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The Fate of Fannie and Freddie July 11, 2008

Fannie Mae and Freddie Mac opened trading at record lows due to rumors about a possible bail out.  I’m writing this waiting to hear an announcement from Treasury Secretary Paulsen….

If you are in a transaction at this time and your mortgage fits within the FHA loan limits ($567,500 for King, Pierce and Snohomish County), I recommend considering FHA as a back up plan.  In fact, I’ve realized yesterday that all of my loans in process are currently FHA.   ,

If you are considering buying or refinancing a home and are not yet in transaction, I highly recommend making sure that your Loan Originator is able to provide FHA financing.   I recommend asking your Loan Officer (in writing-using email):

What will the Fannie and Freddie look like after if the Gov steps in?

If you look at FHA, you know that HUD is very pro-homeownership.   We may see low down programs like Flex 97 stick around–it’s very similar to FHA with the minimum 3% down.

Mortgage rates will probably increase dramatically since we will no longer have a private sector.  It will all be government controlled.

I’m also wondering if the governement would utilize private mortgage insurance companies or if they will utilize something similar FHA’s mortgage insurance?

Stay tuned…this is not over.

Update 7:53 am:  Here is Treasury Secretary Paulsen’s statement (from Market Watch):

Here is Paulsen’s statement (from Market Watch):

“Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission.

“We appreciate Congress’ important efforts to complete legislation that will help promote confidence in these companies. We are maintaining a dialogue with regulators and with the companies. OFHEO will continue to work with the companies as they take the steps necessary to allow them to continue to perform their important public mission.”

Update 2:51 p.m.  I just received this Press Release from OFHEO (Office of Federal Housing Enterprise Oversight):

Statement of OFHEO Director James B. Lockhart

“I congratulate and thank Chairman Dodd, Ranking Member Shelby and the Senate for passing a sound and comprehensive GSE regulatory reform bill.  This bill should help restore confidence in the housing markets by creating, on passage, a new, stronger regulator with all the necessary tools to oversee Fannie Mae, Freddie Mac and the Federal Home Loan Banks.  I am hopeful the House will act quickly and the bill will soon be enacted into law.

With this very turbulent market it is important to strengthen the regulator of Fannie Mae and Freddie Mac and combine it with the regulator of the Federal Home Loan Banks as soon as possible as all of the GSEs are being asked to do more and more to support the mortgage market.”

IndyMac Leaves the Mortgage Arena July 7, 2008

This announcement from IndyMac came via a press release today:

“…effective July 7, 2008, that we will no longer accept any new loan submissions or rate locks in our retail and wholesale forward mortgage lending channels, except for our servicing retention channel. We plan to honor all of our existing rate-locked loans and will continue to fund these loans in the coming weeks. While the managers and employees in these units have worked incredibly hard, these units are not currently profitable due to the continuing erosion of the housing and mortgage markets.”

IndyMac is planning on retaining the FHA portion of their reverse mortgage division, Financial Freedom.

This also means more people will be displaced from the mortgage industry.

“Unfortunately, the above actions will necessitate the reduction in our present workforce from approximately 7,200 to roughly 3,400 or so over the next couple of months…”

The press release mentions a couple locations where employees will be retained…no word or mention of the Bellevue office.

IndyMac had a lot of unique products and were no stranger to the subprime and alt-a markets.   They had their own automated underwriting system, eMits, that provided “risk based” decisions and pricing.    They are reported as being the seventh largest savings and loan in the nation with both retail and wholesale operations.

Friday Rates are Improved June 27, 2008

This week month continues to be very ugly for the stock market and traders are seeking the safety of bonds.   In fact, the DOW is on track for being the worst June since the Great Depression and we have oil closing at a record $140.  Mortgage rates continue to be very volatile and odds are, rates quoted in the morning will not be the same as what may be quoted in the afternoon as lenders issuing intraday rate changes is now the norm.  So far today, one lender has issued 3 different rate sheets.   This afternoon’s rates are about 0.125% better to rate than what I posted earlier this morning.

Next week, watch for the Job’s Report will be on Thursday, July 3 (since Friday is a holiday) which tends to have a significant impact on mortgage backed securities as it indicates inflation.

