Danny Salas

HVCC – What’s It All About?

Due to the Mortgage Credit Crisis

…there have been many changes regarding Real Estate Finance, however, the Home Valuation Code Of Conduct (HVCC) will be one of the most important changes that will have a direct effect on the consumer.

While in theory, it’s a wonderful concept;  unfortunately, in reality, it’s another red-tapped blunder that could damage the housing market, even further. 

Changes as of May 2009

HVCC requires lenders to order an appraisal through an Appraisal Management Company (AMC) when using conventional financing (FHA financing has no HVCC appraisal changes).   So, imagine the AMC.  Let’s assume a home buyer wants to buy a nice $300,000 home, here in Chico.  Let’s also assume that the client is putting 20% down, and has high credit risk scores with great income, so they’re a solid buyer.  In the past, you might receive an appraisal waiver, or a drive-by appraisal.  Now, you MUST order a full Uniform Residential Appraisal Report (URAR).  Not only that, however, in the past, an appraiser would only need three sales to help with the value of your home.  Now they need six comps containing at least two currently listed properties. 

Twice The Work…1/2 The Pay

So, with the other listings, and extra forms that the appraiser must provide for each appraisal, they are completing twice the work, however, receiving half of the fee that they used to.  So…what happens to the quality of the appraisals?  Unfortunately, the best appraisers, in the nation, have refused to join AMC’s.  So, that quality has deminished. 

The Lottery

Here’s what happens when you order a convention loan appraisal.  AMC’s will not order the appraisal until they have been paid.  So, now, a credit card, or a credit card/debit card is used to order it.  Once the fee clears, the AMC will call an appraiser on their list.  Their list of appraisers that appraise Butte County may consist of an appraiser in Gridley.  But do you think he knows values in Magalia?  Mortgage professionals are not allowed to contact the appraiser, directly, at all.  So, all correspondence must go through the AMC.  Once the appraisal is completed, the AMC e-mail’s the borrower, the mortgage professional, and the lender.  If the value is too low, than you may file a complaint with the AMC, however, the AMC must let the appraiser know that you disagree with value.  Getting an appraiser to admit that they are wrong, or may have made a mistake on value, is more difficult than it has ever been.  Particularly once they’ve been paid.  You think they get paid for correcting mistakes? 

Quick Answer

The best answer is FHA Financing.  I can still order the appraisal from my favorite appraiser, Barbara Robinson with Valley Oak Appraisals.  I have been in this industry since 1988, and she is the best appraiser in the business.  So, FHA is king!  3.5% down and other flexible guidelines makes this loan the most popular loan since the Mortgage Credit Crisis. 

 

 

If you’re new to our site, these are our most useful links:

Subscribe to our blog
Ask the Expert
Latest Interest Rate Updates
Fill out our Quick & Easy Loan Application
Follow us on Twitter

Chico, CA Interest Rates Market Report – Economic Influences – Nov 18th, 2008

Year In Review

Pardon last week’s brief hiatus, as the day was enjoyed by me and my family, as we celebrated Veteran’s Day together.

The Economic Stimulus Package

Let’s take a brief look at what has transpired over this past year.  First, with the Credit Crisis in full blown force, Congress enacted the Economic Stimulus Package.  Basically it raised conforming loan limits to 125% of the Median Priced Home for the area or kept them at $417,000, whichever was LESS.  So, our median priced home was $320,000.  125% of $320,000 is $400,000, so our conforming loan limits remained at $417,000 for Butte County.  However, HUD also increased the FHA loan limits to 125% of the area’s Median Priced Home.  So, FHA loan limits for this year were $400,000 after the Stimulus Package was approved.  As mentioned in a previous article, it also changed some of the mortgage insurance calculations depending upon a borrower’s credit risk score, down payment amount, where the down payment funds were coming from.  Conforming loans with also were categorized by a new type of risk based pricing.  This was also based upon credit risk score.  So, if a borrower had a score less than 740, unless you put 20% down or more, there were new add-ons to the cost of a loan, never seen before this stimulus package.

