Fairfax, VA – The House of Representatives approved the Federal Housing Administration Reform Act.   The purpose of FHAR is to bring stability to the FHA lending program. Currently, FHA loans make up about 30 percent of the loans originated in the US. This is a far cry from early to mid 2000’s when real estate agents frowned on any government loan of any type.
 
The FHAR Act is a two-step process which was designed to shore up the crumbling foundation of FHA’s capital reserve account.  The first step to increasing the reserve account occurred in April of 2010 as the up-front MIP (mortgage insurance premium) premiums collected from the borrower was increased from 1.75 percent to 2.25 percent of the loan amount.  But the bigger plan was for FHA to increase the monthly mortgage insurance premium which is currently .55 percent for purchase loans with less than 5 percent down payment or refinance loans with at least 5 percent equity to .50% for homes or loans with at least 5 percent or more equity.  Under the law passed today, the agency will be allowed to increase its annual premium to 1.55 percent of the unpaid balance of the loan. The change or increase is expected to be a two part process. The first change is expected to increase annual MIP to from .55 percent to between .85 percent and .90 percent, then increase the annual MIP to the full 1.55 percent later in the year.  The thought from FHA and Capital Hill is that the increase in the annual MIP will allow for FHA’s capital reserves to increase, but with less impact to the consumer since the annual MIP is paid over the life of the loan instead of a lump sum addition to the loan amount at the time of closing. But this is incorrect.

The FHA reserves were getting hammered by homes going into foreclosure or just plain scammers at work with straw buyers or however mortgage fraud is perpetrated.  This is fact. What I am not sure is taken into account is the effect of the higher monthly mortgage insurance will have on the home buying public. How can tripling the monthly mortgage insurance have no impact to the consumer or to the nation’s housing market?  I read a Freddie Mac article in the early 1990’s that stated for every .25 percent increase in interest rates 250,000 home buyers are priced out of the market. To show this is not true see the example below. Using a $300,000 loan amount as the example, the numbers don’t look good for home buyers after September 7^th.   This date can change, call me if you have any questions. 

Fairfax, VA – With the increased role FHA has taken in the lending world since 2007, FHA has experienced an increase of foreclosures which caused FHA to tighten lending guidelines, increase down payment requirements and institute minimum credit score requirements to qualify for an FHA loan.  Here are some changes that have been made or are on the horizon.

Credit Scores – A minimum credit score of 500 is required.  Borrowers with credit scores below 580 would have to put at least a 10% down payment on the property.  Although FHA has minimum scores of 500 and 580, most lenders have score requirements of at least 620 or higher.

Underwriting – Underwriting is a tool lenders use to document information about the property (value) and the borrower (income, credit score, debt).  The underwriting process is used to assess whether the borrower is likely to repay the loan.  Most lenders today use an automated underwriting system (LP - Freddie Mac or DO/DU – Fannie Mae) to get approval of the loan.   If the automated system flags the loan, a more in-depth manual underwriting procedure would take place to ensure the borrower qualifies for the loan.  The underwriter could require additional funds for cash reserves equal to one mortgage payment or explanations or documentation to further clarify certain aspects of loan file. 

Cash-out Refinancing – Is when a homeowner removes equity from the home in the form of a higher loan amount than before the refinance.  Currently a borrower can take up to 85% of the home’s current value.  Previously, this amount was 95% of the home value.  In order to be eligible for a cash-out, you must have excellent credit and have at least 15%  equity after the refinance. (Example: Value $100,000, Owe: $50,000, Equity available is $35,000 less any applicable closing costs.

Seller Concessions – This is a big one.  A seller concession is an amount that is negotiated in the sales contract that the seller will pay towards the buyers closing costs.  The FHA wants to slash allowable seller concessions in half, from 6% to 3%.  Some buyers want to roll in their closing costs, appraisals, etc. into the loan amount. This is not allowed with FHA loans. But this doesn’t ban concessions of over 3%.  What the new guidelines require is a dollar for dollar reduction in the home’s sale price and reduce the amount of the allowable loan.

Short Refinancing – If a borrower has no equity in their home,  they would be allowed to refinance into an FHA loan.  This is on the first loan only.  If there is a second mortgage, the two loans combined cannot exceed the current value of the home by more than 15% once the first loan is refinanced. Not every lender will allow a short refinance since the current service could be losing money by reducing the loan amount.

