580 Minimum Credit Score on Fannie Govies
Beginning with mortgage loans dated on or after March 1, 2009 or sooner FNMA minimum score for all mortgage loans delivered to them will need to be 580- FNMA Announcement 08-08.
This release 08-08 was primarily pertaining to conventional mortgages but is now expanded to mortgages insured or guaranteed by a federal government agency: HUD, FHA, VA, and RD mortgage loans.
Manually underwritten loans with nontraditional credit are currently exempt from this policy. Manual UW exemption applies to both conventional and government mortgage loans including certain types of streamlined refinance transactions.
Some lenders have already implemented minimum credit score requirements ranging from 575 to 620. The last date to implement this requirement for mortgages sold to FNMA is March 1 but I expect to see most lenders start implementing this minimum much sooner. This is a Fannie Mae requirement and I'm waiting to see a similar change with Freddie Mac.
If you are a home buyer that has been turned down by your bank, please call me for a birdseye view of other lender policies on this matter.
Please keep in mind that you are also able to increase your credit score through our in-house credit repair service.
$8.5 Trillion to Save $1.3 Trillion in Mortgage Defaults???
Mortgage professionals, Realtors and Consumers point fingers at each other while the main culprits of the worst financial crisis in history dine at the finest restaurants in New York.
If the financial meltdown was primarily a mortgage problem, it would have corrected itself by now...
"We were originally told that the whole problem was a sub prime mortgage problem. Unfortunately this is a LIE. The amount of all sub prime mortgages in America is $1.3 trillion Dollars. But the bailouts are already $8.5 trillion Dollars and growing daily. Why do you need $8.5 trillion to fix a $1.3 trillion problem? And that’s assuming that everybody with a sub prime mortgage goes into foreclosure and that the foreclosure sale proceeds are precisely zero, not exactly a likely outcome.
http://news.goldseek.com/TrendInvestor/1229359632.php"
FHA : Credit Score Overlays
If FHA mortgage lending wasn't already confusing enough, some lenders have started to implement what are known as credit score "overlays" to FHA guidelines. Even though FHA does not require minimum credit scores for borrowers, some lenders have decided to set their own minimum credit score requirements for approving these loans.
FHA, Fannie and Freddie issue annual standard minimum acceptable underwriting guidelines that each lender must adhere to. Specific lenders can choose to implement stricter guidelines that "lay over" the standard guidelines. Some of the most impactful overlays that a lender can implement are overlays pertaining to credit scores.
Starting early to mid 2008, credit score requirements for mortgage loans came in like hurricane Katrina. In the good old days of 2007 and earlier, the mortgage industry was able to pool 650 fico loans with 780 fico loans, price those loans the same and sell them into similar investor pools, this is no longer the case.
One mortgage applicant could go to bank 1 for an FHA loan and be required to have a 620 credit score, another to bank 2 and be required to have a 600, then another to bank 3 and be required to have a 575 score and so on. Not all lenders underwrite to the same credit scores.
A borrower might go to a corner bank for an FHA loan, possibly be declined due to some strange bank specific overlay only to think that they are not mortgage approvable at any bank.
Double check requirements with a highly reputable mortgage broker or ask your Realtor for a referral to a proficient FHA lender.
FHA : What Are Points?
The terms point (or points) is industry terminology for "percentage".
One point refers to one percent of the loan amount, two points is two percent of the loan amount, three points is three percent, and so on. One point for a $100,000 loan is $1,000. 1% of $100,000 is also $1,000. 1 point equals 1%.
Lets look at the two different types of points that can be charged to an FHA mortgage borrower.
There are two type of points: Origination points and Discount points.
Origination points: An origination point can be charged to a customer by the lender for originating or underwriting a loan. FHA states that the maximum origination points that can be charged to an FHA borrower is one point.
