The New Good Faith Estimate, part 1

The mortgage industry is … in the words of Elvis … “All Shook Up” over the new Good Faith Estimate that become the gold standard on January 1, 2010. So what’s the hoopla you ask?

It’s not the fact that a one page form is now a three page document. I actually like many features of the new GFE and think consumers will too.

It’s not even the additional areas now required to be disclosed. I’ve gotten used to change.

The problem is … HUD & RESPA have dropped this regulatory ball in our laps without regard to the fact that it doesn’t play nicely with the other disclosures they require us to provide borrowers like Truth-in-lending, APR and California’s Mortgage Loan Disclosure Statement. There are parts of GFE 2010 that have everyone from bankers, brokers, lenders and their compliance departments in total disagreement on how to implement. Getting it wrong can blow up loans so everyone is being extremely careful. I’m glad to be associated with the largest mortgage brokerage in the country, First Priority Financial, who is taking a lead role in bring these short comings to the attention of HUD and RESPA. As a result, improvements are on the way.

In my next blog, I delve into what I like about the new GFE and what borrowers can expect when it comes to understanding the costs associated with getting a home loan.

Tips for Financing Real Estate in 2010

In this climate of constant change, here is some key information relevant in today’s real estate market. Some things are new while others are worth reviewing again.

1) The $8000 FTHB tax credit requires the borrower to have a binding contract signed by April 30, 2010 and close by June 30, 2010.

2) The tax credit for repeat home buyers follows the same timeline above. It does not require the buyer to sell their existing home but does require the new purchase to be owner occupied. Learn more

3) For Conventional financing, you need a minimum qualifying FICO score of 720, a DTI of 45 percent and down payment of at least 20 percent to get the best interest rate. If you are looking for a lower down payment with private mortgage insurance, expect a 740 FICO and 41 percent DTI.

4) FHA has raised the minimum qualifying FICO score to 620 although most lenders will charge a higher rate for FICO’s below 640. The minimum FICO for FHA Jumbos is 660. FHA’s minimum down payment remains at 3.5 percent.

5) Fannie Mae's regular conforming limit remains at $417,000. The Temporary High Balance limit ranges from $417,001 to $729,750 depending on the county. For the Sacramento tri-county region, the high cost limit is $580,000.

5) VA continues to offer “zero” down payment financing.

6) Student loan balances that are considered “deferred” and therefore show no monthly payment on a borrower’s credit report, will require a 1.25 to 1.50 percent payment factor (varies by lender) to be added to the borrower’s DTI.

7) Before you consider co-signing for someone, understand the debt will appear on your credit report and needs to be included in your DTI when qualifying for a mortgage. It makes no difference that someone else makes the payment.

8) The wait period to qualify for a mortgage after discharge of Chapter 7 bankruptcy is 4 years for Conventional and 2 years for FHA.

9) A borrower paying off debts with a Chapter 13 bankruptcy may qualify for FHA financing after successfully completing 1 year of the payoff program and have the Court's approval.

10) Conventional financing requires a 2 year wait period after discharge of a Chapter 13 bankruptcy or 4 years after a dismissal.

11) In order to use FHA financing on a flipped property, the seller must be on title for at least 90 days. In cases where the property is an REO, the flip rule does not apply.

12) Fannie Mae does not have a 90 day flip rule however most lenders who fund Conventional loans do have this rule. To buy a flipped property within 90 days, find a mortgage broker who has lending sources with no flip rule. Learn more

13) The waiting period to qualify for a mortgage after a short sale is 2 years for Conventional financing and 3 years for FHA. In the case of a foreclosure, the wait is 5 years for Conventional and 3 years for FHA. Learn more

14) When it come to down payments, FHA allows the entire 3.5 percent to be "gifted" by a family member or others as long as they are not associated with the transaction. Conventional financing allows 20 percent to be gifted when the loan balance is conforming.

The information provided is basic and not intended to represent complete guideline for the topics discussed. As we have all experienced, things will likely change as the year passes. For more information, feel free to contact me.

Avoid Foreclosure with HAFA Program?

Has the U.S. Treasury actually designed a program that will help at risk homeowners avoid foreclosure? On November 30, 2009 the Home Affordable Foreclosure Alternatives (HAFA) a supplemental program to HAMP, was announced. I have to admit that inside the 43 pages of guidelines and sample forms is information that homeowners, real estate agents and buyers should like. It sounds good on paper but like all the housing rescue programs that have come before, getting banks and loan servicers to voluntarily participate will be key to its success … even with the financial incentives being offered. The program takes effect on April 5, 2010 but banks and loan servicers have the option to implement sooner if they choose. Here are some highlights of what qualifies for HAFA:

• homeowners who were unsuccessful on obtaining a HAMP loan modification could be considered for a short sale or deed-in-lieu of foreclosure program utilizing HAFA guidelines
• the borrower’s monthly mortgage payment exceeds 31 percent of their gross income
• loan servicer must offer borrowers the HAFA program within 30 days of being ineligibility for a HAMP loan modification
• loan does not have to be owned by Fannie Mae or Freddie Mac
• loan must have been originated on or before January 1, 2009
• loan is for the homeowner’s principal residence
• the mortgage is delinquent or default is likely
• only for a first mortgage that does not exceed $729,750
  

