FHA Loans…No bubble burst with this good loan.

Jeff — Fri, 27 Jun 2008 16:33:36 +0000

During the past few days The Washington Post has run an interesting-series of front-page articles looking at the mortgage crisis.

This is great stuff but it never quite gets to an important point: There was no FHA mortgage meltdown.

Fewer FHA loans, yes — after all, how could the staid, old-fashioned FHA program compete with mortgages which required nothing down and little meaningful financial disclosure.

But an FHA meltdown? Didn’t happen.

By sticking to its standards, the FHA has been an oasis of financial sanity.

The reason we have so much financial chaos today is not because poor people needed loans and the mortgage community graciously created “affordability” products to boost homeownership, it’s because regulators failed to limit the widespread use of products which were both plainly defective and highly-profitable. The mortgages manufactured in the past few years were needed as feedstock to sell securities on Wall Street; they made possible tax-producing home purchases and they were at the core of vast lender and brokerage profits.

No one said anything because lousy financing was the golden goose of the mortgage world. But FHA mortgages were not so golden. They required appraisals, real money down and lot of documentation. In a financial environment that moved with electronic speed, FHA loans were as modern and progressive as manual typewriters. When looking to buy a HUD home or a Foreclosed home in Macomb county Michigan, you should highly consider this oldy but goody home loan program that I as a Mortgage Broker in Macomb County, Highly advise we look at.

Bush Administration trying to screw up FHA again!

Jeff — Tue, 10 Jun 2008 21:45:42 +0000

HUD Again Tries Stop Third-Party Down Payment Plans

Having been rebuffed repeatedly in court, HUD is at it again attempting to end third-party down-payment assistance programs for FHA mortgages.

In a typical arrangement, a seller makes a contribution to a charitable organization of up to 6 percent of the sale price. The charity then provides a grant for the same amount to the buyer. The charity typically gets a processing fee for such work, say $500.

HUD’s strong distaste for third-party programs in strange in the sense that HUD wants FHA modernization, and some forms of FHA modernization would allow buyers to purchase with zero to 1.5 percent down.

Third parties would not be necessary if buyers could purchase with nothing down, but is that really such a good idea given the risk to HUD and the lack of buyer equity? If borrowers who get funding through third parties are a big risk, why are borrowers who get the same essential deal from HUD less risky?

The HUD release is below:

WASHINGTON - The Bush Administration today renewed its efforts to address risky government-backed seller-funded downpayment assistance loans that are significantly more likely to lead to foreclosure. HUD’s Federal Housing Administration (FHA) will reopen the public comment period on a proposed rule that would ban seller-funded downpayment assistance on mortgage transactions insured by the FHA. The proposed rule will be re-published in the Federal Register and comments will be accepted for 60 days following publication. The rule can also be viewed on FHA’s website.

In a speech to the National Press Club, HUD’s Assistant Secretary for Housing-Federal Housing Commissioner Brian D. Montgomery warned FHA must take action because these loans, which now make up one third of FHA’s portfolio, are causing substantial losses. This year, as a result of its annual re-estimate, FHA had to book an additional of $4.6 billion in unanticipated long-term losses, mostly due to the increased number of certain types of seller-funded loans in the FHA portfolio.

“Given these concerns, we cannot just stand by. No private mortgage insurance companies back these types of loans. We are concerned about this business because the substantial losses affect FHA’s bottom line and FHA’s ability to serve American citizens who need access to prime-rate home loans,” Montgomery stressed.

Stressing that FHA is still solvent with reserves of about $21 billion, Montgomery also noted: “However, no insurance company can sustain that amount of additional costs year after year and still survive. Unless we take action to mitigate these losses, FHA will soon either have to shut down or rely on appropriations to operate. That, I think, would have a far-reaching impact on the economy: it would severely reduce the number of new homeowners each year; and it would also sharply reduce the need for the services required to build and maintain homes. In other words, the negative impact goes far beyond the individuals who would not be able to purchase homes, and would likely be felt across the entire economy.”

