If you’ve been following the news, you are of course aware of the stories that GMAC/Ally Bank has suspended foreclosures in 23 states because of questions about the accuracy of the foreclosure documents.  As news broke that the bank used a robosigner to process foreclosure documents, it sent shock waves through the industry because there was immediate concerns that some people may have lost their homes improperly.

This bad news comes in the wake of the realization that the foreclosure crisis has had a significant impact in both the “Great Recession” but has also slowed the recovery of our economy as well.  Americans lost over a trillion dollars in equity in the past few years and that pain has been felt in all areas of the economy.  In some cases the foreclosures happened because laid off homeowners no longer had the income necessary to make their mortgage payments.  Others happened because homeowners who bought at the top of the market in 2005/2006 realized it was pointless to make payments on a mortgage whose balance was higher than their home’s current market value.

Whatever the reason for the foreclosures, they do provide the market with the opportunity to correct itself and give a new wave of homebuyers a chance to take advantage of these historically low interest rates and buy a much more realistically priced house.  I think it’s absolutely vital to be sure that no one is losing their house under false or erroneous pretenses.  That being said, the markets that see a blanket halt to all foreclosures and the sales of foreclosed homes will see a delay in the recovery of their markets.  Real estate investors are often the most energetic buyers of foreclosed properties and putting them on the sidelines for any length of time will hurt.

As of this week, foreclosures are still occurring in Tarrant County.  So any local impact will be limited to the banks like GMAC or Chase who have voluntarily stopped foreclosures while they do reviews of their processes.

Just remember that if you visit a forest that was ravaged by a forest fire, you will find new growth within months.  As devastating as the fire was, it helped to weed out a lot of the dead underbrush and create new, less restricted areas for new trees to grow.  The same will happen with our housing market.  The major event has helped to eliminate a lot of incompetent lenders, loan officers and Realtors and the people who are left will help lead us forward out of the doldrums.

I’ll keep you posted on any changes to the situation but I’d love to know what you think by posting a comment below.

While the gains are expected to be minimal, it’s still great news for our local real estate market.  Analysts at Veros Real Estate Solutions expect the Dallas/Fort Worth area to be the second best market for price appreciation in the next 12 months.  These gains are being attributed to the strong local economy and affordable local home prices.

You can use the information that home prices are going up to let buyers know that if they can qualify to buy a home now, waiting will mean paying more to buy a house.  Add that to upcoming changes in FHA’s mortgage insurance premiums and the likely rise in interest rates and sooner is much better than later when it comes to buying a house.

Though our current market is challenging and I’ve gotten a lot of Realtor feedback that things are slow, there are a lot of positives in the market right now for us to seize upon to be sure we have a prosperous end to 2010 and start 2011 on a strong note!

Effective with case numbers pulled on or after 10/4/10, FHA has announced new guidelines for minimum credit scores requirements for all FHA loans. The highlights are as follows:

·         Borrowers with a minimum decision credit score of less than 500 are not eligible for FHA-insured mortgage financing.

·         Borrowers with a minimum decision credit score between 500 and 579 are limited to 90 percent LTV.

·         Borrowers with a minimum decision credit score at or above 580 are eligible for maximum financing.

·         Borrowers with a non-traditional credit history or insufficient credit are eligible for maximum financing but must meet the underwriting guidance in HUD 4155.1 4.C.3.

·         Borrowers using 203(h), Mortgage Insurance for Disaster Victims, are eligible for 100 percent financing and no down payment is required, provided that the borrowers have a minimum credit score of 500 (borrowers with decision credit scores below 500 are not eligible for FHA financing).

On the surface, this is a significant change because until now, FHA had no minimum credit score requirements.  However most lenders use their own guideline overlays and were already more conservative when underwriting FHA loans.  Today, most lenders will not approve an FHA loan with less than 620 credit scores nor will they qualify borrowers with non-traditional credit, even though FHA guidelines permit it. 