Some features that make the HAFA program unique compared to what’s sellers, buyers and real estate agents are experiencing in today’s short sale market is:

1. HAFA uses the borrower’s financial and hardship information collected during eligibility for HAMP, eliminating the need for additional eligibility analysis
2. allows the borrower to receive pre-approved short sale terms prior to the property listing
3. prohibits the servicer from requiring , as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement
4. requires the borrower ro be fully released from future liability for the debt
5. standardizes the process, documents and timeframes
6. provides financial incentives to borrowers (seller), servicers and banks
   

There is more information including the deed-in-lieu program, so if you have questions about how HAFA could help you avoid foreclosure, I’ll be glad to answer them. Keep in mind, a short sale is a lot more forgiving on your credit than foreclosure and the waiting period to qualify for your next mortgage will be much shorter.

Read my post about the HAMP program

Read my post home ownership after short sale or foreclosure

Minimum FICO Scores Are Increasing As DTI is Decreasing

Several lenders have announced the minimum FICO score for an FHA or VA loan is increasing to 640. They are also imposing an adjustment up to .375% to the rate if your qualifying FICO score is 660 or below. Does this mean you can't get a loan if your FICO is below 640? Not yet … there are lenders who accept lower credit scores but you can expect to pay a higher rate. Fannie’s minimum FICO is 620 but the price adjustments for scores between 620 and 719 will make your interest rate explode!

Along with minimum FICO scores increasing, the debt-to-income ratio (DTI) is decreasing. Fannie Mae announced that beginning December 12, 2009 their underwriting guidelines will be revised to max DTI at 45%. There can be exceptions for higher compensating factors. Your DTI ratio is calculated by taking the proposed housing costs (including property taxes, homeowners insurance and mortgage insurance if applicable) coupled with your minimum monthly payment on existing credit card and installment accounts compared to your gross monthly income. More reasons for you to get your credit scores and outstanding debts in order before applying for a mortgage.

Interested in a Home Loan Larger Than $417,000?

They are called Conforming Jumbo, Conforming High Balance or even Agency Jumbo. All terms referring to a home loan between $417,001 and $729,750 in high costs areas for a single family residence. It can be confusing because there are permanent loan limits and temporary loan limits throughout the U.S.

Fannie Mae and Freddie Mac raised their conforming loan limits in 2008 during the credit crunch to ensure liquidity for loans greater than $417,000 in high cost real estate markets. These temporary high balance limits have been in place since 2008 but were scheduled to expire at the end of 2009. Good news … there will be no change for 2010. If allowed to expire, the temporary ceiling of $729,750 would have been reduced to the permanent ceiling of $625,500. For Sacramento, Placer and El Dorado counties, the temporary high balance limit remains at $580,000 through 2010. The permanent limit is $474,950. For most counties in the Bay Area it’s $729,750. The permanent limit is $625,500.

The reason for all the hoopla is because interest rates on loans that meet Fannie or Freddie limits, whether they be conforming or high balance, are priced significantly better than a Jumbo loan. Bottom line … it’s good for the housing market.

Footnote:
1) Temporary high balance loan limit of $729,750 established in the Economic Stimulus Act of 2008
2) Permanent high balance loan limit of $625,500 established in the Housing and Recovery Act of 2008

Tax Credit for First Time Home Buyers AND Repeat Buyers

UPDATED: July 2, 2010

The $8000 first time home buyer and $6500 repeat buyers federal tax credits have officially been extended. H.R. 5623 the Homebuyer Assistance and Improvement Act of 2010 was signed by the President, extending the deadline to close escrow on a qualified purchase from June 30, 2010 to September 30, 2010. The April 30, 2010 deadline to get "in to contract" remains the same. Buyers who will find this extension helpful include those with fully executed contracts dated prior to May 1st on short sale properties who are still waiting for the seller's bank to approve the contract.

UPDATED: June 28, 2010

The blogisphere is buzzing with claims the FTHB tax credit has been extended through September 30, 2010. Sorry to burst the bubble but it's not true ... at least for now. The Senate voted AND passed an extension of the FTHB tax credit but this provision is part of that HUGE Dodd/Frank financial reform and jobs bill that is all over the news these days. Congress still needs to vote on the entire package and it's not looking good for a vote before June 30th. Then the President has to sign it. So as things stand today, there is no extension. June 30, 2010 remains the last day to fund and close escrow on a qualifing purchase.


ORIGINAL POST

It’s official. The home buyer tax credit has been extended. Breathe in … breathe out … you now have until April 30, 2010 to get a purchase contract executed and qualify for the $8000 first time home buyer tax credit. If you’re already a homeowner (with some equity) and planning to buy up or downsize, you may qualify for the new $6500 tax credit. In either case, your escrow must close no later than June 30, 2010. Since Congress didn’t stretch this out for all of 2010, I wouldn’t plan on another extension. One more thing … the qualifying income limits have been raised significantly.

No need for me to reinvent the wheel. For all the details about both programs you have to check out this website. It has an awesome Q & A section.

