FHA In the 4.5% World

By Paul Chandler

If you are considering using the Federal Housing Administration Program to purchase a home, you may be hesitating due to news reports of new, low rates of 4.5% becoming available soon.  Rates for a 30 year loan at 4.5% certainly grabs the attention of just about anyone considering a major purchase.  Of course, if there is a huge demand at those rates for an extended period of time, it could result in higher home prices and an equalized payment.  It would also put a strain on servicers such as appraisers and attorneys.  Not to mention the now more limited number of mortgage loan originators.  Whether or not FHA rates will be around this level remains to be seen.  A key thing that you can do now is to get pre-approved for your purchase.  If you find a property you like now, then purchasing it now makes sense.  In two or three months, that home might not be available, or if it is, it might not be available at the same price.

One of the most challenging parts of any financial services position is dealing with misinformation that abounds which emanate from advertisements, news reports, rumors and wishful thinking.  The mortgage business is no different.  One thing to remember is this:  If the Federal Government is involved, it won’t be quick, and it won’t be the same as what we were led to believe.  And the reports trickling out regarding mortgage rates going to 4.5% fall into this category.

History of government announcements regarding the mortgage industry in the recent past that did not result in what was promised include the FHA Secure program to help people in subprime mortgages.  Not many people qualified and not many people were refinanced despite all of the fanfare.  The Hope for Homeowners program has had little success, either.  We all know about the TARP or bailout where just about zero dollars have gone to the intended purpose of purchasing troubled assets out of some $330,000,000,000 spent.  And even though US Treasury Yields have plummeted to less than 3% for the 10 year term, Mortgage Backed Securities have not followed suit.  

One of the parts of this 4.5% rumor that you may NOT have heard is that it may apply to purchase money mortgages only.  And there still could be pricing adjustments based on credit scores, loan-to-value and whether or not PMI is required.  So, not everyone would qualify for this rate should it become available.  There is a lot of distrust on Capitol Hill for the Treasury Department and how they have spent funds entrusted to them.  So, none of this may come to pass until the new administration is installed in late January.

Many people with FHA or VA loans, meanwhile, are waiting on the sidelines.  The streamline refinance programs available for both are great for reducing monthly payments without needing a full blown refinancing application processed.  They are geared toward benefit to the consumer [lower rate and lower payment], and credit history [the mortgage payments have been made on time].  Closing costs are less for this type of loan and most of them can be included in the new mortgage.  No new appraisal is required, nor is re-qualifying for the loan with income and debt analysis.  The logic is this:  If the consumer is making the payments on time now, making it easier with lower payments decreases the risk of default.

Paul Chandler, Certified Mortgage Professional, is the Newport Branch Manager for Universal Mortgage Corporation.  He graduated from the University of Maine’s business school in 1979 and has been in the financial services industry ever since.  Since 1991, he has exclusively been involved in mortgage lending, moving to the Newport area in 1993. He also authors a blog at http://www.misterva.typepad.com. He also has been a contributor to Mortgage Originator Magazine. If you have a mortgage related question, please call 802-334-1999.

Reverse Mortgage Loan Limits To Change

Reverse Mortgage Loan Limits to Change

By Paul Chandler

At long last, the nationwide limit for Home Equity Conversion Mortgages [HECM], HUD’s version of the Reverse Mortgage, is due to change.  Once HUD issues their Mortgagee Letter on the subject, which should be around November 1^st, the limit in our area will move from $200,160 to $417,000.  In other areas of the country, the limit will be even higher.  Now this does not mean that all loans will be for that amount, but what it does mean is that seniors whose homes are appraised for more than $200,160 in low cost areas and above $362,000 in higher cost areas will be able to make fuller use of their equity.  The appraisal and the age of the youngest homeowner [who must be age 62 or older] will determine the amount available.

The National Reverse Mortgage Lenders Association worked closely with AARP and Congress to ensure that these and other changes were implemented.  The origination fee, which previously had been set at 2% of the appraised value with a minimum of $2,000, now has a ceiling of $6,000.  The first $200,000 will see no change in the percentage, but higher values will be at a lesser rate.  For example, a home valued at $300,000 would have had an origination fee of $6,000 before, but now it would be $5,000.