Conforming Mortgage Rates (loan amounts up to $417,000 for 1-unit properties).  The conforming rate quote below is based on owner occupied with a minimum credit score of 720, “full doc” purchase with a sales price of $500,000 and a loan amount of $400,000.  This scenario includes reserves (taxes & insurance) not being waived.   Rates quoted are priced based on a 30 day lock with no prepayment penalties on any of the rates quoted below.   

30 Year Fixed:  @ 0 Pts: 6.375% (APR 6.432%) ~ @ 1 Pt:  6.125% (APR 6.275%)

30 Year Fixed with 10 Year Interest Only: @ 0 Pt:  6.625%  (APR 6.678%)  ~  @ 1 Pt:  6.375% (APR 6.514%)

15 Year Fixed:  @ 0 Pt:  6.000% (APR 6.090%)  ~  @ 1 Pt: 5.750% (APR 5.996%)

5/1 ARM - LIBOR: @ 0 Pt:  6.000% (APR 7.104%).  ~   @ 1 Pt:  5.500%  (APR 6.926%).  

Conforming-Jumbo Rates.   Pricing is based on the same criteria above except where the loan amount is $417,001 - $567,500 for properties in King, Snohomish or Pierce Counties; specifically priced for a sales price of $650,000 and a $520,000 loan amount.

30 Year Fixed:  @ 0 Pt:  6.500% (APR 6.%)  ~  @ 1 Pt: 6.250% (APR 6.490%)

30 Year Fixed with 10 Year Interest Only:  @ 0 Pt:  6.875% (APR 7.072%) ~ @ 1 Pt:  6.750% (APR 6.893%).

5/1 ARM:  @ 0 Pt:  6.125% (APR 7.244%) ~ @ 1 Pt: 5.625% (APR 7.036%)

JUMBO (Non-Conforming) Rates.   Pricing is based on the same criteria above, with the exception that the loan amount is $417,001-$650,000 (20% down).   The specific scenario used to price the rates below is a sales price of $850,000 with a loan amount of $680,000.

30 Year Fixed: @ 0 Pt:  7.875% (APR 7.963%)  ~ @ 1 Pt: 7.500% (APR 7.656%)

FHA.  Pricing based on credit score of 620 or better and loan amounts up to $362,790 for FHA in King, Snohomish and Pierce Counties.

30 Year Fixed @ 1 Pt: 6.250% (APR 7.033%)

FHA-Jumbo. Pricing based on loan amounts from $362,791 - $567,500 for King, Snohomish and Pierce Counties.  For other loan limits in Washington State, click here.

30 Year Fixed @ 1 Pt: 6.375% (APR 7.133%)

VA.  Pricing based on credit scores of 620 or better based on loan amounts up to $417,000.   VA loan amounts over $417,000 are also available.  Contact your local Mortgage Professional for more information.

30 Year Fixed @ 1 Pt:  6.375% (APR 6.700%)

Prime Rate (what HELOCs are based on):  5.000%  

This is just a small sample available of rates and products.  Rates are as of Friday, June 27, 2008 at 2:00 p.m. and may change at any time.  Available programs may change at anytime as well.   This is not a guarantee nor is it a commitment of interest rate.   To see live rate quotes for various scenarios, check out my Twitter page.

What do Governor Gregoire’s actions mean for local Countrywide employees and short selling homeowners? June 25, 2008

Is Governor Gregoire just a little too late in regards to Countrywide’s lending tactics? Aren’t we merely days away from the Bank of America takeover?

As I drove back to the office today after teaching yet another short sale class, I heard the news on KIRO 710 AM that Governor Gregoire is seeking to pull Countrywide’s lending license because of an investigation that uncovered predatory lending practices aimed at minorities.  WA State will fine Countrywide 1 million dollars for discriminatory lending practices and attempt to collect an additional 5 million for back assessments due.

From Governor Gregoire’s website:

DFI is required to examine every home-lender licensed in the state of Washington. The agency conducted its fair lending examination of Countrywide last year. At that time, DFI looked at roughly 600 individual loan files and uncovered evidence that Countrywide engaged in discriminatory lending that targeted Washington’s minority communities. The agency also found significant underreporting of loans during its investigation.

