Danny Salas

FHA Increasing Mortgage Insurance Costs

HUGE FHA Announcement

The Federal Housing Administration (FHA) has announced that they are close to meeting their maximum capital ratios.  Since there are no other real alternatives to Fannie Mae and Freddie Mac financing options, other than FHA loans, they now contribute to approximately thirty percent of the market share of new loans.  Therefore, FHA has announced that they will be increasing their mortgage insurance requirements.  Currently, the Mortgage Insurance Premium (financed into the loan amount) is 1.75% of the loan amount.  This will increase to 2.25%.  Also, the currently monthly Mortgage Insurance calculation is 0.55% of the loan amount, divided by 12 months.  This fee will increase, as well, however, that factor is being negotiated.  Also, any borrower, with an FICO score less than 580, will have to put 10% down.

More to Come…

Chico, CA Interest Rates Market Report – Economic Influences – August 5th, 2008

Qualifying For A Loan...Times Are Changing

Big Changes On The Horizon

This week I’m going to be extremely brief with my comments on the economic reports and educate you a little about major changes in the real estate lending market.  So, let’s rock and roll!

First, the government lifeline extended to FannieMae and FreddieMac was signed into law by President Bush.  I’ll be addressing that in forthcoming issues.  Second, 2nd Quarter GDP come in at 1.9% while expecting 2.3%.  Previous quarters’ numbers were also revised lower.  Third, initial jobless claims shot up to 448,000.  This is a huge number, however, is somewhat misleading, as the government has laid out a new federal benefits program that will manipulate this number for about a month…interesting…Fourth, a better than expected jobs report showed we only lost 51,000 jobs.  WooHoo!  Unemployment moved to 5.7% so the better than expected jobs numbers, that’s right a loss of 51,000 is better than expected!  Fifth, I told you I’d report on the Fed’s favorite inflation gauge, the Personal Consumption Expenditure Index.  Core PCE moved to 2.3%.  This is outside the governments comfort zone of 1.0 – 2.0%.  Last, the Fed left the overnight rate unchanged at 2.0%.  They did indicate that they felt like inflation pressures should start easing toward the end of this year, however.

BIG Changes in Mortgage Insurance

The changes that have occurred, as of August 1 of this year, is in regard to mortgage insurance.  Years ago, you couldn’t buy a home unless you had twenty percent down.  Mortgage Insurance (MI) companies got involved and said if you let someone put five or ten percent down, they would insure a percentage of the loan amount.  This enabled more people to buy homes because they didn’t have to wait longer to save twenty percent.  This past week four of the seven major mortgage insurance companies changed their guidelines.  Basically, if you do not have a credit risk score of 620 or higher, you’re not getting a FannieMae or FreddieMac loan unless you put twenty percent down and avoid mortgage insurance all together.

FHA Will Return As “King Of The Loans”

Only one MI company left enables you to put five percent down.  All others are requiring ten percent down.  So, if you know of people that only have five percent down, make sure they continue to call other lenders if their lender is telling them that they HAVE to put ten percent down.  And there are a lot of major banks that are not approved or not contracted with this one, MI Company!   Refinances on investment properties will have to have twenty percent equity in the subject property.  Also, if more than 55% of your income is going toward all of your monthly obligations, than you can not qualify for a loan with mortgage insurance.

Monthly Guideline Changes

Now, these changes are changes to July’s changes.  We are seeing guideline changes on at least a monthly basis, sometime weekly.  Make sure you’re working with an expert in the field that follows these changes closely.  Also, make sure you have an option to work with an FHA expert!  FHA has new guidelines taking effect on January 1, whereby the buyer would have to put 3.5% down as opposed to the current 3%, but they have more flexibility regarding their qualifications than MI companies.  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – January 8th, 2008

The Economy Much Worse Than Thought

FHA Mortgage Insurance Changes

“Capitalize on this good fortune…one word can bring you round…Change!”  In the words of Jon Anderson and “Yes” we’ve seen quite a lot of changes for the year, and I’m certain that there are a lot more to come.  After a couple of weeks off with the family, here’s what’s happening.  First, remember when I touched on the FHA mortgage insurance factor changing?  Well, that has gone into place.  There is a table that indicates what a borrower’s mortgage insurance premium will be depending upon where their down payment comes from (gift, savings, etc.), what the loan to value is, and what the client’s credit risk score is. 

“Declining Market”  Get Used To That

Another extremely important change was the fact that FannieMae labeled Butte County a “Declining Market” area.  What that means is that they feel as though values are continuing to decline in our area, so, to protect themselves, they are lowering the maximum loan to value guideline by 5%.  For example:  Let’s say that Steve is interested in purchaseinga home for $180,000, but only has funds for closing costs.  In December, FannieMae would have allowed the client to obtain a loan for $180,000 because the maximum loan to value was 100%.  Well, since December 31, the lender would now only finance 95% of the value of the home because of the declining market status.  On a side note, FreddieMac is still enabling 100% loans in our area for the time being, however, all seven of the mortgage insurance companies that insure these loans on the west coast may change this in the near future. 

