Danny Salas

Archive for the 'Mortgage Industry Updates' Category

Your Voice Matters! Proposal of Revised Seller Concessions

Last Thursday, February 23 2012, HUD (the Department of Housing and Urban Development) issued a new proposed rule (of three) that would aid in restoring the MMIF (Mutual Mortgage Insurance Fund) reserve account.
The Department of Housing and Urban Development this week reissued a proposed rule that would reduce by half the maximum allowable seller concessions in an FHA loan transaction to 3%.

I highly encouraged everyone to take action IMMEDIATELY to submit your comments to the FHA regarding the reduction of the seller concessions to a maximum of 3% or $6,000 whichever is greater.

Please read the notice below to see HUD’s points regarding why they wish to reduce the maximum amount of seller concessions. Some good arguments are made by HUD to do so…However, in the grand scheme of things within the housing market today and the view that I see from the ground floor, now is NOT the time to move forward with this proposal.

How it Affects You
Borrowers need every penny of a seller concession. Considering that down payment and funds to close is the largest hurdle to homebuyers today, this action will have a negative impact on the pool of potential home-buyers…. particularly in high closing cost states.

In order to get FHA and HUD to stop this regulation from going through, we ask you to read over the proposed rule and then send in your voice. Please also let anyone else related to the housing industry about this call to action.

Read HUD’s proposal reasons here

Use your rights and let the government know YOUR opinion! Comment on the Revised Seller Concessions

National Mortgage Professional Magazine’s Summary

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How The Payroll Tax Cut Extension Is Causing Interest Rates To Increase

How The Payroll Tax Cut Extension Is Causing Interest Rates To Increase

In December of 2011, Congress voted to temporarily continue the Payroll Tax Cut Extension. The Tax Cut originated in late 2010, when Congress and President Obama passed new tax laws that took effect in 2011 (Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010) and gave a 2% cut in Social Security Taxes (from 6.2% to 4.2%) to Americans that made up to $106,800 a year. As a result, most people have benefited from the cut in Social Security taxes (also known as Payroll Taxes), to help families, in a struggling economy. Depending upon how you look at things, like so many other alarming arrangements, in an economy, struggling for existence; there is an alternative cost to pay…and guess who’s paying for it this time…people who need home loans.

The “G-Fee”

That’s right…the government has decided to pay for this tax cut extension by increasing the guaranteed deliver fees, paid to them, for servicing their loans, when banks sell the loans to Fannie Mae, Freddie Mac, and FHA. It’s similar to an insurance policy against credit-related losses, in a Mortgage-Backed Security Portfolio. The negotiated price is .10 Basis Points, an every loan. This price, however, is in rate, not cost. This guaranteed fee is also known as “The G-Fee.” So, if Fannie Mae, Freddie Mac, and FHA have been mandated to increase their “G-Fee’s” by .10 Basis points, yet banks trade interest rates, generally, in 1/8 increments than the consumer will, no-doubt, be holding onto the excess burden, by paying about .125% (or 1/8 of one percent), higher on their interest rates. Generally, one-eighth of one percent, on rate, costs the consumer about .4% Basis Points in cost. However, banks trade interest rates, generally, in intervals of .125% in Cost, as well. So, that .4% Cost will translate into about a half point (.5%) increase in cost, should the consumer chose to pay the cost, up front, as opposed to financing the cost through a higher interest rate.

Might they go up higher?

Possibly! What many don’t understand is that the verbiage on the bill indicates that the .10 Basis Point Increase is the minimum amount of the increase, not maximum. Coupled with the fact that Interest Rates and Costs (or Points) are both described as Basis Points, with the previous explanation of costs of loan increases, you can see how, if the .10 Increase becomes a minimum, than costs could be effected exponentially, as each .10 gets interpreted and rounded up to .125%…

Who Is Effected By This?

Anyone obtaining a home loan from Fannie Mae, Freddie Mac, or FHA. The fee increase has really already started, as any loan delivered to these entities by April 2, 2012, will have to pay the increase in fees. As you can imagine, it takes time to close, package up, and securitize loans for sale to these entities. Nobody wants to be caught, holding the “money” bag, so to speak, so banks are having the consumer pay the fee, now.

How Long Will The “G-Fee” Be In Effect

Currently, plans are to have the delivery fee increased until October 1, 2021. So, like it or not, interest rates are, and have been going up.

Fence Sitters Beware…

Other factors are pulling rates higher, evidenced by this past month’s readings on several economic levels.