“The allegation that Countrywide preyed on minority borrowers is extremely troubling to me,” Gregoire said. “And I hope to learn eventually just how much this may have contributed to foreclosures in our state. The allegation offers evidence that Countrywide engaged in a pattern to target minority groups and engage in predatory practices.”

“That’s why we intend to bring the full weight of the state on Countrywide to rewrite home loans for minority borrowers who may have been misled into signing predatory mortgages,” the governor noted. “My job is to protect hard-working Washingtonians, and protect them we will.” 

This 13 page PDF provides the full statement of charges levied against Countrywide by the Dept of Financial Institutions.  Among other things DFI uncovered the following:  

Out of a sample of 600 loan files, 50 borrowers in a protected ethnicity were given less favorable loan products than other borrowers in similar circumstances, during the same time period;

Countrywide under-reported loan volume in their annual assessment reports for the years 2002-2007;

Nearly 150 of the 600 loans pulled for review contained innacuracies on the Home Mortgage Disclosure Act data (This is the section at the end of the loan application in which borrowers are required to identify their race and gender.)

When DFI pulled 30 additional loan files, they found that borrowers did not receive their Good Faith Estimate and Truth-In-Lending Act disclosure within 3 days of the date of the application as required under state and federal law.

I could keep going but why pile it on at this point? Read the Statement of Charges here.

A couple of things come to mind.  First, I want to know what my friends at Countrywide here in WA State are going to do about this, if anything.  What does one “say” to his or her clients with loans in process when news like this hits the airwaves? I would also like to know what happens once C-wide is absorbed by Bank of America?  Will BOA be liable to Washington State for the 6 million dollars in fines? 

Second, here is a piece of advice for homeowners and Realtors who are trying very hard to negotiate a short sale with Countrywide as the underlying lender.  FIND THE HUD I Settlement Statement from the original loan!  Look for those egregious high fees and use this to your advantage when negotiating with the loss mitigation department at Countrywide.

This goes for ANY Countrywide homeowner in financial distress, no matter what your ethnicity.

Mortgage Rates on the First Day of Summer June 20, 2008

While I’m still trying to figure out how to please everyone with pricing rates used in the Friday rate posts (with or without any points), since we have not had major rate changes today and because it’s the first day of summer…I’m going to give you a little treat and price rates both ways today: with a point and with out a point.   I received a few questions from readers as to exactly what I mean about “with and without” points…it’s really simple.   When I say “0 points” it means just that, there are no origination or discount points–nada, zip, nothing is in lines 801, 802 or 808 on the Good Faith Estimate.   When I say the rate is priced with “1 point” (which equals 1% of the loan amount), this means that there is 1% total of origination/discount fees (if you were to add up the points shown in lines 801, 802 and 808, it would equal 1%). 

Mortgage rates are slightly improved over last week as traders are seeking the safety of bonds (like mortgage backed securities) over stocks.   We are just a few minutes from the markets closing with DOW down just over 200.   Next week promises to continue to deliver drama with the FOMC meeting on Tuesday and Wednesday.

Conforming Mortgage Rates (loan amounts up to $417,000 for 1-unit properties).  The conforming rate quote below is based on owner occupied with a minimum credit score of 720, “full doc” purchase with a sales price of $500,000 and a loan amount of $400,000.  This scenario includes reserves (taxes & insurance) not being waived.   Rates quoted are priced based on a 30 day lock with no prepayment penalties on any of the rates quoted below. 

30 Year Fixed: @ 0 Pt:  6.500% (APR 6.566%)  ~  @ 1 Pt:  6.250% (APR 6.410%)

30 Year Fixed with 10 Year Interest Only: @ 0 Pt:  6.75%  (APR 6.932%)  ~  @ 1 Pt:  6.500% (APR 6.648%)

15 Year Fixed:  @ 0 Pt:  6.250% (APR 6.345%)  ~  @ 1 Pt: 5.875% (APR 6.135%)

5/1 ARM - LIBOR: @ 0 Pt:  6.000% (APR 7.104%).  ~   @ 1 Pt:  5.625%  (APR 7.051%).  

