FHA, VA, CONVENTIONAL, USDA, JUMBO MORTGAGES

Negative Home Equity? Fannie Mae 105% Refinance Coming Soon

FHA Requires Two 90 Day Old Sales Comparables Starting April 1st

FHA appraisal standards increase.

The Federal Housing Administration Washington D.C. is implementing Fannie Mae and Freddie Mac requirements for appraisers to use when collecting information about property values in distressed or declining markets.

Starting on April 1 appraisers on FHA loans need to include the Fannie Mae and Freddie Mac addendum regarding market conditions in declining markets.

In distressed or declining housing markets (most of the country) FHA would like FHA appraisers to include at least two comparable sales that have closed within 90 days.

In a letter to lenders and appraisers current FHA administrator Brian Montgomery stated "As home prices continue to decline in many housing markets throughout the country due to job losses and increased foreclosed, FHA finds it necessary and prudent to set additional guidance for collateral assessment practices for properties located in a declining market,"

Geithner Unveils New Troubled Mortgage Asset Program

FHA Early Defaults Decrease

The hyper growth of FHA loan originations in 2008 continues to have many in the industry concerned that the FHA mortgage insurance program is headed for huge levels of default within the next few years.

To date FHA administration monitors state that they have not seen increased deterioration in loan performance quality. "We have not seen any increase in early payment defaults," said Meg Burns, director of Federal Housing Administration single family program development. FHA data analysis shows that only .6% of the million plus FHA loans originated in the first three quarters of 2008 experienced first or second payment defaults. This is down from .8% in the same period for 2007.

The default rate on FHA loans where borrowers can't make most of the first six payment has declined slightly too.

Many lenders starting this month (March 2009) have rolled out a min 620 fico for all their FHA loan fundings- no 620, no loan. 620 credit scores and above are typically considered much safer with stronger payment records. With the new 620 requirement we should see the early default numbers continue to drop, which will also have a positive impact on the viability of the insurance program.

HOT OFF THE PRESS: FED KICKS IT INTO HIGH GEAR

Mortgage Backed Securities are moving aggressively down in coupon after the FOMC stated they will offer $750 billion more to FANNIE and FREDDIE.

Bernanke and Geitner have hit this one out of the park. Pundits were concerned that their previous efforts would fall short due to lack of boldness... todays move is being raved about. Todays move should seal the deal on an accelerated recovery.

"To provide greater support to mortgage lending and housing markets, the Committee  decided today to increase the size of the Federal Reserve's balance sheet  further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 , trillion this year, and to increase its purchases of agency debt this year by up  to $100 billion to a total of up to $200 billion. Moreover, to help improve  conditions in private credit markets, the Committee decided to purchase up to  $300 billion of longer-term Treasury securities over the next six months.

We'll keep you posted.

FHA Limits Cashout Refinances to 85% Starting April 1st

Beginning April 1 FHA will cut off cashout refinances above 85% of the property's value.

Example: $100,000 home value, max cashout loan would be $85,000.

This may be a hard pill to swallow for folks that make a living on these refinances and the borrowers that are living on the equity of their home like its an ATM but for the more prudently minded its a terrific equity preservation tool for our housing market. If you remember, Texas limited cashout and equity draw loans after the crash in the 80's and is now one of the few markets that remains strong in the downturn. This limit on Texas's equity stripping is one of the reason for their current housing markets strength and sustainability.

FHA previously allowed cashout refinances up to 95% but will drop that limit to 85% according to an FHA Mortgagee letter sent to lenders last week.

“Effective for case number assignments on or after April 1, 2009, the loan-to-value (LTV) of any cash-out refinance to be insured by FHA may not exceed 85 percent of the appraiser’s estimate of value,” stated Brian D. Montgomery, FHA Commissioner.

“Given the continued deterioration in the housing market, and FHA’s need to limit its exposure to undue risk, this reduction to the maximum LTV for FHA cash-out refinances is being instituted on a temporary basis while FHA further analyzes the housing and mortgage industry as well as its own portfolio to determine whether permanent measures should be taken.”

$100 HUD HOMES

$100 down payment HUD Home Program in Illinois *** For a limited time *** 

FHA programs that buyers love   

HUD is allowing home buyers to buy HUD homes with a down payment of only $100, as long as: The buyer will live in the property for at least one year, buyer offers the full asking price (possibly negotiable) and the borrower/buyer uses an FHA loan for the purchase. The home has to be a HUD owned property, not a home owned by the bank as an REO. This program is available for HUD owned homes only. Please call me for more information. How the program works? 