Discount points: A discount point is/are points that a customer can pay to the lender in order to "buydown" the mortgage rate. Let's say the market rate for an FHA 30 year fixed loan is 7% but the client needs 6.5% to qualify. The borrower can pay two points to permenantly buydown the rate to 6.5% in order to qualify for the mortgage. The points charged must be deemed reasonable and customary by an FHA underwriter. Anything above two discount points charged a borrower should be carefully scrutinized by an FHA underwriter.
The lower the rate the higher the points.
Simply put, points are interest paid today by the borrower for a lower rate received over the term. Its also present value compensation to the investor for interest lost over time.
Don't forget that in purchase transactions, the seller of the home can pay up to 6% of the purchase price towards the buyers closing costs. This seller contribution would help buy a much lower rate and qualify the buyer for a larger home.
FHA : Streamline Refinances Fast and Cheap
If you currently have an FHA home loan, whether its an adjustable or fixed loan, you can do what's called an FHA streamline refinance.
This program was created by FHA to offer a practical way for FHA borrowers to lower payments or improve their mortgage situation without having to go through the whole process of a full mortgage refinance. The FHA streamline is a terrific program but not offered by all banks. Actually, many of the community and big box banks don't even know how to process these loans so they choose not to offer them. Some banks don't even know that you can do these loans WITHOUT an appraisal and credit report.
Thousands of homeowners refinance their FHA home loans daily and are unaware of the streamline program because their lender is unable to offer the program, or is apt to charge additional fees for the banks benefit.
FHA streamlines can be done very simply. The borrower should start the process with a proficient FHA streamline lender. Write me and I'll find an approved lender in your state.
The full streamline refinance doesn't require a credit report- great for those that have incurred high debt and wouldn't be approved if credit were to be pulled anew. Doesn't require an appraisal- great for some of the recently declining value markets.
Industry professionals reading this blog, here's an overview of the program to help your borrowers save money while making it easier on yourselves during loan processing:-Credit Report (Not required): Verification of mortgage (VOM) only.
-Appraisal: Appraisal is required unless new base loan amount is lower thanprevious loan’s beginning total loan amount (base loan amount + MIP).
-LDP/GSA: Required
-Termite Inspection: Not required.
-Engineer’s Certification: Not required.
LTV: 96.5% unless no appraisal is required (see above).
-DTI Ratio: Not applicable.
-Skipped Payments: Can only skip one month’s payment (payment during closingmonth must be made before closing).
-Occupancy: Generally owner-occupied only.
-Removing Borrowers: Cannot remove borrowers.
-Adding Borrowers: Must be occupants of property.
-Late Payments on Mortgage: 1X30, with Underwriter exception to 2X30 (Anylates requires Modified Pricing) FHA Jumbo 0X30; NO exceptions
-Derogatoriness on Other Accounts: Not applicable (no credit report required)
-Manufactured Homes: yes with modifications
-Credit Scores: Not applicable.
-Community Property States: Not applicable.
-Bankruptcy: Not applicable.
-Foreclosure: Not applicable.
-Shortening Term: New PI payment cannot be more than 20% higher than the oldPI payment.
-Increasing Term: Cannot add more than 12 years to the existing term.
-1 year ARM to 1 year ARM: Must be an immediate reduction in payment andthe new lifetime interest rate cap cannot exceed the old lifetime cap.
-ARM to Fixed (1 year and Hybrid ARM): New PI payment cannot be morethan 20% higher than current payment. No 30 day lates in past 12 months, unless
the new PI payment will be less than the old PI payment. From 1 year ARM only:
new interest rate cannot be raised by 2% or more.
-Fixed to Fixed: Must reduce PI payment and interest rate.
-Fixed to ARM (1 year): New interest rate must be at least 2% lower than thecurrent fixed rate.
-Fixed to ARM (Hybrid): Must reduce PI payment and interest rate.
-Cash Out: The max a borrower can receive is $500.00 limited to “Incidental” Cash ONLY.
FHA Secure Program Terminating
The FHA Secure program offered expanded guidelines for borrowers currently delinquent on their mortgages due to mortgage payment and rate resets.