The primary focus of HUD’s rule is to establish appropriate standards for downpayment assistance that is categorized as a gift. Specifically, it would prohibit downpayment assistance provided before, during, or after closing of the sale by the seller, any other person or entity that financially benefits from the transaction, or any third party or entity that is reimbursed directly or indirectly by any of the parties benefiting from the sale.

The rule would clarify that downpayment funds for FHA-insured mortgages cannot be derived from sellers - directly or indirectly - or any other party that stands to benefit from the transaction financially. “The IRS, GAO and our own Inspector General have previously expressed concerns with these circular financing schemes. Data clearly demonstrates that FHA loans made to borrowers relying on seller-funded downpayment assistance go to foreclosure at three times the rate of loans made to borrowers who make their own downpayments,” noted Montgomery.

“In its entire 74-year history, FHA has been self-sustaining. That means that our income has exceeded our costs and we have not needed an appropriation of taxpayer dollars to cover FHA’s operations. That’s pretty unique for a federal program,” Montgomery said.

Permissible sources of gifts as a source of the homebuyer’s investment include a family member, a governmental or public agency, the borrower’s employer or labor union, and a charitable organization that qualifies as a tax-exempt charitable or educational organization.

In these cases, there is a clear quid pro quo between the homebuyer’s purchase of the property and the seller’s “contribution” or payment to the charitable organization. Often, these contributions function as an inducement to purchase the home. One of FHA’s primary concerns with these transactions is that the sales price may be increased to ensure that the seller’s net proceeds are not diminished, and such increase in sales price is often to the detriment of the borrower and FHA.

Discussing the Bush Administration’s effort to help families stay in their homes, Montgomery also called on Congress to pass legislation that modernizes FHA, which includes addressing the risks associated with seller-funded downpayment assistance. “Frankly, we need reasonable solutions to the housing crisis. And I think there is considerable common ground on confronting it. There is surely a consensus on a number of actions. But some in Congress are advancing legislation that, while well intentioned, could be problematic for the economy and the country. Some of the proposed Congressional actions could actually weaken FHA and endanger the housing market by turning FHA into a less stable, less solvent, more bureaucratic entity,” stressed Montgomery.

Clearly, this matter remains an area of significant concern for FHA, and HUD looks forward to receiving and reviewing public comments on the proposed rule. Commissioner Montgomery’s full remarks can be found on HUD’s website.

How to own a home with Insufficient credit history

Jeff — Tue, 13 May 2008 14:05:25 +0000

Can you buy a home without having any “Debth” of credit? Yes! if you can build a non-traditional credit history…….What do you do with a mortgage applicant who pays cash for everything? You might rejoice that somebody, somewhere is not addicted to credit cards, however for such an individual to qualify for a mortgage is a problem. Why? They suffer from the anguish of a “Thin File” credit report, a report with so few items that it’s difficult to tell if the borrower is credit worthy.

For a long time HUD and private-sector lenders have allowed what is called non-traditional credit verification and evaluation. The idea is to make FHA mortgages available to borrowers who have little to show on credit reports.

The value of such underwriting is especially important for immigrants, many of whom refuse to do business with banks. The reason? Banks back home were not to be trusted.

So how do you tell if someone has good credit even if they have too little information for a credit report? You take a look at such things as rental payments, utility bills, insurance coverage, etc.

This is a good example of opening to the FHA mortgage program to all who qualify even if qualifying is not quite in the traditional mode.

HUD’s complete mortgage letter explains it below. Call me direct with how we can get you looking to buy a new home in Macomb County, Wayne County, Oakland County or St Clair County today even if you have not established a full credit history.