1 : Borrower preapproved for the FHA $100 downpayment program with Gil

2 : Find the home at http://www.tenmanagement.com

3 : Send an offer to HUD with terms clearly defining the $100 down program

4 : HUD/FHA will review the offer and choose the winning bid5 : Close the deal with Gil  

Gil Kerbashian

Mortgage Lending Since 1997

(847) 873-7295

McNeil Financial Group

LIBOR LOANS

LIBOR is an acronym that stands for "London Interbank Offering Rate". This is what is known in the business as an index. There are many indexes such as MTA- monthly treasury average, Prime rate, COFI- cost of funds index, COSI- cost of savings index, Etc. These indexes and others are only used with adjustable rate mortgages, also known as variable rate mortgages.

You can see by the name LIBOR, this index is a creation of the British financial system. However, LIBOR is now a staple index used by investment entities all over the world. It's most common application in the last few years was with subprime loans.

The reason LIBOR is and has become such a widely used index, is because of its quick increases and decreases to market forces. The adjustments are an important component to understand when accepting a variable rate mortgage.

In times of volatile economic times, financial instruments need to adjust to make sure the returns on investment are keeping up with market adjustments. The opposite is true with fixed rate mortgages. For instance, What happens when a borrower has a thirty year fixed mortgage at 6.75%, and after the close of the loan, mortgage rates go up to 8.5%? Right, nothing. The mortgage is fixed for thirty years. It's guaranteed not to change or fluctuate for thirty years. What do you think the investor providing the loan is thinking? Probably something like... "I wish I could get that money back and lend it to a new borrower at 8.5%". This is why variables and indexes have become a great tool for investors and less advantageous for borrowers.

My goal as an investor is to maximize the return on my investment. Everyone with a modecum of commonsense tries to maximize returns. Whether it's done by turning down the heating thermostat or finding the best price on milk, we are all trying to maximize our 'return on investment'. No one should be faulted for that. However as the conversation pertains to subprime mortgages, practically everyone involved has lived in denial about the long term affects of these LIBOR loans, including the consumer, the lenders, the brokers and the government. We are now facing and S and L type revisiting of history.

Here's how these LIBOR loans work:

The borrower is qualified and approved for a loan. For certain reasons, typically credit scores, the borrower is offered an adjustable rate mortgage with a LIBOR index. Here's how LIBOR's are structured: The qualifying rate is 7% and is typically fixed for two or three years, in other words, doesn't fluctuate for two or three years.

The rate starts out at 7% but only for a short period. This inial rate is really an adjustable with the adjustment option deferred for several years. The theory here is that the borrower will clean up their credit and refinance into a conventional loan. The trouble is that subprime borrowers are notoriously irresponsible people. Yes, some get in trouble due to job or medical, but more often they are just terrible at meeting their obligations. Lenders know this better than anyone and they capitalize on it.

What happens after the short fixed period? It becomes an adjustable and because your loan officer didn't explain the terms and you were thinking about paint colors instead of terms, you missed it.

The 7% is now ready to recast into a variable based on the following criteria: The LIBOR index of 6% plus the margin. A margin is the investors "profit". Index plus margin equals actual rate. The index goes to the investor, the margin is paid to the lender.

I'm a loan officer and I can't tell you how many of my customer have left me to go with lenders that offer teaser rates, only to hammer the customer later on when they least expect it.

Back to our calculations. The LIBOR index is 6%, the margin is 4% and now the actual rate is 10%. Thats a 30% increase in your payment. Does the payment rate go to 10% right away? No. The government won't allow rates to increase that quickly. The government has set "caps" and "floors" pertaining to adjustment periods. These are nice safety measure but they don't go far enough.

Typically subprime prime loans are tied to LIBOR and these subprime loans are structured to adjust monthly or every six months, so it's not unheard of to reach an unmanageble rate within a fairly short period of time.

These short adjustment periods dilute the safety caps that the government mandates.

One in Five subprime loans created in 2000 through 2007are expected to go into default after the fixed period expires.

Can you say class action lawsuit? Is there a lawyer in the house?

Make Sure Your Home Purchase Closes On-Time

Closing a loan doesn't have to be difficult if everyone takes the necessary steps to get on the same page throughout the process. Borrowers, real esate agents and loan consultants complain all the time about each other not being cooperative during the process, resulting in a hard close.

Its usually not one party that we can point fingers to, although someone is always trying to push the blame off on to someone else. If you'd like to have a smooth close, hey its your home, here are some of the things you can do as a borrower.

The first thing you can do is not delay when asked to submit paperwork. Whether its loan paperwork, tax returns, bank statements, purchase agreement or whatever, read them, sign them and get them all back to the professional quickly. Most paperwork and agreements can be faxed back (keep confirmations) to your service provider to keep the process moving. Mail the originals afterwards.

