you will need an appraisal.
  • Streamline refi's with an appraisalare still up to a 97.75% loan to value and closing costs can be rolled into the new mortgage except for discount points.  Discount points must be paid for by the borrower's assets (which must be verified) as any closing costs that exceed the 97.75% LTV limit.
  • If there is subordinate financing (second mortgage) the total allowed combined loan to value is 125%.

The underwriting belt keeps getting tighter which is one reason why if you are considering refinancing, you may want to do so sooner rather than later. 

Mortgage Master is a Direct Endorsed HUD lender and I have been helping Washington State home owners with FHA mortgages for over nine years.  PS…rates are also very attractive right now!

Filed Under: FHA, Refinance, Underwriting and Qualifying

Friday’s Rates to follow because…and an interesting interview with the FHA Commissioner

September 25, 2009 by Leave a Comment

I'm participating at a mortgage mastermind event today so I will not be posting mortgage rates today.  While you're here, check out this video from Diana Olick and the FHA Commissioner…I think you'll find it interesting.

Filed Under: FHA

Reader Question about FHA Mortgage Insurance

August 24, 2009 by 2 Comments

I received this email this past week while I was on vacation.  Right now I am licensed for loans only in Washington State and I don’t always have enough time left in the day to answer the questions or request for advice that I receive from readers who are located outside of my current “lending boundaries”…although I do try.  Sometimes a question or email makes a good post because it may help others who read this mortgage blog. 

Hi Rhonda, I read your blog all the time and I’m in need of advice from someone who knows their stuff — unfortunately im not in WA anymore so I can’t use you and I can’t get a straight answer out of my broker.

I am going with an FHA loan but I expect to be able to pay 20% of the principal within five years. What is not clear to me is if MIP on FHA loans can be removed *without* refinancing — i.e. just based on having paid 20% of the loan amt. I read something on the FHA site that said that this can be done only if the upfront MIP is paid at closing — I am trying to figure out if that means cash as opposed to rolling it into the loan.

Every time I’ve attempted to get an answer from my brokers they keep talking about refinancing in a few years and house appreciation — I really want to know the deal in case I CAN’T refi (due to market tanking or rates climbing, for example)

Advice is very very much appreciated.

FHA insured loans have mortgage insurance regardless of down payment or equity until two qualifications are met:

From HUD’s Mortgagee Letter 00-46:

Regardless of the computed loan-to-value ratio, all but 15-year term mortgages will have annual premiums for the greater of five years or until the amortized loan-to-value reaches 78 percent; there is no annual premium on 15-year term mortgages with initial loan-to-value ratios less than 90 percent.  All other mortgages with terms greater than 15 years, regardless of the initial loan-to-value ratio will have annual premiums for the greater of five years or until the amortized loan-to-value reaches 78 percent.  If a computed loan-to-value ratio is not possible, due to missing data or previous refinancing without an appraisal, the new loan-to-value will default to 89.99 percent.

If a borrower elects to make additional payments towards principal, they may request the monthly mortgage insurance payment be removed only after 60 payments have been made with no late payments in the last 12 months.

Those loans reaching the 78 percent loan to value threshold sooner than projected (but not sooner than five years from the date of origination except for 15-year term mortgages) due to advanced payments of principal will have the annual premium collections canceled upon the servicing lender submitting supporting information to FHA following the borrower’s request provided that the borrower has not been more than 30 days delinquent on the mortgage during the previous twelve months.

Whether or not you elect to pay your upfront mortgage insurance as a closing cost (cash) or finance it, is up to you.  It will not help expedite the removal of your monthly FHA mortgage insurance.

One of the present benefits with an FHA loan is the ability to refinance without an appraisal.  If the market tanks and homes continue to depreciate, as long as you can obtain a rate with a lower rate (the refinance must make sense), you can do an FHA streamline refinance.  I say “present” because we are in a climate where guidelines are changing….even for FHA.

Thanks for your question and for reading The Mortgage Porter.

EDITORS NOTE: FHA guidelines for mortgage insurance is changing in 2013. Please check current guidelines.

Filed Under: FHA, Mortgage Insurance Tagged With: ,

From the Junk Mail Bag

August 10, 2009 by Leave a Comment

Seems like junk mail from random mortgage companies are on the rise again.   I recently had a client who I helped with a home purchase utilizing an FHA mortgage send me a piece of junk mail that he had received from a company (NOT Mortgage Master) that bothered him beyond the typical "deluge of refi offers from firms who's marketing strategy is to look up public records for a targeted mailing".

Some mortgage originators will buy list of home owners who have a specific type of mortgage, such as FHA, where they can offer a streamline refinance thinking if they use your originating mortgage companies name enough times, they just might fool someone into calling them. 

This piece of mail junk has many red flags that home owners should be aware of.

Letter 007

There is no return address on the mailer anywhere.  You have no idea who you will be calling or if they are even approved to do business in Washington State.  I would never contact a mortgage solicitor if you have no way of researching them first.

They are also miss-using HUD's logo in the upper right corner as if it is there own.  This is a big time no-no that I'm sure HUD would be interested to see.

There is no APR to go along with the rate and the small print on this doozie must be too small for my old eyes.

It is true that FHA streamline refinances do not require an appraisal (therefore you are not proving equity) and assets are not verified either.  However the scenario still needs to qualify and HUD frowns about this type of marketing.