Conforming-Jumbo Rates.   Pricing is based on the same criteria above except where the loan amount is $417,001 - $567,500 for properties in King, Snohomish or Pierce Counties; specifically priced for a sales price of $650,000 and a $520,000 loan amount.

30 Year Fixed:  @ 0 Pt:  6.625% (APR 6.681%)  ~  @ 1 Pt: 6.375% (APR 6.527%)

30 Year Fixed with 10 Year Interest Only:  @ 0 Pt:  7.000% (APR 7.197%) ~ @ 1 Pt:  6.750% (APR 6.893%).

5/1 ARM:  @ 0 Pt:  6.250% (APR 7.244%) ~ @ 1 Pt: 5.875% (APR 7.141%)

JUMBO (Non-Conforming) Rates.   Pricing is based on the same criteria above, with the exception that the loan amount is $417,001-$650,000 (20% down).   The specific scenario used to price the rates below is a sales price of $850,000 with a loan amount of $680,000.

30 Year Fixed: @ 0 Pt:  7.875% (APR 7.963%)  ~ @ 1 Pt: 7.250% (APR 7.409%)

FHA.  Pricing based on credit score of 620 or better and loan amounts up to $362,790 for FHA in King, Snohomish and Pierce Counties.

30 Year Fixed @ 1 Pt: 6.375% (APR 7.158%)

FHA-Jumbo. Pricing based on loan amounts from $362,791 - $567,500 for King, Snohomish and Pierce Counties.  For other loan limits in Washington State, click here.

30 Year Fixed @ 1 Pt: 6.500% (APR 7.258%)

VA.  Pricing based on credit scores of 620 or better based on loan amounts up to $417,000.   VA loan amounts over $417,000 are also available.  Contact your local Mortgage Professional for more information.

30 Year Fixed @ 1 Pt:  6.375% (APR 6.700%)

Prime Rate (what HELOCs are based on):  5.000%  

This is just a small sample available of rates and products.  Rates are as of Friday, June 20, 2008 at 1:00 p.m. and may change at any time.  So far for the month of June, we’re averaging 2.5 intraday rate changes (based on a lender who does not change rates as often as others).   Available programs may change at anytime as well.   This is not a guarantee nor is it a commitment of interest rate.   To see live rate quotes for various scenarios, check out my Twitter page.

Just for fun, I’m keeping track of the weekly 30 year fixed rate quote on Fridays.  I’m posting it here.  The rates go back to when ARDELL first requested me to quote rates at RCG.   A year ago this week, I quoted 6.75% @ 0 Pts.

How Much Home You Can Buy with $17,550 Down June 18, 2008

My purpose for this post is to hit it home what a great window of opportunity we have with FHA Jumbo windowmortgages which are only around until December 31, 2008 unless Congress passes an extension of some sort (which is a possibility-but not guaranteed).

For the remainder of this year, you can use $17,550 to buy a home priced at $585,000 using FHA Jumbo with 3% down.    FHA requires the buyer to invest 3% into the transaction (which can be a qualified gift).  3% of $585,000 = $17,550.  (With roughly 5% down, utilizing FHA Jumbo, you can puchase a home for $600,000).  The Seller can contribute up to 6% towards closing costs and prepaids as long as the buyers 3% required investment is met.  With this scenario, the Seller is contributing around $14,000.   The loan amount is just under the maximum allowed FHA Jumbo for King, Snohomish and Pierce County of $567,500.    

With FHA there are no income limitations and much easier on credit scoring than conventional mortgages which ding you if your score is 719 or lower.   Effective January 1, 2008 2009 (as things currently stand) the FHA loan limit will be reduced to their actual loan limit of $362,790 for King, Snohomish and Pierce Counties.  

Of course, you’re not limited to FHA if you only have around $17,550.  There’s also Fannie Mae Flex (someone please knock on wood fast before Fannie shelves decides to put this product on the shelf) which allows lower down payment–currently as low as 97%.  However the highest loan amount allowed is the true conforming of $417,000.   Utilizing a Fannie Flex program, you could purchase a home priced around $434,000 with the seller contributing about $12,000 towards your closing costs and prepaids.