Residential loan documents are not an obligation to take the loan, most of the forms are informational and disclosure oriented. Complete all your forms with accuracy and don't lie on your loan application or you'll cause HUGE problems, now, during and after close. Real estate purchase agreements are true contracts obligating you to the terms within so read them carefully and work with a full-time agent. Don't settle on an agent because shes your husbands aunt.

I can't tell you how often people procrastinate with paperwork. Its not just the borrower that procrastinates. I've seen real estate agents not send their loan consultant a contract or addendum when they know how important this paperwork will be to obtain a clear to close. I've also see loan consultants receive important loan documents that just sit on their desk waiting for submission. You can often tell a lot about your service provider by how quickly they respond to your important communications, especially your phone calls. Does your service provider call back within two hours or does it take two days or not at all.

If you are not receiving return calls or emails the same day (no question is EVER a dumb question) I'd be careful of this person. Often this is the person that will be problematic. The real estate loan process is 90% communication so working with good communicators is very important.

Time is of the essence, dates and schedules are important to a smooth close. Everyone must play their part.

Housing Bottom in Crystal Lake Illinois

I won't speculate on reasons why I strongly believe we're fast approaching a housing bottom in the Northwest Suburbs of Illinois, but would rather let you take a look at the below case study and determine for yourself if we are.

The below home was listed for sale by Marj Carpenter with Remax Northwest Unlimited for $160,000. 25 listings were found between $155k-$190k with a min of 3 bedrooms and 2 baths.

The below home consists of 3 bedrooms and 2 baths. The home is located in what I would call a bread and butter subdivision of Crystal Lake Illinois called Coventry. The city of Crystal Lake offers great opportunities for a safe and comfortable lifestyle. The people are friendly, the quality of life is very good and the schools are above average with many rated in the 8's and 9's at Greatschools.net:  http://www.greatschools.net/search/search.page?p=2&q=60014&state=IL&type=school

Terms for analysis:

FHA loan 3.5% downpayment: $5600, Interest rate: 5.5%, Prop taxes $375 mo. (est), HOI $35 mo. (est), MI $71 mo., Total PITI $1382 mo.

New Federal Purchase tax credit of $8,000 received in 2009 or 2010 amortized over 60 months equals $133 mo. to the buyer. Monthly income tax deduction for principle and interest $100 mo. (est).

Effective payment for the first five years is $1149 a month.

Rent for a similar property would be $1150-$1350 a month.

Bank qualification ratios for a gross household income of $65,000 annually with a car payment of $500 mo. and a credit card payment of $200 mo. are equal to: 26 / 39. FHA book lending ratios are 33 / 41.

26 / 39 are well within safety bounds and some would say excellent homeownership qualification ratios. $190,000 purchase price would result in 29 / 42 ratios.

Is our area excessively devalued due to the negative news coming out of California, Florida, Arizona and Nevada? Yes.

Your choice: Rent or Own

What's the best way to start your homeownership journey?

What's the best way to start your homeownership journey?

First you have to understand your own particular capabilities. Start with a budget. If you are good at a spreadsheet, use it to list all of your monthly expenses to the penny. Be very detailed and don't cut corners. This will not only be a good first step to finding out if you can afford your own home, but will also help get your financial house in order.

Once you have all of your monthly expenses listed, add a cushion. I can't tell you what that cushion should be. I can recommend at least $500, but more is better. Things always come up when you own a home and this money will be always be needed.

Now that you have an itemized list of expenses look at it carefully. Do you see any additional bills coming down the road: Healthcare, retirement or college funds? Is there any place you would be willing to cut costs? Don't cut too much, I don't want you to be house poor. Better to live in a smaller or older home for five years, earn equity and decide to move up, than to start in a big house that drives you into bankruptcy.

After you have beaten that budget up, you will have a great idea of what you can afford. The next step is to see your trusted and ethical mortgage lender. All business should be handled locally because you will have questions, and having someone close by to talk to will be comforting. Besides, if they are a good mortgage broker, they will have national rates and loan programs at their fingertips.

With your budget in hand, discuss with your lender how much you can afford. Investigate all the loan products that are available and ways you can structure your purchase. Try taking advantage of seller concessions to keep your home loan closing costs down. The mortgage person today has a lot of resources and can offer you more of a home than you can probably afford. It will be easy to succumb to this enticement but if you've done your budget properly, stick to it. The worst thing you can do is run your home finances in the red. Don't count on any raises or gifts, they rarely come through when you expect them to.

Stick to your budget and try not to let others talk you up.