This is one of the reasons why I stress to all buyers to check their credit first before looking for a house.  There may be a lender out there that will do an FHA loan below the 620 threshold, but borrowers should be aware that they will pay a premium in both fees and interest rate to get a loan in that circumstance. 

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  There has been a constant, daily barrage of negative news and panic which has done nothing but to discourage and frighten potential buyers from getting into the housing market.  I understand that there is still some economic uncertainty out there, but keep these points in mind when considering why now is a fabulous time to buy a home.

·         Rates are still at ALL TIME LOWS!  Borrowers today are closing on their mortgages at interest rates 1% lower than this same time last year.  On a $150,000 mortgage, that saves the borrower about $90 or helps them afford an extra $17,000 more house for the same payment.  In other words the mortgage payment that got you $150,000 last year gets you $167,000 this year because of the lower rates.

·         The cost of getting a mortgage will continue to go up.  Between closing costs increasing and with the looming increase in FHA’s mortgage insurance premiums, any buyer who waits will face having to make a higher monthly payment and they’ll also have to come up with more money to bring to the closing table.  This just dilutes the benefits of getting that all time low interest rate.

·         Home prices are going up.  If you look at the most recent Case/Shiller report, home prices are starting to go up again.  These price gains may be short lived due to an increase in inventory, but I expect that bidding for well priced and well maintained homes to be competitive.  If a buyer is looking for a home that requires little work and are already in move in condition, any wait will lead to either a higher sales price or risk losing the home to someone else.

·         Unemployment is almost at 10%.  Despite that, there are still a lot of people working in this country.  Planned layoffs for the private sector have just hit a 10 year low.  New hiring may not be rising quickly, but all signs point to people who are currently employed being secure in their jobs.  The borrowers I’ve worked with who’ve put off buying a home in the short term, did so for fear of an imminent layoff.  Once that passed, they quickly restarted their home search.

·         In the Fort Worth area, you can pay $1,000 to rent an apartment or make a mortgage payment on a 1,600 square foot house.  Even if a home will only appreciate at a 2% rate, would you rather pay to build up your own equity for your landlords?

If you or a client are  interested in home ownership, then the primary focus should be on whether the income, credit scores are sufficient and that there is enough money to cover closing costs, down payment and at least a couple months worth of reserves in the bank.  If these three areas are in line, then the home buying process will be a much smoother one.

It’s hard to believe that school is back in session and mercifully, the end to these 100 degree days are in sight.  Besides signaling the imminent start to football season, it also means our year is quickly coming to an end.  If you think about it, you only have 8-10 weeks left to get deals under contract.  If one of your goals is to finish 2010 strong, keep this in mind that your time to do so is limited.

If you check the news today, the headlines are dominated by the story that existing home sales dropped to their lowest level since 1995.  They dropped a startling 27% in July.  Many blame the expiration of the home buyers tax credit or the still weak economy as the cause for the sales drop.  While these are factors, I think many perspective buyers have been hammered every day with news that the economy is teetering on the edge of another recession and that has created a paralysis of fear.

Home prices are a  factor in the current market decline.  If there is a belief that home prices are coming down, then buyers will want to wait.  After all, after 2008, nobody wants to overpay for a home right?  This is especially true among first time home buyers who are seeking to maximize their buying power.   Buried in the story of the sales drop is the fact that prices are slowly on the rise again.

“Sales were particularly weak among homes in the lower- to mid-priced ranges. For example, in the Midwest, homes priced between $100,000 and $250,000 tumbled nearly 47 percent.”  While economic factors have had an impact, I’m of the belief that HUD’s tightening of FHA guidelines over the course of the year is quite apparent in these figures.  With tighter underwriting standards and with some lenders leery to extend credit to marginal buyers, I can see that this is impacting the entry level part of our market.  Credit is readily available to buyers with strong credit, income and reserves and that’s why the higher end home sales are still doing well.

Even with the doom and gloom, keep these things in mind…

·         Rates are still at all time lows

·         Prices have basically bottomed out.

