FHA 90 Day Flip Waiver has been EXTENTED through December 31, 2011

UPDATE: January 28, 2011
Nothing Like waiting until the last minute (3 days before expiration) to let the mortgage industry know that a highly effective policy will be continued. Typical ... but we'll take it. Buyers can continue to use FHA financing to purchase homes from sellers who have been on title for less than 90 days. This includes homes being flipped by private parties.

Reminder ... most lenders impose additional underwriting guidelines for flip homes so buyers need to ask their loan officer what is required before an offer is made to prevent surprises after escrow is opened.


OriginalPost: December 15, 2010

90 Day Flip Waiver set to EXPIRE January 31, 2011
FHA’s 90 Day Flip Rule waiver implemented on February 1, 2010 is set to expire January 31, 2011. The waiver was for one year and designed to help buyers using FHA financing to access a broader selection of homes for sale … and it worked. In addition to foreclosure, short sale and equity seller listings, FHA buyers were able to add to their shopping cart the growing segmented of homes sold by investors who were rehabbing and flipping.

With the expiration fast approaching and no word from FHA of an extension, lenders notified us this week they have stopped accepting new FHA loan applications involving a flipped property. At this point, my advice:

BUYERS - before you make an offer on a home, make sure your Realtor checks to see if the owner has been on title at least 90 days and preferable 180.

INVESTORS - who are flipping in less than 90 days, don’t accept offers from FHA buyers at this time.

To learn more about the 90 Day Flip Rule for VA, Conventional and FHA loans, check out these additional popular blogs:

The 90 Day Flip Rule … Some Lender Have One While Other Don’t
FHA Takes a New Position on the 90 Day Flip Rule … its OK Now!
FHA 90 Day Flipping Waiver … Tips for Buyers and Sellers

Stay tuned for the next update.

Underwater Homeowners Refinancing Their Conventional Mortgage? Yep ... There's a Program for That!

In 1980, Kool and the Gang were signing
C-e-l-e-b-r-a-t-e Good Times … Come On and celebrate is what many homeowners are doing now as they trade in what was once considered an awesome interest rate for and even lower one today. On July 15, 2010 Freddie Mac’s chief economist, Frank Nothaft said:

“fixed rate mortgages continued to hover at 50-year lows, thereby supporting homebuyer affordability and refinance activity. Over the past month, about four out of five conventional loan applications and more than half of FHA and VA loan applications were for refinance. Compared to the recent peak in 30-year fixed interest rates 13 months ago (week of June 11, 2009), current rates are a full percentage point lower. With today’s rates, homeowners, would save about $1500 in payment each year on a $200,000 loan compared to rates last June”.

People were buying homes in the 80’s with interest rates averaging 13.74 (1.8 Points). Imagine that! Check out Freddie Mac history of 30-Year Fixed mortgage rates dating back to 1971 at http://www.freddiemac.com/pmms/pmms30.htm.

Back to the present … if you think refinancing a conventional mortgage is only an option for homeowners with 20 percent or more equity, you’re in for a pleasant surprise. HARP - The Home Affordable Refinance Program is designed to provide refinance opportunities to borrowers with mortgages owned or guaranteed by Fannie Mae or Freddie Mac, who have a current payment history but due to declining property values have been unable to refinance to a lower interest or from an ARM to a fixed rate loan.


CASE STUDY #1
In 2008 a Bay Area homeowner purchased a home for $737,500 and financed $590,000 at 5.875%. On the refinance loan application, we estimated current market value at $718,000, a new loan amount of $572,850 and interest rate of 4.75% with APR of 4.80%. The loan application and credit report was submitted to Fannie Mae’s DU Refi Plus automated underwriting system for a decision. Fannie’s findings came back as “approved” AND no appraisal required! The homeowner’s mortgage payment dropped $501/mo.


CASE STUDY #2
The 2008 purchase price was $360,000 and loan amount $288,000. The Fannie Mae refinance (DU Refi Plus) included an estimated value of $320,000 and new loan amount of $283,000. That made the LTV 88%. Fannie Mae waived a full appraisal which reduced the borrower's closing costs and saved time processing the loan. The borrower's new interest rate is saving them $227/mo.


QUESTIONS & ANSWERS

How do I find out who owns my mortgage?
For Fannie Mae look up CLICK HERE and for Freddie Mac CLICK HERE. If you don’t get a positive answer, call the customer service dept for your loan servicer and ask them who owns your mortgage.

Do I have to refinance with the same lender that is servicing my loan?
You can but are NOT required to. Fannie and Freddie have established basic loan guidelines but all lenders add additional qualifying requirements. Your loan scenario may not work with one lender but is OK with others. You can shop around yourself or use the services of a mortgage broker who will do it for you.

