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FHA’s Increased Monthly Mortgage Insurance Goes Into Effect Today
Now more than ever it is better to go with a Conventional loan than an FHA loan. In the State ofFlorida, an FHA loan requires 3.5% down and a Conventional loan requires a minimum of 5% down. The only problem some may run into with getting a Conventional loan is that you need a minimum of a 680 credit score.
The debt to income ratio requirements on a Conventional loan are more strict limiting it to a maximum of 41% and sometimes as high as 45% but really you shouldn’t be any higher than that anyway. Just based upon what the mortgage insurance companies are doing you can see more liquidity is coming back to the market. You can now get financing on attached housing in Florida and go up to 45% debt to income ratios where before no one was going over 41%.
With a Conventional loan the monthly mortgage insurance is less than that of an FHA loan. Typcially a Conventional loan only requires you to keep the mortgage insurance on for a minimum of 2 years AND until you have 20% equity in the property where FHA is 5 years AND 22% equity. It is your responsibility as the borrower to contact your mortgage servicer to get it removed.
In addition to an FHA loan having a higher monthly mortgage insurance premium there is also a one time Upfront Mortgage Insurance Premium (UFMIP) of 1% of your loan amount. This does get wrapped into your loan amount but is a charge nonetheless.
MGIC, one of the mortgage insurance companies, has a great illustration comparing a Conventional loan to an FHA loan http://mgic.com/education/mi_better_option.html.
I am not a real estate agent nor do I pretend to be but my experience has been that a seller is more inclined to accept a Conventional loan over an FHA loan because there is a misconception that a Conventional loan is more likely to get approved. The appraisal guidelines are a little less strict than FHA but that is about it.
Both loans are good loans but as you will see a Conventional loan is less expensive. No matter what I would always suggest looking at putting less money down if you do not have a lot of money leftover after closing and if you are not maxing out your retirement.
Fannie Mae Guidelines Changes Coming Up
It’s funny because I was just thinking to myself the other day that if they loosened the guidelines for those who have had foreclosures and short sales a little more it could help correct the housing marketing. I am sure many do not what to hear this but the fact of the matter is people are human and make mistakes. Many have learned from this housing downturn and will making much smarter financinal decisions, smarter than they ever have before, going forward. Also, because lots of time the consumer has a lack of self control the banks need to put rules in place so someone isn’t able to overextend theirself.
Well, Fannie Mae just released that they are extending the waiting period that must elapse after a borrower experiences a foreclosure to 7 years from 4 years. Fannie goes onto say that if there are extenuating circumstances you can follow their new rules but it will be a manual underwrite which in general means stricter rules.
On a positive note, Fannie Mae is decreasing their maximum debt to income ratio down to 45% from 50%. This is a good thing because you shouldn’t be any higher than that and really shouldn’t even be that high but there are different circumstances that can allow for higher ratios especially with compensating factors such as high credit scores, assets, etc.
Fannie Mae & Second Credit Reports
There are a lot of rumors out there about this right now. Here is what the HousingWire reported.
A source at Fannie tells HousingWire that reports in the press are misstating the actual provisions of the LQI1, coming into force June 1. The source says that a second credit report on the borrower needn’t be pulled near to closing on the mortgage, although “a lender may choose to do so,” he said.
As I learn more I will let you know but remember, the lender may choose and guess what? I am sure we will be choosing to pull. We have to protect ourselves. The best thing to do is to tell the borrower not to use any credit cards or take on any debt until the loan is closed.
Fannie’s Guidelines On Preforeclosure Events
Fannie Mae has adjusted their underwriting criteria for borrowers who have experienced a “preforeclosure event.” This is for preforeclosure sales, short sales, or deeds-in-lieu of foreclosure. Starting in July, Fannie Mae has changed the waiting period after the event and based it on the loan to value for the transaction and any extenuating circumstances. In addition, Fannie is updating the requirements for determining that borrowers have re-established their credit after a significant credit event. To summarize it, the more money you put down the less time you have to wait.
The 10 Best Places For 2nd Homes
Florida grabbed 3 of the 10 spots. This really shouldn’t be a surprise as the weather in Florida is great and the prices have come down so much. It is affordable if you can afford to have the luxury of a second home. Not everyone can and you need to make sure it is the right purchase for you.
“Prices are way down–40% off the peak in some locations. Seemingly at or near bottom, they are starting to attract the first wave of bargain hunters–and not just families in need of R&R. Hard-nosed investors also are on the prowl, says Jan Reuter, head of residential real estate at U.S. Trust Bank of America Private Wealth Management: “We’ve seen an uptick in buying in just the last couple of months.”
http://online.wsj.com/article/SB10001424052748704869304575109461496208030.html?mod=djemRealEstate_t
Fannie Mae’s “Special Approved Designation” For Condos In Florida
If you want to see what projects have been added to the list you can click on this link https://www.efanniemae.com/syndicated/documents/dps/condopud/FL_Spcl_Aprvl.pdf
I found the FAQ’s very informative on the process for approving the condos. Here is what stuck out to me:
Can a homeowners’ association (HOA), property manager, or lender submit a project for consideration?
