Danny Salas

FHA Reminder: MI Premiums to Increase

The News

This past Valentine’s Day, HUD announced a new change for the real estate market. For FHA Loan case numbers on or after April 18, 2011 there will be an annual Mortgage Insurance Premium increase of 25 basis points. The upfront MIP will remain the same at 1%. Any case number that is uninsured by this date will also be cancelled by FHA, with some exceptions.

What This Means

Mortgage Insurance is accumulated contingent upon loans defaulting causing loss. 15 and 30 year loans for single family mortgages will have an insurance increase of a quarter of a percent (.25).  The higher the monthly costs, the lower the loan amounts and offers for buyers. However, this means a higher income is needed for buyers and it also means less for sellers.  As of right now, FHA mortgages are low down payments and therefore a prime option for families of low income, this increase is a strategy for the economy due to the National Housing Act’s MMIF. Here is a reason for the increase given 4 days after:

 

“We determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster our capital reserves and to help private capital return to the housing market…Raising the annual premium will enable FHA to increase revenues and have a positive effect on the ongoing stability of the MMI fund, which had capital reserves of approximately $3.6 billion at the end of FY 2010…This quarter point increase in the annual MIP is a responsible step towards meeting the two percent threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments.” – David H. Stevens, Assistant Secretary for Housing/Federal Housing Commissioner

 

→ At the same time, this move is expected to help FHA and therefore keep it from having intervention, which in a market full of tight guidelines is a good thing.

Check Your Pre Approvals

• 1.15 - 0.9 – = .25 point
• Per $100,000 x .25% = $250 divided by 12 months = $20.83 per month
• $20.83 a month using a 5% interest rate equals 3,880.87  per $100,000 less buying power on your loan amount.

 Illustrations of the Increase

 

 

 

Information From HUD

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/11-10ml.pdf
http://portal.hud.gov/hudportal/documents/huddoc?id=fromthedeskof021811.pdf

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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

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…