Prohibition of lenders steering seniors toward investment of the proceeds will now be in place. Many reverse lenders followed this credo before it became mandatory.  But, now it is a requirement.  When you think about it, it makes no sense to borrow money at around 4% at this point in time to invest in something at 7% for instance.  The funds available to seniors have no strings attached and there are a number of reasons that the line of credit may be accessed.  The choice is up to the homeowner.

The use of a HECM, the most used version of the Reverse Mortgage, has been limited to refinancing transactions until passage of the housing bill.  It will now be allowed for purchases, too.  There are positives and negatives when considering a Reverse Mortgage.  And ultimately, the seniors must be comfortable with the decision to obtain one before moving forward.

The negatives include the closing costs.  These are taken from loan proceeds so a check does not have to be written.  Although higher than with other mortgage transactions, a part of the closing costs include the FHA Up Front Mortgage Insurance Premium.  This is a two way insurance.  It guarantees that the lender will not have a shortfall if the loan amount should exceed the property value.  But it also guarantees to the homeowner that HUD will make payments should anything happen to the lender.  That along with the origination fee makes up the majority of the closing cost figure. 

The positives include a way to supplement income, provide debt relief, take care of certain expenses that are beyond the normal means of the homeowner, and allow the seniors to remain in their homes.  The mortgage is just like any other when it comes time to sell the property.  It just gets paid off from sale proceeds.  No monthly payments are required while the loan is in place.

If you think you may benefit from a HECM Reverse Mortgage, you should speak to someone about them.  Discuss with family members if appropriate.  And get in touch with a HECM Counselor.  This is required before applying for a HECM loan.  These loans are not for everybody.  But it could be just the right solution for your circumstances.

Paul Chandler, Certified Mortgage Professional, is the Newport Branch Manager for Universal Mortgage Corporation.  He graduated from the University of Maine’s business school in 1979 and has been in the financial services industry ever since.  Since 1991, he has exclusively been involved in mortgage lending, moving to the Newport area in 1993. He also authors a blog at http://www.misterva.typepad.com. He also has been a contributor to Mortgage Originator Magazine. If you have a mortgage related question, please call 802-334-1999.

So, Is There STILL FHA Money Being Loaned Out?

By Paul Chandler

With all of the headlines about government bailouts, bank takeovers, stock market declines, etc ad nauseum, this seems to be a question on the minds of consumers.  Everywhere I go, I am asked by people in my community about the availability of mortgage money.  Most are readers of my column in the local paper, but all have a slight distrust for the media and the validity of the information being provided to them on the evening news. In the light of all of this, those questions are good ones to ask.  And since FHA loans make up a large percentage of the mortgage business, at least in my corner of the world, I will focus on that program in this column.

FHA is not the old Farmers Home Administration.  It is run under the auspices of HUD, not USDA.  It has been around since the 1930s and it was the first program that offered lenders protection in the form of mortgage insurance when a smaller down payment than the normal 20% was being made by the homebuyer.  FHA has lender guidelines that are published and there are Direct Endorsement [DE] underwriters who are given authority to approve the loans as opposed to sending files directly to HUD for approval.

Here is where the differences lie.  HUD may have guidelines, but lenders may have more restrictive self-imposed guidelines by their own choice.  Some of the guidelines that relate to credit score, property type and alternate credit are being focused upon by lenders today.  HUD does not have FICO credit score requirements, for example.  But lenders may decide to impose them.  And many have decided that only automated approvals will allow them to move forward with a loan application if the credit score is below a certain threshold. 

FHA [Federal Housing Administration] does allow for manufactured housing, too.  There are certain requirements for manufacture dates and foundation specifications.  Those loans tend to be grouped together for sale on the secondary market and may be priced differently.  At present, the secondary market does not seem to have much of an appetite for loans secured by manufacture housing.  And, consequently, a number of lenders are not presently offering the product.

Related to the FICO scores are the absence of scores and borrowers who use alternate credit references such as utility bills, rent, documented savings histories, etc., to compensate for the lack of traditional credit.  Some of these homebuyers are very good credit risks and have demonstrated responsibility without the use of traditional credit.  This is an area that some lenders are not willing to take a risk on at the moment.