MORTGAGEE LETTER 2008-11 , April 29, 2008

New Law to help you Refinance…

Jeff — Wed, 07 May 2008 16:12:45 +0000

Even if you have been told you owe more then your home is worth, and therefore you can’t refinance, if the FHA Reform takes place as detailed below, We may be able to save hundreds if not thousands of Macomb County, St Clair County, and Oakland County homeowners save their house from skyrocketing payments, and ultimately foreclosure.

Frank Bill Largely The Same After Hearing

This is the week that FHA reform is going to be debated in the House.

What will be discussed is the $300 billion legislation proposed by Rep. Barney Frank (D-MA), chairman of the House Financial Services Committee. In essence, for the first time there will be a realistic alternative to the voluntary measures proposed to date by the Bush Administration, alternatives which have done virtually nothing to stem the foreclosure crisis.

It is expected that the Frank bill will be largely supported by Democrats, but look for Republican support as well. Why? How can you possibly be a Republican from Michican, Ohio, Indiana, Nevada, California, Texas or Florida and not support foreclosure relief? Such opposition would be a likely path to electorial disaster next November.

Below is the official summary of HR 5830 as revised. It came through Committee process largely unchanged from the original proposal, however it would be surprising if changes were not made by admendment or in a conference committee back room.

FHA Housing Stabilization and Homeownership Retention Act

Summary of H.R. 5830 (May 1, 2008)

Summary of the Expanded FHA Refinance Program. This voluntary program would permit FHA to provide up to $300 billion in new guarantees to help refinance at-risk borrowers into viable mortgages. This $300 billion is the total amount of outstanding loans that may be insured under the program. The government would only have liability if a borrower defaults and the amount recovered in foreclosure is below the outstanding principal.

In exchange for the acceptance of a substantial write-down of principal, the existing lender or mortgage holder who chooses to participate would receive a “short payment” (i.e. a payment for less than the outstanding balance as payment in full) from the proceeds of a new FHA-guaranteed loan if the new loan would have terms that the borrower can reasonably be expected to pay and the borrower agrees to share future home appreciation with the government. In short, the program would provide refinancing assistance to allow families to stay in their homes, protect neighborhoods and help stabilize the housing market.

Under the program, a borrower or existing loan servicer of an eligible loan would contact an FHA-approved lender, who would determine the size of a loan that would be consistent with the requirements of the program and that the borrower could reasonably repay. If the current lender or mortgage holder agrees to a write-down that is sufficient to meet the requirements of the program and make the new loan affordable, the FHA-lender will pay off the discounted existing mortgage.

In addition to a first lien, the government will retain a share of future home-price appreciation to help defray the government’s costs and prevent unjust enrichment (e.g., borrower flipping). When the borrower sells the home or refinances the loan, the borrower will pay from any profits the higher of (1) an ongoing exit fee equal to 3 percent of the original FHA loan balance; or (2) a declining percentage of any net proceeds attributable to home appreciation (i.e., from 100 percent in year one to 50 percent in year four and thereafter minus the fees the borrower has paid into FHA).

Eligibility Requirements for Existing Loans (Requires All of the Following):

___Owner-occupied principal residences only (no investors, speculators or second homes), and borrowers must certify that they do not own any other homes;

___Existing senior loan being refinanced must have been originated on or before December 31, 2007;

___To remove any incentive for borrowers to “purposely default,” the borrower must have had a mortgage debt-to-income ratio of no less than 35 percent as of March 1, 2008, and must certify that he/she has not intentionally defaulted on existing mortgage(s) and did not obtain the existing loan fraudulently;

___Participating mortgage holders/investors must waive any penalties or fees on the existing mortgage and must accept proceeds of the new loan as payment in full; and

___Existing mortgage holders/investors must accept their losses – taking substantial write-downs sufficient to: (1) establish a 3 percent loan loss reserve for the FHA; (2) pay the origination and closing costs for the new loan up to 2 percent; and (3) bring the loan-to-value ratio on the new FHA-guaranteed loan down to no greater than 90 percent of property’s current appraised value, resulting in a substantial reduction in debt service to the borrower. Accordingly, to qualify mortgage holders would need to accept a substantial write-down, accepting as payment in full no more than 85 percent of the property’s current appraised value.