·         There are plenty of houses for your clients to choose from.  Anyone seriously in the market for a home can find one.

If you have strong borrowers, we can still get them cleared to close in 7-10 days

According to Bankrate.com, closing costs jumped 36% over the past year.  The national average for origination and third party fees on a $200,000 loan jumped to $3,741, up from the previous year’s average of $2,739.  This is significant because an increase in closing costs is another impediment to borrowers who are either trying to buy a home or refinance their current mortgages in order to take advantage of the low rates right now.

Why have costs gone up?  I think one reason is the new GFE disclosure rules, forcing loan officers to more accurately disclose their fees upfront.  Since origination fees can’t change after disclosure and there is a 10% tolerance for 3^rd party fees, borrowers are getting a more accurate picture of the loan costs at the start of the loan and won’t have to deal with bait and switch practices.

Other costs have been added to the loan because the added layers of management and quality control have increased costs to lenders who have passed those fees along to borrowers.

This increase is especially painful in Texas because the average origination/third party fees for the same $200,000 jumped to $4,700, which is an 18% increase.  Texas trails only New York on the list of most expensive states to get a mortgage.

How will this affect homebuyers?  If HUD goes ahead and reduces seller concessions on FHA mortgages to 3%, on the same $200,000 mortgage, a borrower would need to come up with an extra $6,000 in cash to cover expenses at closing.  This will further marginalize home buyers and put greater limits on who can buy a home in this market.

If you’re trying to refinance and you need to roll your closing costs into the loan, it will certainly eat into your monthly savings by causing a higher loan amount.

Last week, FHA Commissioner David H. Stevens announced plans to increase the monthly MI premiums for FHA loans.  In his letter, Stevens stated that the changes were slated to take effect with all FHA case numbers pulled on or after September 7^th, 2010.  Well, due to the feedback of many in the mortgage and real estate industries, FHA has decided to delay the changes until October 4^th, 2010.

This gives buyers and extra month to find a house or to refinance their existing home loan and to do so under the present premium structure.  On a $150,000, the increased premium will buyers and extra $34 a month in higher payments.

When you add this news to the fact that home values are low and affordable, rates are at historically low levels and the large inventory of homes available to buy, now is the best time in our lifetimes to buy a home.  If you or your clients are still sitting on the fence, wondering if now is the right time to buy…the answer is a resounding yes!

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While they have the authority to go up to 1.5%, FHA will increase the premium gradually.  It’s been announced that effective September 7^th, 2010 that the monthly MI premium will be increased in a tiered manner.

·         The agency plans to raise the MI premium to .85% if the borrower puts 5% cash investment into the home.

·         The agency plans to raise the MI premium to .90% if the borrower puts less than 5% cash investment into the transaction.

This will only apply to new loans and not be applied retroactively to current FHA loan holders.  This premium increase will add $30 to a borrowers monthly payment on a $100,000 mortgage.  At the same time, the upfront MIP will be reduced from its current 2.25% down to 1%.  While this won’t offset the payment increase in the jump in monthly premium, it will help reduce the total loan amount financed by the borrower.

The linked article mentions states that “Boosting the fees will give the agency a cash infusion and align its fee structure with that of private mortgage insurers, which were crowded out of the market as the popularity of FHA-insured loans grew.”  While I agree with her that this gives FHA a badly needed cash infusion, I disagree that the private insurers were crowded out of the market by FHA’s growing popularity.  I believe that when the number of foreclosures started to pick up steam, the PMI companies panicked and really tightened their underwriting standards, leaving FHA as the best option for a home buyer who could only make a minimum down payment when buying a home.

So if you or your clients are in the market for a new home and you plan on using FHA financing, the time to act is now to take advantage of these great rates before the fee increase takes hold.

If you were to do a Google search of HR 600 today, chances are the first few hits pertain to Alex Rodriguez’s quest to hit his 600^th Home Run.  However, if you dig a little deeper, you’ll find House Resolution 600: FHA Seller Financed Down Payment Reform Act of 2009.  The bill was introduced by Texas Congressman, Al Green, who represents the Texas 9^th District in South Houston. 