But, the good news is that FHA loans ARE being done.  Loans ARE being funded. And even if down payment requirements are increasing slightly, the low rate of mortgage insurance makes FHA one of the best programs available.  It is not a subprime program.  And it is not only for people who have had credit issues.  There are no income restrictions, either.  If you are shopping for a home, you should consider the FHA program.  You can contact HUD for a list of approved lenders or you can ask your trusted real estate professional about the program.  If you are working with a knowledgeable agent, he or she will not only know about the FHA program, but which loan officers are proficient in FHA lending.  And that is a very important piece of knowledge to have in these times of uncertainty.

Paul Chandler, Certified Mortgage Professional, is the Newport Branch Manager for Universal Mortgage Corporation.  He graduated from the University of Maine’s business school in 1979 and has been in the financial services industry ever since.  Since 1991, he has exclusively been involved in mortgage lending, moving to the Newport area in 1993. His column, “Mortgage Matters” is a regular feature in the Newport Daily Express. He also authors a blog at http://www.misterva.typepad.com. He also has been a contributor to Mortgage Originator Magazine. If you have a mortgage related question, please call 802-334-1999.

VA: The Forgotten Mortgage Loan

By Paul Chandler

With all of the news about changing programs, disappearing programs, a new emphasis on FHA and more stringent underwriting guidelines, little has been said about the VA program.  And that is because few changes have affected it.  Some lenders may use a pricing adjustment for those with credit scores below 600.  However, little else has changed.  There is still no down payment required.  The seller can pay the closing costs and the pre-paid expenses.  Fixed rates account for the vast majority of VA loans issued.  And they take no longer to process than any other type of mortgage.

VA still assigns the appraisers on a rotational basis.  There are two types of appraisals.  One is the traditional appraisal which is sent to the Department of Veterans Affairs to issue a Notice of Value which is then forwarded to the lender.  The second is one that is sent directly to the lender which has underwriting authority for the appraisal.  These are known as LAPP lenders and up to a week can be shaved off the processing time if you are working with a LAPP lender.

Manufactured homes are allowed under the program, but not all lenders will do loans secured by them.  If you are considering purchasing one, you should make sure your loan officer is aware of the property type right away.  The last thing you want to have happen is an appraiser asking the lender if they knew the property had manufactured housing on it.

A one time VA funding fee is paid in lieu of monthly PMI on most VA loans.  Only those exempted from it by virtue of receipt of service-connected disability will not need to pay it.  It can be financed into the loan.  Often the total monthly payment is less with VA, even without the down payment.  Repeat uses are allowed, but the fee is higher for the repeat use.  This is a benefit extended to veterans & their spouses.  Non-married parties must also have eligibility to avoid the need to put a 12 ½ % down payment into the transaction.

VA actually has a family support requirement as a part of the dual qualifying used in the loan approval process.  This is a great feature as it protects the veteran from getting overextended.  If the family support requirement is not met, it does not matter what the ratios are in qualifying.  Income taxes, child care, social security taxes and utility and maintenance costs are all considered.

For those with a VA loan in place already, the Interest Rate Reduction Refinancing Loan is a great way to save money when rates are dropping.  If the loan is current, no appraisal is required and re-qualifying is not needed.  Closing costs can be rolled into the loan.  A two week closing period is not unheard of with this type of loan.  You should save at least 1% on the note rate WITHOUT PAYING POINTS OR ORIGINATION FEE in order to make this worthwhile.

The VA home loan program is a benefit that has been around since the 1940s.  It is often forgotten.  But it has helped many veterans to purchase a home.  And it could help YOU.

Paul Chandler, Certified Mortgage Professional, is the Newport Branch Manager for Universal Mortgage Corporation.  He graduated from the University of Maine’s business school in 1979 and has been in the financial services industry ever since.  Since 1991, he has exclusively been involved in mortgage lending, moving to the Newport area in 1993. He also authors a blog at http://www.misterva.typepad.com. He also has been a contributor to Mortgage Originator Magazine. If you have a mortgage related question, please call 334-1999.

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