Requirements for New FHA-Insured Loans:

___New FHA loans must be properly underwritten and must be based on current appraised value of the house and borrower’s documented income (borrowers with higher – but not disqualifying – debt levels would need to make six months of timely payments at the new payment level to qualify for the guarantee);

___New FHA loan must extinguish all existing liens and substantially reduce the borrower’s mortgage debt service;

___New FHA loans under this program must be within the FHA loan limits now in effect under the stimulus for the duration of this program;

___Oversight Board will set reasonable limits on loan fees and interest rates; and

___To reduce costs to the government – and avoid inappropriate enrichment to the borrower – the government will retain a share of the borrower’s future profits. When the borrower sells the home or refinances the loan, the borrower will pay from any profits the higher of (1) an ongoing exit fee equal to 3 percent of the original FHA loan balance; or (2) a declining percentage of any net proceeds attributable to home appreciation (i.e., from 100 percent in year one to 50 percent in year four and thereafter minus the fees the borrower has paid into FHA).

Oversight Board.

The program will be overseen by a “Refinance Program Oversight Board” consisting of the Secretary of Treasury, the Secretary of HUD, and Chairman of the Federal Reserve.

Coordination of Existing Lien-Holders.

The Oversight Board will be authorized to take action to facilitate coordination among different existing lien-holders; and shall be empowered to establish a formula for compensating and a mechanism for obtaining the voluntary waiver of all lien holders.

Separate FHA Fund.

To protect the FHA Mutual Mortgage Insurance Fund, these new loans will exist in a separate fund in FHA — and will be permitted to be resold through GNMA.

Improving FHA Capacity.

The Oversight Board will take actions as necessary to increase FHA’s capacity, including:

___Treasury, Federal Reserve and HUD may sharing employees to improve FHA capacity;

___Contracting for the establishment of underwriting criteria, pricing standards, and other factors relating to eligibility;

___Contracting for independent quality reviews of the underwriting of these mortgages; and

___Increasing HUD personnel.

Auction or Bulk Refinance Study.

The Federal Reserve Board will be required to conduct a study of the need for, and efficacy of, an auction or bulk refinancing mechanism and submit a report to Congress within 60 days of enactment.

Increased Fraud Prevention/Oversight.

___Independent quality reviews will be established to determine underwriter compliance, and rates of delinquency, claims and losses;

___Monthly reports will be submitted to Congress; and

___Annual audit of the program will be conducted.

Sunset. The program will run for 2 years (with flexibility for additional 6 month extensions not to exceed 2 more years).

Authorization for Foreclosure Counseling & Legal Aid. The bill would authorize $210 million dollars for foreclosure counseling, including to veterans recently returning from active duty in the armed forces, with at least $30 million targeted to low-income and minority homeowners and $35 million to assist with legal aid.

Office of Housing Counseling. Establishes within HUD an Office of Housing Counseling that will conduct activities relating to homeownership and rental housing counseling.

___Requires HUD to provide for the certification of various computer software programs for consumers to use in evaluating different residential mortgage loan proposals.

___Authorizes appropriation not to exceed $3 million for national public service multimedia campaigns for homeownership counseling services for fiscal years 2008, 2009, and 2010.

___Requires HUD to provide financial and technical assistance to States, local governments, and nonprofit organization regarding the establishment and operation of related educational programs, and authorizes appropriation of $45 million for each of fiscal years 2008 through 2011.

___Directs HUD to study and report to Congress on the root causes of the default and foreclosure of home loans.

Mortgage Fraud.

Authorizes appropriations of $31,250,000 to hire additional FBI agents and Department of Justice prosecutors to combat mortgage fraud, and $750,000 to support FBI interagency task forces in the areas with the 15 highest concentrations of mortgage fraud.