This program was temporary but from what I can tell you it was a terrible plan and very difficult for borrowers to qualify for. So cumbersome to use that it never really got off the ground even after a tremendous amount of press. Close to a year of experimentation wasted by HUD not to mention all the wasted taxpayer dollars to design and implement the program.
Another example of how a few bad borrowers are taking down the many with the help of misguide and arrogant beaurocrats. I've been saying for a long time that it's the 1 bad borrower draining 9 good tax paying homeowners. A drain of tax revenue that could go to roads and schools. We're a nation incumbered by bad decisions right now.
- After December 31, 2008 HUD will no longer authorize this program for use
- HUD is in the process of working on expanded guidelines to accommodate borrowers who may be delinquent on their current mortgage and do not qualify under standard HUD guidelines.
As a reminder, any FHA loan closing on or after January 1, 2009 must meet FHA 2009 Mortgage Limits.
Cary Illinois Real Estate Agents
Algonquin Illinois Real Estate Agents
Crystal Lake Illinois Real Estate Agents
CRYSTAL LAKE Real Estate Agents
FHA: Even For Nonprofit 501(c)(3) Use
FHA allows nonprofit, state and local governments to purchase FHA insured properties using the FHA loan program. Why would this be useful?
Churches for instance can purchase homes to assist with outreach missions or to house their staff. The church may want to develop an income stream and invest some of their idle cash. The church can also rehab and sell these properties to generate additional revenue. Often churches have many people in there congregation with construction trade experience that the cost of rehab is considerably reduced.
Here are the requirements. The non profit must be a 501(c)(3), have a voluntary board and have two years of experience in housing for low to moderate income persons.
I've done several of these loans for a church that had an outreach program to house single mothers looking for interim housing while the mother and children were getting out of a bad situation. This program is can be such a blessing if taken advantage of.
Talk to your ministers and lets get more churches actively involved. The inventory is cheap and the oppportunities for upside appreciation are strong.
What a great way to improve our communities, generate revenue for the church and help the needy!
Hud also posts a list of approved 501(c)(3) organizations at their website: www.hud.gov
FHA: How Much Can I Borrow?
FHA ( Federal Housing Administration ) calls their loan amounts "the maximum insurable mortgage". These loan limits are published on their website at hud.gov. Anyone that wants to know how much they can borrower within their county can find this information very easily at HUD's website. You can simply enter your state and county into this site and find the allowed loan limits for your county.
All the limits are broken down by counties accross the country. The limits that are posted on the website are expected to change in early 2009 when the economic stimulis changes Bush signed into law expire. Industry folk are trying to lobby Congress to keep these limit increases for a bit longer.
Loan limits vary by region, program and type of property. By taking the loan limit and adding the 3.5% downpayment you will arrive at a purchase price. If your purchase price exceeds this formula then you as the buyer will be required to put more of a downpayment to bridge the gap.
FHA: Can The Seller Help With Closing Costs?
A little known and often unused tool with FHA mortgages when purchasing real estate is called a seller contribution. Buyer and seller markets come and go and you'll gain the most traction with this tool, in a buyers market. Yes, it may also work in a sellers market if the seller is motivated for quick close. Don't assume, just make the offer.
Closing costs can be a big concern for many borrowers looking to close on a transaction. Closings costs can impact loan qualification and approvals. The best way to eliminate or reduce these costs is to simply have the seller 'pick them up' for the buyer. These seller contributions/concessions will be taken directly out of the sellers closing procedes. In a hot sellers market, when a seller of real estate is getting multiple offers, they are much less likely to accept these terms- it's different in a buyers market. This is a general custom with enough exceptions to warrant an attempt at concessions. A seller may need to relocate due to a corporate change or a medical emergency and you'd be doing them a favor with an offer, any offer.
If your real estate agent has been working in the business for a few short years, they may not remember that seller contributions are available. If you'd like to keep your money for other things such as paint or furniture, seller concessions may be the way to go.
The general idea is that the buyer of the property will generate an offer for say, $200,000 to include a 6% ( 6% FHA 3% Conventional ) seller concession. This means that 6% of the $200,000 will be given to the buyer to be used for closing costs. $12,000. to be used for closing costs, quite a sizable burden off the buyers shoulders, and pocket book.