So we’re talking $585,000 sales price using FHA Jumbo (while supplies last!) or $434,000 with Fannie Flex97 (while this product is still available) if you have $17,550 for a down payment.   Can you see why I’m so crazy about FHA Jumbo?  This is a window of opportunity for those who qualify for the payment but may be shy on the down payment that’s scheduled to close on December 31, 2008. 

Stay tuned for my follow post on Seller Contributions and Buydowns, thanks to Leanne!  :)

Our New Responsible Mortgage Lending law June 17, 2008

Just when you thought you had seen the most stupid law from our legislature regarding real estate omitting common sense, here comes another! House Bill 2770 aims to make what was a federal offense a state class-B felony. While it is aimed at mortgage brokers, it has wide sweeping implications to real estate agents, buyers, sellers, home inspectors, contractors, and just about anyone else who has even a limited financial interest in a real estate transaction involving a mortgage.

cross my fingersThis law provides that a residential mortgage loan may not be made unless a disclosure summary of all material terms is placed on a separate sheet of paper and has been provided by a financial institution to the borrower and that a financial institution may not make or facilitate the origination of a residential mortgage loan that includes a prepayment penalty or that imposes negative amortization under certain circumstances. And here’s the catch-all clincher: The law says that certain acts and omissions by any person in connection with making, brokering, or obtaining a residential mortgage loan are unlawful.

While part of the law attacks important issues like negative amortization and pre-payment penalties, it’s the broad definition regarding the disclosure of material facts relating to a property that causes me the greatest concern.

Example: Buyer purchases a home “subject to inspection”. Buyer does the inspection and discovers that there is some older electrical knob-and-tube wiring, but it does not appear to be an immediate safety issue. Buyer asks for and receives a credit from Seller to partially compensate for the upcoming expense of replacement in a few years.

In this situation agents have written inspection responses with language like. “Seller to credit Buyer $XXXX at closing to be applied to allowable prepaids and closing costs” According to this new law, this is an example of where the reason for the credit must be disclosed or the agent could be charged with a class-B felony.

How this is going to play out in the market place is yet to be determined. At least one mortgage broker I’ve spoken with has said they will not be requiring copies of building inspection reports as standard operating procedure during loan application. However if they see an unexplained credit or price alteration they may make it a loan condition.

We may see a number of situations where repairs are getting done that would have been simple credits at closing before. This is going to make it important for agents to inform their clients of the risks and consequences associated with various situations that can arise.

Just a quick disclaimer: I’m not an attorney and this is not considered legal advice.

Mortgage Rates Rising with Inflation June 13, 2008

Rates are continuing their climb up upwards.  Helping to fuel this rise in rates, Greenspan has announced that markets are showing a “pronounced turn around” causing investors to trade the safety of bonds (such as mortgage backed securities) for stocks.   Great for stocks = bad for mortgage interest rates.   Mortgage rates are currently 0.25% higher than they were on last Friday’s rate post and 5/1 conforming ARMS have really jumped.   The change in rate from last week is italic.

Conforming Mortgage Rates (loan amounts up to $417,000 for 1-unit properties).  The conforming rate quote below is based on owner occupied with a minimum credit score of 720, “full doc” purchase with a sales price of $500,000 and a loan amount of $400,000.  This scenario includes reserves (taxes & insurance) not being waived.   Rates quoted are priced based on a 30 day lock with no prepayment penalties on any of the rates quoted below. 

30 Year Fixed @ 0 Pt:  6.625% (APR 6.685%).   Up 0.25%.

30 Year Fixed with 10 Year Interest Only @ 0 Pt:  6.875%  (APR 6.932%).   Up 0.25%.

15 Year Fixed @ 0 Pt:  6.250% (APR 6.345%).  Up 0.25%.

5/1 ARM - LIBOR @ 0 Pt:  6.625% (APR 7.198%).  Up 1.00%.  ~  5/1 ARM - LIBOR @ 1 Pt:  5.750%  (APR 7.084%).  Up 0.50%.  (Just goes to show you how pricing can vary–it’s not always 0.25% in rate to 1% in fee).