More Documentation…Get Used To That

Also, FannieMae is tightening up on their underwriting guidelines and making it a little more tedious to document someone’s qualifying.  One example is that I received an approval on a self-employed client this week and the lender asked for a profit and loss statement from the client.  I haven’t been asked to have a client provide one of those in about five years.  So, really, no big deal…you supply a P&L and move on.  That’s the attitude that people have to have right now…otherwise, you won’t have cool little songs in your head that you can whistle out loudly like, “Changes.”

Riskier Based Pricing

Also, conforming interest rates have new add-ons to their cost as of the first of the year.  And, just like the FHA add ons for the Mortgage Insurance Premium, it’s an add of to the cost of the loan.  For Example:  I locked a client in at 5.75% on a cash-out refinance in November.  They have a 640 Credit Risk Score, but we received an approval.  This month I locked a client in with the exact same scenario.  The “change” was that the sales comps for the same size home were now eight months out, instead of the desired six months, so the value had come down slightly.  However, this pushed the loan to value up, beyond 70%.  That’s an add-on of 0.5% points.  Then, the clients FICO, or credit risk score, was 640, so the add-on for that is 1.25% points.  If their FICO was 660 it would have only been .75% add on to the points.  So, pricing a loan has become a full-time job for one of our staffers! 

The good news is that interest rates keep coming down.  The economy may be in more of a slump than some thought…and it’s still, just an excellent time to buy.  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – November 19th, 2007

Rates Moving Down, But Exceptions Costing More

Stock or Bonds?

So, last week we were waiting for Retail Sales numbers to come in and we expected numbers to be a little higher than we’ve seen lately because WalMart reported some strong earnings.  They came in at expectations, but the Producer Price Index (PPI) rose 0.1% for October.  But the Core PPI came in below expectations, which was good for interest rates.  The Consumer Price Index rose to 2.2% from 2.1%, which is inflationary and generally bad for interest rates, however, what kept rates down was the understanding that this inflationary information would mean that the Fed would NOT raise the overnight rate at their December meeting.  So, money poured out of Stocks and into Bonds on that news. 

CitiGroup Downgraded

This week, Goldman Sachs downgraded Citigroup to a “Sell” from a “Hold”.  Citi may have to write off $4Billion dollars, additionally to what they have forecasted in the past, due to sub-prime related losses. 

Federal Reserve Chairman Ben Bernanke indicated last week that the Fed is changing the manner in which reports, minutes, and other general information will be reported to the general public and markets.  This is really cool because it will enable us to follow, more closely, why the Fed makes certain monetary policies on the information that they’re being provided with.  This “transparency,” “will provide a more-timely insight into the Fed’s outlook, will help households and businesses better understand and anticipate how our policy decisions respond to incoming information, and will enhance our accountability.”  What they plan to do is provide information on economic growth, unemployment, and inflation twice as often as they do now, and estimate figures for three years out, as opposed to the two year estimates currently being produced.  This will be helpful to guys like me because it’s just more information that could have a result on the markets.  But, it also means that I could be writing myself right out of an columnist position with the News & Review (editor…don’t read this).

Mortgage Insurance Changes

I thought I’d take some time and go over some major changes regarding mortgage insurance (MI) that will go into effect in January, 2008.  Generally speaking, mortgage insurance is required whenever you put less than 20% down on the purchase of real property, one to four units.  There are ways around this…but for the sake of simplicity…The calculations have been pretty standard for years, but first, HUD came out and said that they were changing the Up front MI factors based on loan to value, credit risk score, and/or source of down payment funds.  Let’s give an example:  Richard N. Diedert buys a home.  Funds are a gift from pops.  His credit score is bummin’ at about 595.  In the past, regardless, his up front MI factor would be 1.5% of the loan amount.  Now, we would have to go to a matrix and look up what that factor would be.  With this scenario the factor would move to 2.0% of the loan amount. 

Fannie Mae & Freddie Mac Pricing Changes

Not to be outdone, Freddie Mac came out with their new model for pricing loans.  For example, let’s say the Richard is now buying an investment property.  He wants to put 20% down.  In the past, he could either pay 1.375% in points (this varies from lender to lender) OR absorb that cost in his interest rate (about 0.5% in rate).  Now, that add on will also be determined by credit risk score.  So, many changes keep popping up in this new environment and we’ll keep you posted.  Gobble, Gobble…Danny