Does the 6% in this case mean ALL? FHA allows all closing costs NOW to be picked up by the seller as long as the buyer puts a 3.5% downpayment into the transaction.
FHA: How Much Downpayment Do I need?
FHA home loans will now require a 3.5% downpayment from homebuyers (see HUD mortgagee letter below). Some banks implemented the downpayment increase late in 2008 and others are waiting to January 2009 to do so. How can some banks implement the increase in downpayments prior to January? HUD allows lenders to implement certain guideline changes early so that they can better manage operational issues. HUD has a "can implement by date" and an "must implement" by date.
Example of the FHA downpayment: $200,000 x 3.5% = $7,000. An FHA homebuyer must be able to show this amount in bank or equivalant asset at close of loan.
Homebuyers will also have closing costs such as appraisal, title insurance, recording cost, lender underwriting, tax escrows and so on. FHA homebuyers can still have the seller assist with these closing costs up to 6%. See my next blog on seller paid closing costs.
September 5, 2008
MORTGAGEE LETTER 2008 - 23
TO: ALL APPROVED MORTGAGEES
SUBJECT: Revised Downpayment and Maximum Mortgage Requirements
The Housing and Economic Recovery Act of 2008 revised the National Housing Act to:
• Require that the mortgagor “shall have paid, in cash or its equivalent…an amount equal to
not less than 3.5 percent of the appraised value of the property….”;
FHA Co-borrowers
The FHA co-borrower option is just one of the many benefits to using the FHA home loan program.
Many borrowers aren't able to qualify for a home mortgage without a co-borrower. Often times you'll have a newly married couple and their parents want to do a favor by helping them purchase a home of their own. It's really a nice thought and potential wedding gift ( forget the vacation to Hawaii, buy a house ). Many banks don't offer this option because they are not FHA approved lenders. One problem first time buyers run into and don't realize is that conventional home loans are incredibly restrictive with co-borrowers to the point of being prohibitive. They may be sitting with their banker and the banker can't offer them the perfect loan because his bank can't administer the FHA program... or the bank administers the FHA loan too restrictively.
FHA allows co-borrowers to go on the loan as long as the underwriter can be certain that the FHA co-borrower is legitimately doing it for the benefit of the primary borrowers and not backdooring an investment property for themselves.
Borrowers and Co-borrowers will apply in the same manner: Credit report, pay stubs, bank statements, tax returns, loan application and so on. All of the debts and income for both the primary and co-borrowers will be lumped together to determine if the file meets guidelines.
In my opinion, FHA is the best first time buyer program available today.
The Fed and Agencies Working on Lowering Interest Rates
Today Fannie Mae sold approximately 3 billion dollars worth of mortgage backed security bonds offering some of the lowest yields seen in a while. The last billion or so sold that I remember were at much higher yields ( interest rates ). This could be the positive momentum the housing market craves. Probably the best the government has done since November to bring down mortgage interest spreads. The Fed and Treasury has stated that they will pump about 500 billion dollars into buying agency debt. Agency debt is what Fannie Mae and Freddie Mac sell to the investor markets in order to fund mortgage lending.
I commend the Fed for working diligently to stimulate housing demand. Stimulating lower interest rates, in my humble opinion, needed to be done a year ago. I felt so strong about the topic that I commenced a fax campaign to Senators Obama, McCain and Durbin: http://gilkerk.realestateloans.com/fha/2008/11/25/solution-to-housing-crisis-fha-temporary-buydowns.html
The Fed IS doing a good job but I just wish they would have focused more on the housing demand side sooner. Now, most consumers are so apathetic or paranoid that it may take a difibulator to revive the housing market. A little monetary medicine well placed on the demand side early on would have gone much further. I know we're all learning as this crisis unfolds.
Think of it this way, you can tell your grandkids what it was like during the big financial crisis in 2008.
Best regards from one history junkie to another.