First, Take a moment to watch this recent video from the guys at Think Big, Work Small.  They did a great job explaining the issues with Seller Funded Down Payment Assistance and how that program compared to the recently expired Home Buyer’s Tax Credit.

The purpose of the bill is to make seller funded down payment assistance available to FHA borrowers again.  On July 30, 2008, President George W. Bush signed H.R. 3221 - Housing and Economic Recovery Act of 2008.  The bill which did a lot to modernize FHA also eliminated a sellers ability to offer down payment assistance to home buyers.  This provision was aggressively pursued by HUD because as the wave of foreclosures was gaining full steam in 2008, HUD observed that the for loans with had seller funded DPA tied to them was much higher than those without it.

If you forget how the DPA worked, the seller was allowed to contribute up to 6% of the sales price as a gift to the home buyer.  A third party was required so that the seller didn’t give the funds directly to the buyer.  They would do so through a non profit group like Ameridream or Nehemiah.  On the day of closing, Nehemiah would wire the gift funds to closing and after the borrower closed on their loan, they would get reimbursed at funding and paid a processing fee.

The programs were very popular because any homebuyer using an FHA mortgage could qualify for the DPA as long as they added it to their sales contract.  Buyers didn't have any income limits nor did it matter if you were a first time homebuyer or not.  When my clients used this program to help them reduce the amount of required funds at closing, they felt better because they were able to keep more of their savings in the bank to act as reserves.  

Did some people abuse the DPA programs?  I’m sure they did.  I don’t doubt that there were some marginal homes that saw values stretched a little to accommodate the 6% in the sales price.  Did some buyers use the help to stretch to buy more home than they could afford?  Yes, but that’s not the fault of the assistance program.  To me that points instead to lax underwriting.  Just because the Desktop Underwriter allows you to approve a borrower with a 55% Debt to income ratio, if you layer that on top of the fact that they have lower credit scores and low reserves, common sense needs to take over and we needed to tell that borrower to find a less expensive how instead.

Now, I’m aware of the arguments against HR 600 and the crux of the position is that it would turn FHA into a new type of subprime loan program.  Let’s address that…all FHA loans require full income verification.  Even without a minimum credit score in place, most lenders use a 620 score as a credit overlay.  If you wanted to get even more conservative, use a higher score level if the buyer wishes to use DPA.  660, 680, 700…all require a good level of credit management to achieve those score levels.  Worst case, make these loans manual underwrite only so that someone does a thorough analysis of the file before allowing it to close.

If you consider how much money the US government spent on the 3 versions of the Home Buyer Tax Credit for marginal results, I think it’s reasonable to explore again the seller funder down payment assistance since each use of the program is funded by the transaction itself.  That means no taxpayer dollars are involved and it would still stimulate the home buying market.

I would love to hear what you have to think.  Comment below!

With Fannie Mae recently announcing changes to its policy of lending to borrowers with a previous foreclosure or short sale, there is greater interest in what FHA’s policy is under the same circumstances.  HUD addressed the issue with Mortgagee Letter 09-52 which came out last December.

Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to

• take advantage of declining market conditions, and

• purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.

This means that if the impetus behind the short sale was to walk away because market values were falling and the homeowner wanted to take advantage of the reduced prices to buy a home within “reasonable commuting distance”, they will not get an FHA loan. 

Borrowers are considered eligible for a new FHA-insured mortgage if

• they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and

• the proceeds from the short sale serve as payment in full.

Reference: For detailed information, see “Short Sales” at 4155.1 4.C.2.l.

So if your home owner undergoing the short sale was current with their mortgage payments and their other debt during the 12 months prior to the short sale, they would be immediately eligible for a new FHA mortgage.

Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Lenders may make exceptions to this rule under certain circumstances.  Once the mortgage reaches default status, FHA will treat that homeowner as if they did get foreclosed upon and will require they wait three years before regaining eligibility for an FHA mortgage.

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