Then came HR 3221

The Housing and Economic Recovery Act of 2008.  Essentially, this got rid of most 100% down programs (however there is a new one that can still obtain 100% financing and the seller can pay 6% of the sales price toward your closing costs and paying the interest rate down).  It changed FHA down payment requirements to 3.5% as opposed to just 3%.  It changed the Economic Stimulus Package by lowering the HUD and Conforming loan limits to 115% of the area’s median priced home.  However, HUD determined the median priced home to be only $255,000.  That’s a 20.31% drop on values in one year.  So, that puts FHA loan amounts for the year 2009 at $293,250 for Butte County.

Gov’t Takeover of GSE’s

On September 6, the Government took over the Government Sponsored Enterprises FannieMae and FreddieMac.  With the turmoil of the Fed’s Bear Stearn’s Bail out, banks failing left and right, the formation of Term Auction Facilities, the announcement of PIMCO to stop buying bonds, the world following suit, nowhere to sell mortgages any more, congress set up a $200 Billion line of credit for banks to guarantee that banks could sell mortgages so that they had more money to lend for home buyers to keep an industry alive.

Today, Ben Bernanke and Henry Paulson are speaking to Congress about the effects of the $750 Billion bailout.  Apparently, their words are expected to be promising.  I’ll touch base on this in next week article.  Interesting note:  again, we see interest rates doing somewhat the opposite of what they’d normally do.  Core producer prices rose by 0.4% versus expectations of 0.1% which moved us to the highest 12 month gain since 1989.  It seems as though the markets are ignoring this, as they feel that the very high energy prices we were seeing mid-year are being felt today.  Since oil has come down and therefore energy prices, the scary reading is being somewhat shrugged off.

Also next week, the Producer Price Index and the release of the previous FOMC minutes.  Get out there and buy…values are down, as well as rates…it is time…Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – Oct 28th, 2008

FHA Is KING!

I thought I’d take some time to reflect on just what exactly is currently available to home buyers.  I often get asked, “Is anybody doing loans right now?”  The answer is unequivocally, “YES!”  Basically, we’re back to the old days of two’s!  Two paystubs to give us a month’s gross income, two months bank statements to be certain that a client’s down payment and closing costs are “seasoned,” two years’ W-2’s and two year’s 1040 Tax Returns.  Whereby in the past eight years my office’s FHA applications ran from about one to two percent, we’re now funding over sixty seven percent FHA loans.  I’d like to go over a few things that you should know about FHA and some other recent changes that the housing market is going through.

New Underwriting Guidelines

FHA stands for Federal Housing Administration.  They are a division of Housing and Urban Development and their goal is to help administer the funding of loans for home buyers.  They have changed their guidelines, recently, and most of the guidelines will go into effect in January of 2009.  One of the biggest is their requirement will go from three percent to three and one-half percent, of the sales price, as a down payment.  The other major change will be the mortgage insurance premium that is financed into the loan amount AND the monthly mortgage insurance payment.  These will vary with a clients credit risk score.  FHA finances an upfront mortgage insurance premium.  It will vary from 1.25% to 2.75% of the loan amount depending on credit risk scores.  Basically, if you have great credit, your up-front mortgage insurance premium will be 1.25% of you loan amount.  Let’s take a $200,000 purchase.  In January, you will be required to put three and one-half percent down, so your base loan amount will be $193,000.  Now, what’s great is that that down payment can be a gift from a family member.  So we know that the financed up-front mortgage insurance premium will vary from $2,412.50 to $5,307.50.  This amount is added to your base loan amount of $193,000 for a total loan amount of $195,412.00 to 198,307.00.  So, obviously, if you have a good credit risk score, your payment will be based on the lower total loan amount.