How much underwater can I be?
Fannie and Freddie have established a max LTV of 125 percent. Example: you owe $300,000 and your home is worth $240,000. Not all lenders allow LTV’s up to 125 percent. However, 105 percent is more widely accepted.

Will I be required to pay mortgage insurance?
If the original LTV of the existing loan was 80 percent or less, no mortgage insurance is required on the new refinance loan.


No doubt you have more questions as each homeowner's circumstance are unique and need to be considered to qualify. Program guidelines are extensive and changing all the time. We are helping California homeowners find solutions to their real estate financing needs and would like to help you. We are a Direct Lender and Mortgage Broker. Call Barbara at 916.932.2352 for more information.

7 Mistakes to Avoid ... Don't Blow Your Loan Approval

CONGRATULATIONS! Your loan has been approved so you can relax right? Nope ... not yet. Lender's have added new quality controls during the loan process that you need to be aware of because one wrong move and your loan approval could crash and burn. Before you learn seven mistakes to avoid, let's make sure you understand when the loan process actually begins.

From the moment you apply for a home loan and get "pre-approved" the spotlight is on your finances. Since it can take weeks or even months to get a purchase offer accepted, borrowers need to consider the entire time a "quite period" and not make any credit decisions that could blow the approval.

Once escrow is eventually opened, the loan officer updates your loan application, requests current income/asset docs and runs another credit report (if the one in your file is older than 3 months). After you get through underwriting and receive loan approval, the lender continually monitors your credit activity and may pull a new credit report prior to funding the loan. If the credit report shows your financial obligations have changed since the loan application was submitted, it will cause delays because the lender wants an explaination. If your debit-to-income ratio is already boarderline, new debt could increase your ratio beyond qualifying guidelines causing your loan to be denied. OUCH!

Seven Mistakes to Avoid

1. Don't increase balances on credit cards - the debt listed on the initial loan application needs to agree with the debt appearing on the credit report pulled before the loan is funded.
2. Don't apply for any new debt - credit cards, auto loan, interest free purchases etc.
3. Don't allow bank accounts to become overdrawn - from the moment you get pre-approved through the close of escrow, bank stmts need to be free of NSF charges.
4. Don't change employment - employment is verified twice during the loan process. The lender will call all employers for a last minute verification before funding the loan.
5. Don't let your driver's license expire - of the two forms of ID required by the lender, a drivers license is most common. The lender will not accept an expired license.
6. Inquiries on credit report - any time you authorize a company to run your credit it creates an "inquiry" on your credit report. The lender wants an explaination for each entry

There are many other do's and don'ts to be aware of and its your loan officers job to make sure you are. As much as you may be tempted, don't rush out and by the furniture or appliances until AFTER escrow closes.

A Short Sale Scam? … Homeowners Beware

My phone rang recently and the caller explained he was searching for a loan officer who could arrange financing for two short sales he was negotiating in Southern California. He went on to explain his company helps at-risk homeowners in several states negotiate short sales with their mortgage servicers by bringing pre-approved buyers to the table. Homeowners apparently agree to quick claim title to their home and give limited power of attorney in exchange for this company negotiating a successful short sale. Using a dual escrow, the company buys the home and immediately sells it to the waiting buyer - at a profit. Timing is everything after all because he has no “skin in the game” only profits at the
end. THE ULTIMATE FLIP?

Hum … is this legit was one of the many questions going through my mind. So what do you need me for, I asked? Well … he’s shopping for a loan officer who can line up lenders willing to fund these loans. And of course, there are plenty of deals available so it would be quite lucrative.

Sound fishy yet?

Just for giggles, I asked one of my lenders if they would approve a loan like this. The answer was a flat NO! The buyer/investor would not be allowed to make a profit without having some risk. In other words, they would have put money into deal before flipping it.

So is this the next scam? Tell me what you think.

FHA 90 Day Flipping Waiver ... Tips for Buyers and Sellers

It didn’t take long for FHA buyers to “bite” the previously forbidden fruit … flipped homes! The recent 90 day flip rule “waiver” is so fresh (effective date was February 1st) sellers are hesitating to accept offers from FHA buyers because they are worried lenders won’t fund them. It has been a time for calming nerves, double checking underwriting guidelines and reassuring all parties to the transaction that we can do it.

Hopefully this information will help you with your purchase. Make sure there is no relationship between the parties in the transaction. That includes a real estate agent/investor who is flipping and think they can be the listing agent too. It won’t fly.