The Federal Housing Administration (FHA home loans in Virginia) is eliminating one of the mainstays to its program sometime this summer. Gone will be the 6 percent seller concession and in will be the 3 percent seller concession. The reason for eliminating the concession according to FHA is the 6 percent seller concession exposes them to too much risk. This has been one of the key selling points with FHA for decades. But if sellers and buyers move fast there is a possibility they can still take advantage of the higher seller concession.

The buyers must still save or be gifted the money for the down payment to purchase the home. The current minimum down payment is 3.50% of the sales price. The current guidelines on seller concession allow sellers to pay for all of or part of buyers closing costs when purchasing a property.  Items connected with the transaction such as — loan origination and discount points, state and county transfer stamps and fees, an appraisal, inspections, attorney and title closing costs.  

When it comes to lower priced homes, closing and loan expenses typically represent a higher percentage of the total loan closing costs than on higher prices homes. In Fairfax, Virginia and Northern Virginia, closing costs typically run between 2.50% and 3.50% of the sales price of the home. So on a $300,000 home purchase, that could be an extra $7,500 to $10,500 of out of pocket expenses for a home buyer. Current with FHA financing rules, the contract can be structured so the seller agrees to pay all closing costs up to 6% ($18,000) at settlement. This amount could even include some small required repairs.  Once the rule change takes effect, the max concessions will be a flat 3% of the sales price.

If you use Fannie Mae or Freddie Mac financing, seller concessions is generally limited to 3%  for down payments below 20% of the sales price. Although concessions can be much higher when larger down payments are being used.

Bottom line is this: the helping hand of an FHA home loan is getting smaller and smaller. First the down payment was increased from 2.25% (3% in the new home) to a flat 3.50% down payment. Then a minimum credit score, now a decrease of seller concessions from 6% to 3% of the sales price.

Fairfax, Virginia – Bankruptcy is an uncomfortable subject for a variety of reasons. I have been talking with clients since the economy and housing crisis began over two years ago about bankruptcy. But because I am in the mortgage business and filing for bankruptcy affects one’s ability to get a mortgage I get tons of calls.  The most obvious is the potential havoc it can wreak on your finances. Running a close second is the negative stigma which is often attached to the process. This negativity is important to mention because strong emotions can sometimes lead to unsound financial decisions with devastating results.

Bankruptcy in Fairfax, Virginia becomes a viable option for someone who is “upside down” in terms of cash flow. In other words, when a person has more money going out each month than coming in, bankruptcy should be considered if no reversal of this negative cash flow is within sight. The longer someone waits to explore the various options available, the more serious his or her situation may become.

One of the worst things people can do in this situation is to borrow more money to try and pay off their debts. On paper, this is clearly an unwise financial decision. In the real world, however, it is very common for individuals to pursue this strategy in an attempt to buy time and hold off on filing for bankruptcy. On the surface, this is certainly a noble notion; however it can often compound the problem and serves only to delay the inevitable.

For many homeowners in the midst of this upside down cash flow, speaking to a qualified mortgage professional is a much better option. An experienced loan officer can objectively look at your finances and help you determine if restructuring your mortgage would not only help, but possibly even alleviate any need for bankruptcy.

If bankruptcy is the only option, seek out a reputable bankruptcy attorney and credit counselor. A qualified mortgage specialist can provide references for you as well, as he or she works with these professionals on a regular basis. Reliable references are essential in this case because experienced professionals greatly increase the odds of a successful bankruptcy experience. It’s that simple.

When filing for bankruptcy in Fairfax, Virginia, be completely honest and accurate regarding every aspect of your financial situation. This includes any changes to your income which may occur throughout the process. Bankruptcy is a federal procedure, adjudicated by real judges, and scrutinized by representatives who coordinate with the Department of Justice, the FBI, and the IRS.

Here are some additional steps you can take to make the bankruptcy process as painless as possible:

• Save all paperwork regarding your bankruptcy, and keep it organized. This will prove beneficial after your bankruptcy as you now have all of the pertinent information in one place. Also, be sure to write down your discharge date. It’s surprising how many people forget to do this.
• Establish a household budget. This can be accomplished in many ways, but there are several inexpensive computer programs available which do an excellent job.
• Throughout the bankruptcy, do your best to not only live below your means, but to save as much cash as possible. You never know what you may need it for once the process is completed.
• Be prepared for a barrage of junk mail. There will be sharks on the loose who are hoping to capitalize on your need for credit.

