Danny Salas

New FHA Record: 36% of Market Share

In news that should come as no surprise to anyone, the Mortgage Bankers Association is reporting that in June government-insured loans – meaning FHA and VA financing, but mostly FHA loans – represented 36 percent of all loan applications, the largest market penetration since 1990. In comparison, the lowest recorded market share was 5.8 percent in August 2005. “A primary reason government-insured loans have retained a high share of the purchase market is that these loans typically require lower down payments than conventional loans,” said Orawin Velz, MBA’s Associate Vice President of Economic Forecasting. “In addition, lending standards tend to be tighter for conventional loans, especially for loans that require private mortgage insurance.” Applications Up The government-insured (FHA and VA loans) share of mortgage applications was 35.9 percent in June 2009, the highest level since November 1990, according to the Mortgage Bankers Association. Based on data from MBA’s Weekly Mortgage Applications Survey, the government-insured share jumped from 25.7 percent a month earlier and 27.0 percent in June 2008. Since the MBA survey’s inception in January 1990, the lowest recorded share was 5.8 percent in August 2005. The government-insured share of purchase applications in June was 38.6 percent, up from 27.8 percent one year ago. The government-insured share of purchase applications has averaged 36.6 percent to date in 2009, compared to an average of 21.8 percent during the same period in 2008. The low point was in August 2005 when it was 6.8 percent. “A primary reason government-insured loans have retained a high share of the purchase market is that these loans typically require lower down payments than conventional loans,” said Orawin Velz, MBA’s Associate Vice President of Economic Forecasting. “In addition, lending standards tend to be tighter for conventional loans, especially for loans that require private mortgage insurance.” “While the government-insured share of purchase applications has remained elevated, the government-insured share of refinance applications has been volatile. The share hit a record high of 38.4 percent in October 2008. As mortgage rates fell sharply between mid-November through early May, refinance activity surged for conventional loans. This surge in conventional refinance applications dominated the market, causing the share of FHA refinance applications to fall below 20 percent for most of this year. Recent increases in mortgage rates have caused conventional refinance activity to drop much more sharply than government-insured refinance activity due to a combination of credit and LTV requirements. As a result, the government-insured share of refinance applications climbed to 33.6 percent in June,” Velz said. FHA vs. Convnentional:  Realtors you make the call! Many banks have tightened up standards on their mortgage loans in the current lending enviorment.   We are seeing a record number of homebuyers coming to us that sought us out because their bank turned them down and did not offer FHA financing options. Did you know that an FHA loan can be obtained with a credit score as low as 620?  Many banks are not lending borrowers with a credit score under 680 and some even require a 740 credit score, certainly for the best terms.  FHA offers great rates with reduced monthly mortgage insurance, more liberal debt to income allowance, only a 3.50% down payment requirement and up to a 6.0% seller contribution toward your buyers closing costs. This is why we are confident that FHA is the way to go if your buyer is putting down less than 20%, even if they have excellent credit score.   Today, many banks are not offering conventional loans with private mortgage insurance for borrowers under 740 with less than 20% available for the down payment.  This makes FHA Insured loans loans the only alternative for a homebuyer to obtain financing. Below is a comparison of FHA and Conventional financing requirements for a $300,000 sale price on a single family residence in Butte County, California. Loan Program FHA Conventional Best Option? Credit Score Requirement 640 740+ FHA Maximum Qualifying Ratio 55% 44% FHA Down Payment Requirement 3.50% 20.00% FHA Base Loan Amount $289,500 $240,000 FHA Cash Required to Close $11,500 $60,000 FHA Average Closing Time 30 days 60 days FHA

VA…The BEST Loan In The Industry! “Generally” Speaking

The General Loan...VA

VA:  The “General” Loan

Where else can you obtain 100% financing without mortgage insurance…with ONE loan?  Well, USDA, loans, but…OTHER THAN THAT?  NOWHERE!  That’s right…VA Loans enable a veteran to obtain 100% financing, have the seller pay most bank fees, and also have the seller credit 4% of the sales price toward other closing costs and prepaid items like taxes and homeowner’s insurance.   In most cases, the VA buyer can move into the home with almost nothing down.  AND NOT HAVE A PAYMENT FOR UP TO ALMOST TWO MONTHS!  You just cannot do any better than VA Loans…they’re the best.  So, in a previous article, I may have mentioned that FHA is King; VA must be “The General Loan.”  I like that…”VA…The General Loan.”  Coin that!

Getting In With No Money

Let’s give an example…VA allows a veteran to put nothing down…0%!  So, automatically, we’re at 100% financing.  Then, over and above that, they allow a seller to credit up to 4% of the sales price, towards a buyer’s closing costs and impound account.  Even more desirable, the veteran is NOT allowed to pay many fees that most borrowers do have to pay.

The Critical Offer

When writing an offer, make sure you understand that the buyer is NOT allowed to pay certain fees.  Really, the only fees a veteran may pay is an origination fee, reasonable discount fees (to buy the rate down), credit report, flood certificate, appraisal, and title fees.  Any other “bank fees,” must be paid for by the seller.  So, if your lender has a tax service fee, a processing fee, an administration fee, an underwriting fee, or any other “bank fee,” prepare to have the seller pay for these fees.