An Extension of the $8,000 Home Buyer Tax Credit is Closer

As we approach the November 30th deadline, we have some encouraging news on the extension of the $8,000 home buyer tax credit. It’s not a done deal but the news is looking pretty good. Wednesday the Senate reached an agreement to extend the tax credit for first time home buyers. In a new twist, they are including a $6,500 tax credit for buyers who are not first timers. They also raised the qualifying income limits in a very meaningful way... singles were increased from $75,000 to $125,000 and joint taxpayers from $150,000 to $250,000. The Senate wants the qualifying period to be extended to purchase agreements executed by April 30, 2010 and allow buyers until June 30, 2010 to close their escrow.

The House and Senate now have to reconcile their versions of the tax credit and create a final bill to be voted on before the legislation will take affect. Both Houses have different ideas of what the home buyer tax credit should include so it will be interesting to see what they decide on.

Here's my take away from this news. Regardless of the provisions in the final bill, those of you who are actively making offers on homes now have some breathing room. If you’re motivated by the tax credit and have put off your home buying plans until next year, you’ll want to keep the April 30th deadline in mind. I’ll be back with another update once a final bill has been voted on and the details become available.

Interest Rate Headlines ... What They Don't Tell You

Are you a rate shopper? Have you gotten sucked into the media ads touting 4.875% with an APR of 5.125% or something similar? How about the online offers that will quote you a rate if you just supply your name, address, phone number and email? Do you really want someone who buys your contact information to also manage your loan origination?

Here’s a brief list of variables that go into determining an interest rate whether it’s a purchase or refinance.

Loan Amount – conforming, high balance conforming or jumbo
Property description - single family residence or something else
Occupancy – primary residence, second home or investment
Loan to value – more than 80% or less
Loan period – 30 year fixed, 15 year fixed or something else
Loan program – conventional or government
FICO score – qualifying FICO 720+ or below
Rate lock period – 15, 21, 30, or 45+ days
Points or No Points

These are the biggies but there could be other things that determine your interest rate. We all want the lowest rate possible but which one are you really interested in … the teaser rate or the rate you actually qualify for? The next time you decide to shop for an interest rate, make sure you know all the variables that apply to your financial transaction and shop accordingly.

Home Buyers ... NEW Rules From FHA Are Headed Your Way

Most first-time home buyers choose FHA financing because of the lower down payment requirement and less than perfect credit history that makes it easier for them to qualify these days. But make no mistake, as conventional underwriting guidelines continue to get tougher we have seen FHA raise the bar too. Most lenders have adopted a minimum qualifying FICO score of 620 and if your FICO is 660 or below, your interest rate will cost more. HUD recently announced FHA changes coming January 1, 2010, that home buyers need to know about.

FHA Appraisal Period - Currently an appraisal report is effective for a period of six months on existing homes and up to 12 months for those under construction. Come January 1, the time period is reduced to four months for all homes.

FHA Appraisal Transfer - New guidelines will allow a second appraisal to be ordered under certain circumstances when a borrower switches from one lender to another and restates the requirement that the first lender must transfer the appraisal to the second lender at the request of the borrower.

FHA Appraiser Certification - HUD is requiring appraisers to be State certified. In California, the two “certified” designations are AR which is the Certified Residential and the AG which is the Certified General designation. Appraisers already have to be licensed and certified in California so this becomes an additional certification.

FHA Appraiser Independence - A mortgage professional and their staff will be prohibited from ordering an appraisal. The lender will be responsible for making sure the appraisal process is independent. It sounds like HVCC appraisal rules governing conforming loans will be coming to FHA loans. Lenders have not announced how they plan to implement this new guideline so it will be interesting to see what form it takes.

Remember that lenders use HUD guidelines as a base and often add additional layers of qualifying that borrowers must meet. That’s why rules vary from one lender to another and a mortgage broker can pick and choose the best lender to meet your needs. If you have questions about FHA financing, contact me for answers.

Buyer Beware ... This Bank's Foreclosures Come With Additional Strings Attached

If you come across a foreclosure owned by the one of the largest banks in the country and you decide to make an offer, be prepared to jump through some new hoops. This particular bank requires the buyer to be pre-approved by one of their mortgage bankers. This means you will have to fill out a new loan application, provide income documents and allow them to run your credit. It doesn’t matter that you have already done this with your own mortgage person and been pre-approved. This bank wants you to go through the approval process all over again with them and … wait a minute … its going to cost you $50 bucks too! All of this just to have the privilege of “making an offer” on one of their foreclosures. The chance of your offer getting accepted isn’t any better. My borrowers are saying NO THANK YOU!

Here’s what really bugs me. My personal business practice includes a borrower paying a small charge for their credit report during the pre-approval process. On July 31, 2009, along comes a new Truth in Lending Act by the federal government preventing mortgage brokers from charging a borrower anything other than a credit report fee during the pre-approval process. I have no problem with that. However, a bank like the one mentioned above doesn’t play by the same TILA rules. They can AND do charge hundreds of $$$ for loan application fees or loan approval fees. So who is being taken advantage of who?