Tips for Rebuilding Credit in Fairfax, Virginia:

• If you must buy a car, focus on transportation as opposed to style. Buy an inexpensive, used car, and try to get a loan for it. It’s a good idea to figure out what your budget allows in terms of a dollar amount first. This means obtaining financing prior to looking for a car.
• Get a secured credit card. Secured credit cards allow for the cardholder to deposit a said amount of money into an account, thus establishing the spending limit of the card. Missed payments result in deductions from the account. Some of these cards will reward responsible borrowers by upping the limit without an additional deposit. Some will even convert the account into a traditional credit card. (Be wary of offers of “easy credit” or any card which asks you to call a 900 number. You will be charged for the call.)
• Meet with a credit repair specialist. Not only can they help you clean up the damage to your credit report, they can advise you on specific ways to rebuild the credit you lost as well.

While it does take time, there is definitely life (and credit) after bankruptcy. Some mortgage lenders will even lend to you within a year or so after a bankruptcy. If you’re in serious financial trouble, the trick is to get the help and advice you need from professionals you trust.

Waiting a few extra days or weeks to purchase a home this spring could cost buyers thousands of extra dollars as the office of Housing and Urban Development (HUD) implements several changes for loans guaranteed by the Federal Housing Authority (FHA).

Coming just weeks before the April 30 deadline for the Home Buyer Tax Credit and just days after the March 31 expiration of the Federal Reserve Board’s mortgage backed securities purchase program (which has kept home loan rates artificially low for over a year), these FHA changes make it even more important to act now to save big.

Here are a few reasons why:

On April 5th, the cost of required up-front mortgage insurance for loans guaranteed by the FHA will increase from 1.75% to 2.25%. For a borrower purchasing a $200,000 home with a $7,000 down payment, the up-front mortgage insurance will increase by $965. Up-front mortgage insurance is typically financed in the final loan amount so the impact to a monthly payment will be minimal but overall, the increase is still borne by the borrower both upfront and monthly.

Later this spring, the amount of money that a seller can return to the buyer from their sale proceeds will be reduced from 6% to 3%. The reduction in these “seller concessions” can increase the amount of cash a buyer will be required to pay at closing by $6,000 for a home purchase of $200,000.

There is only one way to avoid being affected by all of these costly changes that lie ahead – submit all FHA mortgage applications by the last week of March.

90-Day Seasoning Waiver Expanded

Fairfax, Virginia: This update from FHA Virginia Loans was released on Friday January 15th, 2010, as an excerpt from the CFR (Code of Federal Regulations) without a corresponding Mortgagee Letter and contains information about FHA’s policies regarding the waiver of the 90-day seasoning required for sellers.

Here are the 6 things you need to know about these changes:

1. Waiver takes effect February 1st, 2010 for a period of one year unless extended.
2. Investors are now exempt from the 90-day seasoning rule.
3. All transactions must me arms-length.
4. No identity of interest can exist between buyer and seller.
5. If sale price is 20% or more of the seller’s acquisition cost, the lender must:

            a. provide supporting documentation and/or a second appraisal and
            b. order an inspection of the property and provide it to the buyer.

6.  The waiver is limited to forward mortgages only. 

To read the text of this waiver and specific details: http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf

This is going to help a lot of home buyers get into a home. The seasoning rule was essentially locking people of bidding for certain homes. The next item that must be addresses is sellers and listing agents from eliminating all government loans (FHA, VA and UDSA loans) from submitting purchase bids.

The Senate voted to extend the $8,000 first-time home buyer tax credit for home buyers in the Fairfax, Virginia and Alexandria, Virginia areaa. Additionally, the new bill also includes a $6,500 credit for existing homeowners who have been in their current residence for at least five years.  The tax credit has been extented to November 30,2010.  Watch the video to see if you are eligible for the $8,000 tax credit.  As always, please consult your tax advisor.

Click here to view the embedded video.

Why is FHA so popular today?

Credit score: FHA has always been a friend to the borrower with bruised credit. But up until roughly 1999 credit scores were not that integrated into the mortgage lending process. And FHA lenders were still manually underwriting loan files up intil the past few years.  FHA does not have a minimum credit score written into its guidelines, but it has allowed lenders to set their own minimum scores and some lenders are using the threshold in the range of 620 to 640 minimum score for FHA

Down payment: FHA currently has a minimum down payment amount of just 3.50% of the sale price. For a home in Vienna, Virginia selling for $700,000 this equates to a $24,500 down payment. Compared that to coming up with  $35,000 or $70,000 for a conventional loan.  But lets be more realistic with a sales price of say $350,000 the FHA down payment would be $12,250 verse a $17,500 or $35,000 for a conventional loan.