No. Fannie Mae determines the projects for review. Lenders can suggest projects, but Fannie Mae retains the discretion to decide which projects are reviewed.
If a project meets all of Fannie Mae’s standard project eligibility requirements, can the project receive a Special Approval designation?
No. The Special Approval process is for established projects that do not meet Fannie Mae’s standard project eligibility requirements. For projects that meet our standard eligibility requirements, there are several review options available, including: “Limited Review,” “CPM™ Expedited Review,” and “Lender Full Review.”
To read the FAQ’s in their entirety, click on the link below.
https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/condogls/pdf/specialappfaqs.pdf
FHA Mortgagee Letters On Changes Announced
Here is what HUD put out to all of their email subscribers which is the exact language you want to read.
FHA Announces Policy Changes to Address Risk and Strengthen Finances:
New Measures Will Help FHA Better Manage Risk, While Maintaining Support for the Housing Market and Access for Underserved Communities
FHA Commissioner David Stevens announced on 01/20/10 a set of policy changes to strengthen the FHA’s capital reserves, while enabling the agency to continue to fulfill its mission to provide access to homeownership for underserved communities. The changes announced are the latest in a series of changes Stevens has enacted in order to better position the FHA to manage its risk while continuing to support the nation’s housing market recovery.
The FHA will propose to take the following steps: increase the mortgage insurance premium (MIP); update the combination of FICO scores and down payments for new borrowers; reduce seller concessions to three percent, from six percent; and implement a series of significant measures aimed at increasing lender enforcement…
To read this press release in its entirety please visit: http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-016
Effective for FHA loans for which the case number is assigned on or after April 5, 2010, FHA will collect an upfront mortgage insurance premium of 2.25 percent. This policy change will increase premiums for purchase money and refinance transactions, including FHA-to-FHA credit-qualifying and non-credit qualifying streamlined refinance transactions…
To read these mortgagee letters and any attachments in their entirety, please visit: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/ view the 2009 letters and click on the letter of your choice. Mortgagee Letters from previous years can be found on the same page.
FHA To Announce Changes Today
The WSJ reported that FHA will announce today that they will increase the upfront mortgage insurance premium charge from 1.75% to 2.25% along with lowering the seller contributions from 6% to 3%. I think the seller contribution part is smart and I guess they have to increase the premiums to protect from future losses but it still doesn’t address lending with regards to debt to income ratios and reserves.
The articles also states “The FHA will keep minimum down payments at the current 3.5% level for most borrowers. But the agency will require riskier borrowers with credit scores below 580 to make a minimum 10% down payment. While the FHA doesn’t have a credit-score cutoff, most lenders require a minimum 620 score.” If you have below a 620 credit score you shouldn’t be able to buy a home unless you put at least 30% down. That is just stupid and what is even worse is the fact they FHA has been lending to borrowers with 580 and lower credit scores up until today with just 3.5%.
FHA Walks A Tightrope
The article states that tightening the credit standards could have a devastating affect on the economy. Well, I think it’s the exact opposite. If they don’t tighten the bar we will be in trouble. This is a marathon, not a sprint so let’s start using our heads. You are giving loans to people who have high debt to income ratios and no money leftover after closing.
FHA’s commissioner left something out of this statement. “David Stevens bought his first home almost 25 years ago, paying just 3% down with a loan backed by the Federal Housing Administration. “I had no money in the bank,” he says. “If it weren’t for the FHA, I wouldn’t have gotten that home.”
What did he leave out? Things are different now. We have automated underwriting systems that tell you whether to give someone a loan or not. Back then you had a human being who had to follow debt to income ratio standards that are not as loose as they are today. You had lay away 25 years ago. You didn’t leverage anything and everything.
HUD Suspends The 90 Flipping Rule Subject To Conditions
This is good news but make sure to read the conditions and click on the attachment.
HUD TAKES ACTION TO SPEED RESALE OF FORECLOSED PROPERTIES TO NEW OWNERS
Measure to help bring stability to home values and accelerate sale of vacant properties
In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan today announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration commitment to addressing foreclosure. Just yesterday, Secretary Donovan announced $2 billion in Neighborhood Stabilization Program grants to local communities and nonprofit housing developers to combat the effects of vacant and abandoned homes…
…The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:
- All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
- In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
- The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.
Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD’s website at: http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf
To read this press release in its entirety, please visit: http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-011
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Miller on Mortgages 