Title And Escrow Fees Can Be Sticky

Also, keep in mind that there are VA guidelines regarding title and escrow:  Escrow must be paid for, by the seller.  Also, depending on how the contract is written, you may be able to have the seller pay all title fees, as well.  What I mean by that is VA’s guidelines state that title is to be paid according to “what is typical for the area.”  So, in Butte County, we generally structure the buyer and seller paying 50% of the CLTA Title Policy.  We generally structure that the buyer will pay the ALTA Title Insurance Policy.  However, if you write the contract to state that seller is to pay CLTA and ALTA Title insurance policies, than you free up more of the 4% seller credit funds that can go toward the buyer’s impound account and other costs.  Most VA underwriters don’t happen to live in the actual county that the contract is being written.  Therefore, what is typical for the area, is generally passed along as to what is written in the contract.

VA Rank

So, VA is a four-star loan.  The General Loan.  Feel free to call me when writing a VA contract.  We can go over the particulars, together.

Related Must Reads

Read About FHA

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90-Day “Flipping Rule” Fannie/Freddie/and FHA

What’s “Flipping?”

Here’s the deal…Different banks have different contracts with Fannie Mae and Freddie Mac.  That’s why Bank of America can’t do some loans that Wells Fargo can.  Period!  One interesting opportunity, that we’re seeing a lot of currently, is buying a property that has been foreclosed on, for an extremely low price, then turning around, fixing it up, and selling it for a significant profit.  Otherwise known as, “flipping,” in the industry.

The 90 Day Rule

Here’s a general rule.  When someone buys a home for a certain price, and tries to immediately sell it for more (immediately, here, means 90 days), banks have rules.  One of those rules is that you may not “flip” the property.  The key word, here, is “banks.”  Fannie Mae and Freddie Mac DON’T CARE if you turn and sell the property, immediately.  FHA Does!

Want To Turn An Immediate Profit?

So, what do people do if they’re trying to turn a quick profit?  Well, work with me, of course!  Here’s why!

What’s The Deal?

Fannie Mae and Freddie Mac’s guidelines are clear…you may purchase a home, fix it up, and sell it, promptly.  Even for a profit.  So, why don’t many banks allow a buyer to come in and purchase a “flipper” within the 90 days?  Let’s talk about FHA’s guidelines.

FHA “Flipping” Guidelines

 If you care, read about them, here!

Hey Investor, You Can Still Flip!

So,as I stated above, Fannie Mae and Freddie Mac have different contracts with different banks.  So, if Fannie Mae doesn’t care if you “flip” a property and Freddie Mac doesn’t care if you “flip” a property, why don’t banks let you?

Many banks interpret FHA’s guidelines as their guidelines, regarding flipping. But some banks’ legal departments understand these guidelines…particularly.  So, guess who knows which banks interpret Fannie/Freddie Guidelines regarding “flipping,” as opposed to FHA’s guidelines regarding “flipping?”  I DO!

So, if your listed home doesn’t meet FHA’s criteria, regarding “flipping,” but does Fannie/Freddie’s criteria…and you want to “flip” that home, immediately, for a profit…call me!  Access has contracts with banks that allow it!

 

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Fannie Mae and FHA Announce New Automated Underwriting Criteria

Hey Realtor…What This Means To You!

Any change in underwriting criteria is a change to where, when, and how your escrow will close.  Probably the biggest change…FHA is moving to a conventional-type style of appraisal ordering…HVCC type requirements. 

Also, when a property is located in a declining area, the appraisal report must be accompanied by a form addressing this concern.  This, from Fannie Mae’s website concerning FHA:

“The Uniform Residential Appraisal Report (URAR) and the form HUD-92800.5B, Conditional Commitment/DE Statement of Appraised Value are required. Also, a Market Conditions Addendum is required (Fannie Mae Form 1004MC/ Freddie Mac Form 71).”

DO/DU/TOTAL Mortgage Scorecard…Uh…What’s That?

You really want to know?  DO is an abbreviation for Desktop Originator.  DU is an abbreviation for Delegated Underwriting.  Both are internet-based automated underwriting engines for Fannie Mae.   FHA TOTAL Mortgage Scorecard is FHA’s Interent-Based Automated Underwriting Engine.  Here’s how it works:

First, an application is taken.  Second, a credit report is ordered.  A credit report is assigned a re-issue number.  Third, you combine the application and the credit report.  Fourth, you import your application into Fannie Mae’s Website, insert your re-issue number for your credit report (this enables you to use the same report, avoiding another inquiry on a client’s credit report), and submit to the website’s automated engine (DO or DU) to ask for an approval.  The website breaks down the information on the credit report and application and determines if the client is eligible for financing.  When running government loans like FHA or VA, an additional layer of underwriting criteria is applied (FHA TOTAL Mortgage Scorecard), to determine eligibility. 

Gift Funds

The source of the down payment will effect the type of approval that you receive from FHA TOTAL Mortgage Scorecard.  In the past, the website’s automated engine couldn’t determine the difference between a non-profit organiztion, a family member, an employer, or Government Assistance Program;  like a city’s Down Payment Assistance Program (DAP).  Now, FHA Total Mortgage Scorecard is able to determine these differences and apply them to the decision.

Less Than 10 Months On Installment Loans

In the past, whenever someone had less than ten payments left, on any installment debt, FHA would NOT calculate that payment against a borrower qualifying ratios (percentages of income going toward a borrower’s monthly obligations).  So, if someone owed $4,280 on a car loan, and their monthly payment was $430, the $430 would NOT hit their qualification requirements.  Now, since the payment is greater than $100 per month, the less than ten month rule would NOT apply.  This is a major change. 

Condo Conversions

FHA is removing the requirement that an apartment building, that has been converted to a condo project, be existing as a condo project for one year before an FHA application is taken to finance one of the condo units.  Nice…a good change!

Related Must Reads

FHA Update
Why You Can’t Close A Loan In Six Days Anymore

 

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