Seller concessions. Closing costs are still one of the biggest obstacles when getting a home loan. FHA allows 6% seller concessions where by conventional concessions typically stop at 3% of the sales price.  A seller concession is money the seller gives (negotiated) the buyer to pay all or part of the buyers closing costs.  There is talk that the 6% is to high and should be lowered to 2% of the sales price. Closing costs in Alexandria, Virginia are about 2.50%-3.50% of the sales price. This obviously depends on the rate and point structure of the loan.

Mortgage insurance: FHA has two mortgage insurance charges: Up Front Mortgage Insurance (added to the loan amount) and annual premium charge based on the down payment amount. The upfront mortgage insurance premium (UFMIP) is 1.75% of the loan amount. This fee can be financed or paid out of pocket by the borrower at closing.  Most borrowers tend to finance the UPMIP by rolling the fee into their loan amount. FHA also charges an annual premium, paid in monthly installments, depending on the down payment 3.50% is .55% and 5% or larger down payment is .50%.  

Possible problems with the FHA program?

Having originated FHA loans all over northern Virginia for over 15 years I have never read anything about FHA being in trouble…until now.

Basically what’s going on right now is that there are justifiable rumors that the FHA’s reserves (capital) are hovering around dangerously low levels.

Congress has mandated FHA capital reserves to be 2%, at the moment the reserves have been speculated to be around .53% which is down from 6.5% in 2007. FHA reserves are consumed when FHA mortgages are defaulted on.

Some thoughts on the street to rebuild reserves, FHA could play with one or both premiums to increase their revenue. Let’s face it, one person’s tax or charge is another person’s income or revenue.  FHA could raise the upfront premium to as high as a maximum of 2.25%. It could also raise the annual fee, but the total premium could not exceed 3% under current congressional limits. The UPMIP has been over 3.00% before but I doubt it would go that high again. The outcry from NAR and MBA would be huge.

Federal Housing Administration (FHA) has implemented significant changes for streamline refinances . These changes will affect all FHA streamline loans across the country and in the northern Virginia area, Vienna, Virginia, Alexandria, VA, Fairfax and the surrounding cities and county’s. These changes take place on all FHA case numbers ordered on Wednesday, November 18, 2009 or later.

The changes are:

1. New seasoning requirements (length of payment)
2. Payment history standards
3. A net tangible benefit test (The loan has to be good for the borrower, imagine that) 
4. Revised remaining equity (Combined Loan To Value requirements)
5. Elimination of the abbreviated loan application
6. Additional certifications and verifications

1. Changes about length of payment history or what we call loan seasoning:

Seasoning: At the time of loan application, the borrower must have made at least 6 payments on the FHA-insured mortgage being refinanced.

2. Payment History. At the time of loan application, the borrower must exhibit an acceptable payment history as described below.

Less than a 12 month payment history, the borrower must have made all mortgage payments within the month due. 

For borrowers that have a 12 month payment history or greater two points must be present: 
    Experienced no more than one 30 day late payment in the preceding 12 months
    Made all mortgage payments within the month due for the three months prior to the date of loan application.

3. Net Tangible Benefit: Basically, no more refinancing to just to refinance a client to generate fees. This is a good thing. It must be determined that there is a net tangible benefit (actual savings to the borrower) as a result of the Streamline Refinance transaction. Net tangible benefit is defined as follows:

Refinancing a fixed rate loan to a to fixed rate loan or ARM (adjustable rate mortgage loan) to ARM: A minimum 5% reduction in the total mortgage payment.

A fixed rate loan to an ARM loan: The new ARM rate must be at least 2% less than the current Fixed rate loan

ARM to Fixed: The new Fixed rate may not be more than 2% above the current ARM rate

Streamline refinancing to ARMs will be restricted on investment properties and second homes.

4: Have a second mortgage or Home Equity Line Of Credit?

All loan amounts can only addup to 25% more than the value of the property. 

5: Elimination of the abbreviated loan application. A complete loan appliction must be taken to include residence, income, and work history.

6. Certifications and Verifications: 

Must include a signed and dated cover letter certifying that the borrower is employed and has income at the time of loan application. This will be followed up with a phone call prior to closing to verify you are still employed.

Assets: If assets are needed to close, the funds must be verified and documented correctly