Buyers and their agents need to be asking questions to learn how much profit the seller is expected to make on the deal. If it’s going to be more than 20 percent, the buyer needs to be prepared to pay for two appraisals. They don’t have to be ordered at the same time. Get the first one done to make sure value comes in at or above the contract price. Then move forward with the second one. Until we get clarification from HUD what to do with different value, expect the lender to use the lower of the two.

Another out-of-pocket expense the buyer needs to be prepared for is the cost of a home inspection. Home inspections are customary in this market of as-is deals but in the case of a flip that involves 20 percent or more profit for the seller … it’s required by FHA.

If you do your homework up front during purchase negotiations you will learn if two appraisals will be needed. Make it a 45 day escrow in that case. Once in contract, this should allow you enough time for the first appraisal to come in before requesting the second. Now that lenders are controlling FHA appraisals, the turn times take longer.

The definition of how profits are determined is a grey area so we are asking HUD for clarity. Here’s an example:


QUESTION: Let’s say a property was purchased at a Trustee Sale and in addition to paying the bid amount, they had to pay delinquent property taxes, past due HOA dues, etc. Are all of these costs weighed in when factoring the 20 percent? What about the cost of selling the property such as Realtor’s commissions, title and escrow, etc? Or is it only the cost of renovations and actual improvements to the property?

ANSWER: The cost of acquisition generally includes all items charged to acquire the home, not to sell the home. Generally acquisition would include seller paid costs (delinquent taxes, HOA, etc). I’m working with a lender who is asking these questions and more to get clarify on what they are defining as “acquisition”. Of course, as long as the cost of repairs or improvements can be documented, this would be allowed to be added to the acquisition.

I’ll update the post when new information becomes available.

Need Money to Pay Your Closing Costs? Try This ...

Ahh, the good old days … homes for sale were plentiful and buyers had no problem getting sellers to pony up 3 percent to cover their closing costs.

Wake up … its time to let go of the past!
Inventory is tight and multiple offers allow sellers to pick and choose the best deals. Cash is always king but when offers in this market involve financing, the cleaner the better.

That means buyers who aren’t asking for seller credits now have an advantage over those who are.

FHA buyers who have money saved for the 3.5 percent down but short cash to close may qualify for California’s CHDAP program. It offers up to 3 percent that can be used for closing costs. Here are some key features:

• it’s a silent second so no monthly payment is required
• the rate is 3.25 percent amortized over 30 years
• must be a first time home buyer
• only available for homes in California
• buyer must have at least 3 percent of their own funds into the transaction (no gifts allowed)
• need a 680 minimum FICO
• max DTI is 45 percent
• income and sales price limits apply
• online homebuyer education required
• the loan is payable when the home is sold or refinanced

Sounds pretty good doesn’t it. CLICK HERE to see the “sales limits” for California and CLICK HERE for the “income limits“.

Need more information … contact me.

The Best Kept Secret ... Fannie Mae's HomePath Financing Program

No appraisal ... no mortgage insurance ... easier qualifying guidelines ... and down payment as low as 3 percent!

Can this be true? Yes, but only with Fannie Mae HomePath homes that qualify for Fannie Mae’s HomePath financing. Fannie Mae is the largest purchaser of mortgages in the U.S. and in February of 2009 announced special financing to make it more affordable to buy their foreclosures.

More features that make HomePath homes a unique buying opportunity include:

Can be purchased as a primary residence, second home or investment. If you plan to occupy the home, HomePath offers seller credits up to 6 percent to help offset closing costs. That’s double Fannie’s 3 percent limit for seller credits on conventional loans.

Another cool feature … Fannie allows the buyer to choose the title company. In a typical “bank owned” purchase transaction (except in California) the seller chooses the title company which many be located in a completely different part of the state. This can cause delays, high escrow charges and often complicates closing escrow.

Fannie has made it easier to qualify for financing by lowering the adjustments for FICO scores below 720. And … if you put 5 percent down instead of the minimum 3 percent, the LTV / interest rate adjustment is significantly less.

To avoid mortgage insurance on a traditonal conventional loan, you need 20 percent down payment. Not true for HomePath. The minimum down payment is 3 percent.

Now that FHA appraisals are managed by the lender, they take longer. Since NO appraisal is required, you not only save money… you save time closing escrow.

This is great information but there’s more. You have to check out another blog I wrote that compares HomePath financing to FHA. Click on the title below to get to that post.

Fannie Mae Foreclosures … Is HomePath Financing Better Than FHA?