Conforming-Jumbo Rates.   Pricing is based on the same criteria above except where the loan amount is $417,001 - $567,500 for properties in King, Snohomish or Pierce Counties; specifically priced for a sales price of $650,000 and a $520,000 loan amount.

30 Year Fixed @ 0 Pt:  6.625% (APR 6.681%).  Up 0.25%.

30 Year Fixed with 10 Year Interest Only @ 0 Pt:  7.125% (APR 7.197%).  Up 0.25%.

5/1 ARM @ 0 Pt:  6.375% (APR 7.244%).   Up 0.75%.

JUMBO (Non-Conforming) Rates.   Pricing is based on the same criteria above, with the exception that the loan amount is $417,001-$650,000 (20% down).   The specific scenario used to price the rates below is a sales price of $850,000 with a loan amount of $680,000.

30 Year Fixed @ 0 Pt:  7.625% (APR 7.684%).  Up 0.125%.

FHA.  Pricing based on credit score of 620 or better and loan amounts up to $362,790 for FHA in King, Snohomish and Pierce Counties with 1 point.

30 Year Fixed:  6.500% (APR 7.287%).   Up 0.25%.

FHA-Jumbo. Pricing based on loan amounts from $362,791 - $567,500 for King, Snohomish and Pierce Counties.  For other loan limits in Washington State, click here.

30 Year Fixed: 6.750% (APR 7.537%).   Up 0.375%.

VA.  Pricing based on credit scores of 620 or better based on loan amounts up to $417,000.   VA loan amounts over $417,000 are also available.  Contact your local Mortgage Professional for more information.

30 Year Fixed:  6.500% (APR 6.828%).  Up 0.125%.

Prime Rate (what HELOCs are based on):  5.000%  

This is just a small sample available of rates and products.  Rates are as of Friday, June 13, 2008 at 1:00 p.m. and may change at any time.  So far for the month of June, we’re averaging 2.5 intraday rate changes (based on a lender who does not change rates as often as others).   Available programs may change at anytime as well.   This is not a guarantee nor is it a commitment of interest rate.   To see live rate quotes for various scenarios, check out my Twitter page.

Just a reminder, I’m pricing conventional mortgages based on zero origination/discount points.   You’re welcome to pay points to buy down your mortgage rate.  Typically, but not always, 1% of your loan amount will buy the interest rate down 0.25%.   

How would you like to see me price rates (with or without points) at Rain City Guide? 

I’d love your to hear your opinions on how you’d prefer to see rates posted and why. :)  :)

A+ Mortgage Receives an F from HUD June 12, 2008

I spent part of last week at an FHA conference and had a chance to learn all about their upcoming changes which Rhonda blogged about here.

In the past I have been critical about the lack of HUD auditors regulating their laws.  Regulation has mostly been left up to state agencies. Personally, I’ve only seen a HUD auditor once in my career and that was back in the mid 1980s during a routine FHA audit. I will now retract my criticism of HUD. They have more than made up for it with this searing audit of mortgage broker A+ Mortgage.

As of June 6, 2008, A+ Mortgage had one main Washington State office and 44 branch offices doing business under trade names such as “Kingdom Consulting,” “Resiliant Mortgage,” “Majestic Mortgage,” and ”Extreme Home Lending.” HUD audited A Plus Mortgage to find out whether FHA borrowers were being overcharged and if loan originators were W-2 employees of A Plus, which is an FHA requirement. Here is what HUD found:

“A Plus disregarded HUD FHA requirements and provisions of RESPA and engaged in deceptive lending practices to maximize profits for itself and the independent contractors that used A Plus as a conduit for submission of loans for FHA insurance. Although A+ Mortgage informed borrowers that they could receive a lower interest rate on their loans by paying up-front points and fees, A Plus charged loan discount fees to borrowers without reducing interest rates on the mortgages. This practice allowed A Plus to generate high interest rate loans for which A Plus’s sponsor lenders paid A Plus a yield spread premium when the loans closed escrow. As a result, borrowers paid excessive interest and fees for which they received no benefit. In addition, all 28 FHA-insured A Plus loans reviewed were originated by independent contractors, unapproved branches, or other non-FHA-approved mortgage broker firms…A Plus ignored FHA origination requirements and submitted FHA loans originated by unapproved entities in exchange for a percentage of the loan origination fees, loan discount fees, and YSPs.”