Qualifying Is Quite Easy

Qualifying for FHA is still pretty easy.  Your application is put through an automated underwriting engine that determines your eligibility.  With higher credit risk scores, more of your income can be used to qualify you for a house payment.  There are still opportunities to qualify with approximately fifty percent of your gross income going toward all of your monthly liabilities, however, some good factors to use would be thirty-five percent of your gross income going toward your housing costs and about 45% going toward all of your monthly obligations.  These are tighter qualifications that we’ve seen in the past, however, still pretty flexible.

Freddie Mac Changing Too

FreddieMac announced this week that they are only allowing 45% of a borrower’s income to go toward ALL of their monthly obligations.  This is a major change from their automated underwriting engines approval loans with 80% and more of someone’s income qualifying them.  Freddie used to have an “accept +” status that didn’t care what the qualifying ratios were, as long as a client had extremely high credit risk scores.  Expect to see more changes, but we’re in a market that needs to correct itself and these are responsible ways to do so.  It will take some time but it’s a step in the right direction.  If you have the supporting documentation to qualify, it’s just an excellent time to buy.  Values and rates are still low.  See you next week…

Chico, CA Interest Rates Market Report – Economic Influences – March 4th, 2008

Jobless Claims Continue To Show Signs of Recession

Last Wednesday the Wall Street Journal reported this headline:  Inflation could be a bigger problem than many think!  As Homer Simpson might say, “Doh!”

Last week I mentioned the nice layer of support that the 200-day moving average was giving us.  It has continued to be our best friend in this extremely volatile market. 

I keep commenting on the Initial Jobless Claims numbers for the week.  Remember that the last two recessions that the United States went through, the four-week average of these claims reached 362,000.  This last week we hit 373,000 and brought the average to 360,500.  We’re getting closer folks!

A recession is two Gross Domestic Product quarters in a negative number.  The Fourth Quarter 2007 GDP was 0.6%.  It shows the economy is significantly slowing.  Good ‘ole Ben Bernanke spoke to congress this past week.  His comments caused interest rates to lower a bit.  But the big news of this past week was OFHEO’s (The Office of Federal Housing Oversight Committee) announcement that they rescinded the Capital Requirment Penalties to GSE’s.  What does this mean?  Remember when FreddieMac and FannieMae’s accounting was off approximately $3 Billion each?  OFHEO (the government entity that governs conforming loan limits) penalized these Government Sponsored Entities (FannieMae and FreddieMac) by requiring that they have penalty reserves of 30% more than the usual reserve requirement for each loan funded.  Well, Wednesday, OFHEO removed this penalty reserve requirement, freeing up more money for Fannie/Freddie to purchase loans in the secondary market.  So, this announcement was completely separate from HR 5140 and the economic stimulus package that the president signed into effect on February 13th.  This may also have an effect on removing the limits on Jumbo loans.  We’ll learn more about this in the future, however, this could be huge for high priced areas like California, in general.  I’ll report more on this latter as I learn more. 

FHA Loan Limits Increasing?

So, the announcement of HUD’s new median priced home limits will be announced on March 7th.  Here’s what’s expected.  Conforming loan limits will remain at $417,000.  However, if our median prices stay the same as they are now, $304,000.  Than FHA loan limits should increase by 125% or $380,000.00.  FHA is very flexible, with 3% down, no termite report clearances are required, the seller doesn’t have to pay any of the buyer’s fees anymore (excluding a tax service fee which is about $77.00), the appraisals are just as flexible as FannieMae and FreddieMac appraisals, and with the Nehemiah Funding Program, a participating seller can fund 6% (3% for the down and 3% towards buyer’s closing costs) of the sales price through their non-profit and basically put nothing down in this market.  Believe me, there are a lot of sellers out there that wouldn’t mind crediting 6% just to sell their home right now. 

The Core PCE, by the way, was reduced to 2.2%.  Better than expected, but still outside of the Fed’s desire to have inflation readings between 1% and 2%!  Until next week…