Lenders Approving FHA Loans on 90 Day Flips

With HUD’s 90 day flip rule waived for one year starting February 1, 2010, FHA buyers are asking which lenders are approving loans on these previously forbidden homes. We are the largest mortgage brokerage in the county with over 100 lenders and so far have heard from 4 who said they will. Among them was Mountain West Financial who reversed their position today after their investors said they would not buy the loans. So now the list is down to 3 and hopefully more will follow:

1. Guild Mortgage
2. MetLife
3. NetMore America

If your lender is not on this list, find a mortgage broker who is doing business with one of these.

FHA Changes Loan Guidelines … it’s not that bad

When it comes to financing a home in today’s market, buyers have two basic choices … a conventional loan or a government insured FHA loan. Borrowers who can’t meet the higher down payment and credit score requirements for conventional financing are finding success qualifying for an FHA loan.

With the appointment of David Stevens as Commissioner to FHA last year, the agency has begun to implement policies designed to reduce risk from loan default, increase capital reserves and weed out fraud. I like it! Home buyers will see changes to popular FHA loan features in the coming months that include:

INCREASE UP FRONT MORTGAGE INSURANCE PREMIUM (UFMIP)
This policy change has been approved for purchase transactions effective on or after April 5, 2010. The fee will increase from 1.75 percent to 2.25 percent of the base loan amount. Rather than pay this fee out of pocket, most homeowners choose the option of adding it to the loan amount and finance over the loan term. Let’s run some numbers to see what impact the fee increase will have. Assume a $200,000 base loan plus UPMIP financed, 5.0 percent rate, 30 year amortization:

1.75 percent UPMIP is $3500 and = monthly principal & interest payment of $1092

2.25 percent UPMIP is $4500 and = monthly principal & interest payment of $1098

So the mortgage payment goes up a whooping $6 bucks a month. Not a deal breaker. Two additional program changes were announced but DO NOT have effective dates yet. FHA said we should expect implementation some time this summer. They are:

REDUCE SELLER CREDITS FROM 6 PERCENT TO 3 PERCENT
During the buyers market in California, it was common to negotiate seller credits of 3 to 4 percent and use them to offset buyers closing costs. Now that the market has shifted in favor of sellers, buyers would celebrate a 3 percent credit. I don’t see this change keeping buyers out of the market.

MINIMUM FICO SCORE INCREASE TO 580
To qualify for FHA’s minimum down payment of 3.5 percent, a borrower will need a qualifying FICO score of 580. Here’s the thing … even though FHA has a 580 FICO score requirement, most lenders who fund FHA loans have increased their minimum FICO score to 640. In my opinion … if you have a FICO score below 600, you have no business buying a home.

The New Good Faith Estimate, part 2

Three weeks into the New Year and the real estate industry continues to digest RESPA’s new Good Faith Estimate form and rules. In Part 1 of my blog on this topic, I mentioned there were features in GFE 2010 that I like.

If you ask a borrower who didn’t have a good financing experience, you will likely hear a common reason was their “cash to close” ended up significantly higher than what they were told or expected. These surprises happened whether a loan came from a traditional bank or mortgage broker. The new GFE will prevent this because once fees are disclosed in a section called “Your Adjusted Origination Charges” they can NOT change. NO MATTER WHAT! And this section contains the bulk of costs associated with obtaining a loan.

The new GFE breaks down costs into 3 sections.

FIRST SECTION, amounts cannot change from beginning to end of loan
SECOND SECTION, there can only be a 10% variance
THIRD SECTION, allows changes for things we have no control over like your hazard insurance premium and property taxes

I also like that my conversation with borrowers now focuses on interest rates and the corresponding “lender rebate” (a credit) that now belongs to the borrower and used to lower loan costs. When it comes to numbers, I have learned that borrowers are most interested in their total cost, interest rate, loan program and cash to close. GFE 2010 summarizes many fees into one category and itemizes certain others. With few exceptions, figures disclosed on a GFE at the beginning of the loan process will be the same as those at the end.

According to RESPA, a loan originator must issue a GFE no later than 3 business days after they receive the following information:

1) borrower’s name
2) monthly income
3) social security # to obtain a credit report
4) estimated value of property
5) loan amount
6) property address

Without all the above, don’t expect any loan originator will give you a GFE nor are they required to by law. This includes during the pre-approval process and prior to having a purchase agreement in place. In the case of a purchase, if you want to shop for “true loan costs” you will be doing it after a purchase offer has been accepted.

Two problems of the new GFE is ... it doesn't provide a cash-to-close area for the borrower. Nor does it detail the proposed housing payment associated with the loan. It's focus is merely to provide total loan costs. Borrowers and their mortgage advisors will have to use other means to get those questions answered.