HUD is recommending that A+ returned unearned fees totalling $153,110 to consumers, schedule a review of ALL of their FHA loans, and return all loan origination fees totally $32,026 to consumers on all loans that were originated by independent contractors. Recall that FHA loans must be originated by W-2 employees. I’m often asked why.

FHA says that loans originated under its program must be done by people who are under the lender’s exclusive control and supervision. HUD requires FHA-approved lenders to exercise responsible management supervision over its employees, including regular, ongoing, documented performance reviews of their work. By definition, independent contractors are unsupervised. For the reference, see HUD Handbook, 4060.1, Rev-2, paragraph 2-9(D).

Upcoming Changes with FHA Mortgages June 10, 2008

I was just reading Brian Montgomery’s speech from yesterday which reminded me of what’s on the horizon with FHA insured mortgages.   He points out that the increased loan limits are temporary–you only have until the end of this year to take advantage of the increased loan limits and then *poof* this coach turns back into a pumpkin!  Instead of doing 3% down with a loan amount up to $567,500, if you’re buying in King County, the maximum loan amount for a single family dwelling will be $362,790.   This is really a window of opportunity that is closing (this window includes conforming jumbo, too).   I suspect that Congress will pass an extension to the loan limits…and IF they do, they may reduce the loan limit to somewhere between what is offered now to what the real loan limit is…this is a big IF.   For now, we just know that FHA-Jumbo (and conforming jumbo) are here until December 31, 2008.

Next month, FHA will start their risk based pricing for mortgage insurance.    This from Ken Harney’s recent article:

On 30-year mortgages with down payments of 10% or more, applicants with FICO scores above 680 will qualify for the lowest premiums — 1.25% of the loan amount upfront and annual renewal premium payments of 0.5%. Borrowers with down payments of less than 5% and poor credit scores — FICOs ranging from 500 to 559 — will be charged premiums of 2.25% up front and 0.55% annually. All borrowers will continue to receive the same market-based interest rate. Under the current system, borrowers pay uniform 1.5% premiums upfront and 0.5% annually.

The difference in savings is not super significant for borrowers.   Using a loan amount of $360,000 and a rate of 6.5%, here’s how it pencils out for the credit scores above 680, 680-560 and 560 and below (who may have a tough time finding a lender regardless of FHA being willing to insure them.   Lenders have their own underwriting “over-lays”).

So, the moral of the story is that if you have credit scores 680 or better and 10% down, don’t wait until next month to take advantage of the improved mi pricing.  It’s not going to pencil out to the consumer as much as it will to FHA.   You’ll potentially lose any gain by the rising mortgage interest rates (which have gone up again today).

Watch out for Down Payment Assitance Programs which are on the endangered species list.   Even President Bush is on the bandwagon to do way with DAPS.  Quite frankly, I’ve never been a huge fan as I’ve witnessed sales prices being jacked up to absorb the cost the seller has to contribute to participate and structure the transaction…who does this impact?  The buyer.   The practice of increasing a sales price over the list price, like the do-do bird, probably wouldn’t fly in today’s market anyhow.   Home buyers utilizing FHA should count on investing 3% into the transaction (which can be a gift) and the seller can contribute up to 6%.   I do believe the down payment assistance programs days are numbered.   

I do hope that more people take advantage of the FHA Jumbo loans while they’re available for the remainder of this year.   As I’ve mentioned, they’re a great resource for people with less than 20% down and with Fannie Mae’s DU 7.0, I’m sure we’re going to be seeing more and more FHA financing.   Keep in mind that various lenders may have their own guidelines (3% vs 5% down w/FHA Jumbos, for example) in addition to those of FHA. 

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