Greece

Yes, Greece is back in the news. For the ump-teenth time, Greece is in financial turmoil and unable to pay their debts to the European Union. Several attempts to stabilize this nation have all failed, and this turmoil has helped fuel lower rates in the United States because European investors have fled the EU and moved their finances to the safe-haven of US Treasuries and Mortgage-Backed Securities. However, as a deal gets closer and closer, with a financial plan to get Greece back on track, money will begin to flow out of the United States, and back to Europe, and therefore, the United States will feel an obligation to offer a higher rate of return to investors, and therefore higher interest rates.

Inflation

Inflation is interest rates’ worst nemesis. As the economy continues to show more growth, with fewer jobless claims, lower unemployment rates, Wholesale Prices rising, higher than expected growth at the consumer level and the Core level (taking out volatile food and energy costs), inflation is reaching concerning levels. High enough levels, anyway, to have the Federal Reserve reconsider offering another Q3 stimulus package (the latest rumored to put aside funds to purchase Mortgage-Backed Securities).

Breaking Numerous Levels of Support

Over the past two weeks, we’ve seen interest rates break through numerous levels of support. The 10-Day, 25-Day, and 40-Day, Average Levels of support, have all been broken through. And, this past Friday, February 17, 2012, we rested directly on top of the 50-Day Moving Average. If the deal goes through, with Greece, expect to drop below this level of support, too; pushing interest rates up, again. Hold on tight…we’re in for a fun ride, throughout 2012, as the economy and rates heat up.

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FHA Pending MIP Increase in April 2012…Act NOW

The Department of Housing and Urban Development Announces additional MIP increases scheduled for 2012.

As most of you already know President Obama has already initiated a 10 basis point increase on all loans administered by Fannie Mae, Freddie Mac and the FHA. As far as FHA loans are concerned this change will be implemented by an increase of 10 basis points to the annual MIP Premium. In addition to this increase, HUD will be adding an additional 25 basis points to FHA loans that exceed the 625k loan amount for a total of a 35 basis point increase. HUD also discussed the high likely hood of adding another, yet to be determined, sum top of all of this to help shore up the depleted FHA MIP fund.

What does this mean to you?

What this all means is there will be a material increase to FHA financing, especially for loan amounts that exceed $625k (do not worry, Butte County’s FHA Loan limits remain at $400,000) and will go into effect in April of 2012. There will be a mortgagee letter released within the next couple weeks to cover all of these details.

**If you have buyers that are planning to utilize FHA financing to acquire a new home, it would be a good idea to get these fence sitter’s to consider acting on their financing needs before these changes are implemented in April 2012.**

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Strategies For Processing 2011’s Income Tax Returns

(Originally written for 2010 taxes, but still applicable and helpful!)

4506-T Form Processing Needs To Be Particular

Requirements for 2011 IRS Transcripts

When filling out an application package, you’ll notice a form called the 4506-T.  This form enables a lender to obtain an electronic print-out of the Federal 1040 Tax Returns that have been filed with the IRS.  If the tax returns provided do not match the computer’s electronic print-out, line-by-line, than the loan may not fund.

Why Buyers should physically take their 2011 Returns to the Local IRS Office

E-filing could be an eight to 12 week wait, before a buyer’s loan may fund, causing Escrows not to close on time!

What If The Print Out Is NOT Available Yet?

Generally speaking, if the electronic print out was not available, than you couldn’t use that year’s income, from the 1040’s.  If 2009 was not a particularly good year, and you need 2011’s income to make certain that your qualifying ratios work, for the home of your dreams…than there’s a dilema.  Answer:

For loans underwritten before April 15, 2011, if the borrower has filed their 2010 tax returns, and the tax transcripts are not yet available, the tax transcript request will be returned from the IRS and reflect “No Record Found”, the following must be provided:

• 2011 Tax Transcript showing “No record or return filed”; and,
• Copy of the 2011 Tax Return, and,
• For Salaried Borrowers: a 2009 and 2010 tax transcript, current paystub and 2011 W-2;
• For Self Employed Borrowers: a 2009 and 2010 transcript, and 2011 1040’s stamped received by local IRS office along with 2009 and 2010 tax returns.

Don’t worry about the transcripts.  Access Real Estate Lending’s Processing Team takes care of ordering and processing the forms, using the 4506-T form, through an IRS portal.

Common Scenario question:

Self Employed borrower has filed their 2011 returns (no transcripts available yet) and they need the 2011 income to qualify for the loan. (Yes) We can drop 2009 income and use 20010 and 2011 provided the 2011 increase is “reasonable.” In order to do this, we must have copies of 2010 tax returns STAMPED received by the local IRS office. Unfortunately the copy of Electronic filing of 2010 returns is not acceptable, a copy, of the 2011 returns, must be a stamped copy, from IRS office.

We will provide further direction the closer we get to April 15, 2012. At that time we can give guidance when borrowers are filing extensions and what will be required. This policy is subject to change as we receive direction from our investors.

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