The eligibility for a streamline FHA refinance DOES NOT EXPIRE.  This is a weak attempt to try to create a "call to action" to the home owner.  HUD or lenders couldchange guidelines that would have an impact on an FHA streamline refi. 

Oh by the way, IRRL is a term used for VA "streamlined" refinances–not FHA.

What really pushed my clients button was the outside of this mailer garbage.

DSC_0171 

Another attempt to make this look like it came from Mortgage Master and a nice little threat as a bonus to really make sure you don't disregard their efforts.

I've written about junk mail before many times at Mortgage Porter.  You are welcome to forward this type of crap to the local officials.  They do not want consumers mislead or taken advantage of either.  

As a Washington State home owner, or if you're receiving mail from a mortgage company in Washington State, you can forward mail that you feel is misleading to DFI:

Enforcement Unit, Division of Consumer Service

DFI, P.O. Box 41200, Olympia, WA 98504

A letter like this should also be forwarded to HUD.

I strongly recommend not selecting your mortgage professional by what randomly lands in your mail box.  

Filed Under: FHA, Predatory Lending, Rant, VA Mortgage Loans

Are You Doing an FHA 203k Rehab Mortgage Right Now?

August 5, 2009 by 8 Comments

If so, you may want to check with your mortgage professional to make sure they are still able to deliver this product.  Yesterday, HUD suspended a major lender, TBW, from doing FHA mortgages leaving thousands of mortgage brokers and their clients in a lurch.   If you're working with a mortgage broker with a standard FHA mortgage that was being brokered to Taylor, Bean, Whitaker, your mortgage originator should be able to find a new source for the financing.  However, it's my understanding that for mortgage brokers, TBW was one of the few lenders offering FHA 203k's to mortgage brokers and their loyal clients.

203k mortgages have been gaining in popularity, especially the Streamlined FHA 203k, as they allow home buyers to make repairs to homes with one mortgage at a rate lower than what you would typically find with a construction loan.  With the amount of homes that have been neglected due to the economy, 203k's have been a good match.

I feel badly for mortgage brokers being thrown yet another curve ball.  If you are in the process of getting a 203k with a mortgage broker, hopefully everything is fine but I recommend that you contact your mortgage originator to make sure. 

NOTE:  TBW is not Mortgage Master Service Corporation's source for FHA 203k (or any) mortgages.

UPDATE August 12, 2009:  It's my understanding that Bank of America may be taking over TBW's servicing of FHA mortgage loans.

Filed Under: Current Affairs, FHA

A Quick Question: Should I Refi?

July 22, 2009 by 2 Comments

This comment was left on a post I did a while back about how you don't really skip two payments when you're refinancing since mortgage interest is accruing.  I thought this comment was worthy of a post of it's own.

Hi Rhonda!
I found your website on a Google search and I have a quick question for you. I need some advice. Here are the specifics.

Current MTG Loan balance is $161,927.28 with 28.5 years left at 5.5%
My TOTAL payment a month including taxes, etc. is $1278.

Proposed FHA Streamline Refi is for $167,779 for 25 years @ 5.0%
My TOTAL payment a month including taxes, etc. would be around $1290.

Out of pocket Expense $0.

Positives?
Negatives?

We plan on being there another 7-10 years.

If we do this, there is talkof the double Mtg skip, and a refund of MIP.

I know they aren't really skipping, nor the refund an actual refund, because the total loan amount is more than my current balance, kind of a wash. But there is still about a $1700 difference.

I could really use the $ to payoff a few things, even though I'm really rolling it into the new loan.

Is this really that bad of a deal?
Any advice or counsel is much appreciated!

Thanks!

RC

First of all, it's great RC is weighing out the long term value before proceeding with the refinance.  Often, home owners may refinance blinded by what seems to be an attractive rate or payment without considering if they'll break even.  Other factors besides the cost or savings is the effort it takes to accommodate a refinance.  Even an "easy" transaction is going to require some work on the home owners part with providing documentation, completing forms and signing final loan documents (an FHA streamline does have reduced documentation).

I'm always a bit concerned when a loan originator sells "skip two payments"…this shouldn't be a sales point by anyone who considers themselves a "mortgage professional".   You can check out my original post to see why.

There is no monthly out of pocket savings with this scenario.  In fact the payment would increase by $12 per month.  I'm assuming the savings of $1700 has to do with the illusion of skipping mortgage payments.

RC states there is no out of pocket expense but I'm unsure if this means it's a "zero cost loan" or if the closing costs are rolled into the new loan.

There is no refund of the upfront MIP.  A portion is credited towards the new loan with an FHA Streamline refinance.

The principal mortgage balance will be increasing by about $5,852 however the term is being reduced by 3.5 years.  With regards to the 25 year term, I'm not finding any lenders that we work with (and we are an approved FHA/HUD lender) who offers a rate improvement with a 25 year amortized amortization over the 30 year.

It sounds like you're focusing on the potential $1700 savings and if this is what's important to you, I probably would not increase my mortgage payment by $12 a month even though it would be reducing the term. 

So there are my pros and cons to consider with this proposed transaction based on the information that you've provided, RC.   Without having all of your actual details, you need to take my advice with a grain of salt.

PS: I rarely ever really get a "quick question" that has a "quick answer". LOL 😉

 

 

Filed Under: FHA, Refinance
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