VA Loans.

Increases conforming loan limits for VA loans.

Appraisals.

Requires enhanced appraisal standards and appraiser independence.

How not to shop rates

Jeff — Thu, 01 May 2008 12:38:21 +0000

If your in the market to buy a new home in Macomb County then I would love to help you with your mortage needs. My buyers have been having great experiences with the FHA home loan grant program that is still getting first time buyers into a new home with less money out of pocket then a new apartment would cost them. I also have been having great success with the USDA rural home loan program. This product works in northern Macoumb county as well as most all of St. Clair County.

But…when your strating the process and you want to “Shop around for the best rate” you really need to read my free report on how to shop the correct way. As you know there are dishonest mortgage people out in the world and many of them will decieve you over the phone and then pull the bait and switch on you once your in the office.

You’ll never have that issue from me as I have a ”Triple Play” of Guarantees to ensure your getting and extremely competitive rate as well as cost structure to your new home loan. Please email me today to get the full details. jeff@landlordbusters.com

Have a great day.

New changes to FHASecure…is it real??

Jeff — Thu, 10 Apr 2008 12:24:55 +0000

HUD has released the announcement below, which suggests a loosening of the credit standards for the FHASecure program.

Or does it?

It says “borrowers with adjustable rate mortgages who were late on two consecutive monthly mortgage payments or at two different times over the previous twelve months. FHA will require a 97 percent loan-to-value (LTV) ratio for these borrowers to refinance, the same LTV as FHA’s current standard.”

And, “borrowers with adjustable rate mortgages who were late on three consecutive monthly mortgage payments or at three different times over the past 12 months. FHA will require a 90 percent LTV ratio for these borrowers to refinance.”

In other words, two late payments and you can qualify for 3 percent down, three late payments and you need 10 percent down.

Many borrowers with toxic loans don’t have three percent equity much less 10 percent. To resolve this problem, HUD says that “lenders may voluntarily write down the outstanding subprime mortgage principal balances to a 97 percent or 90 percent LTV ratio depending on the borrowers’ circumstances.”

In other words, if a lender will graciously agree to eat a loss HUD will step in with a new mortgage.

Does this make sense?

First, the HUD announcement refers to “subprime” mortgages and not all borrowers. Does this mean the program is restricted to subprime borrowers? Surely it is clear by now that borrowers with a range of credit profiles are in trouble and that a foreclosed home lowers local values whether or not a subprime loan was involved.

Second, even if a lender is willing to take a loss and kiss-off part of a loan, it does not mean the value of the property changed. In other words, if Smith has a 100-percent loan on a $300,000 home and lender Jones gives up 5 percent, the remaining loan balance is $285,000. If the value of the property has dropped to $280,000 then the borrower still lacks the equity needed to make FHA refinancing work.

Third, what about other credit issues? HUD says the original FHASecure plan was made available to “creditworthy homeowners.” But, obviously, people who are not making mortgage payments may also be drowning with other bills. If HUD continues to insist on “creditworthy homeowners” with several missed mortgage payments and equity, then few borrowers will qualify under the new standards.

Lastly, of course, we have the usual claim of assistance to vast numbers of borrowers — 500,000 is the latest target number. To date such claims — despite constant repetition — have proven false. Delinquent conventional borrowers who meet FHASecure standards are a rare and vanishing species.

Fourth, notice that HUD is talking about risk-based insurance premiums. Do you think that borrowers with missed mortgage bills will have great credit and get a break on their mortgage insurance premiums?

The release from HUD is below:

BUSH ADMINISTRATION TO EXPAND MORTGAGE HELP FOR STRUGGLING FAMILIES
Expanded FHASecure able to help half a million homeowners stay in their homes by cutting mortgage payments.

WASHINGTON - The Bush Administration today announced additional mortgage assistance for subprime borrowers who are at risk of foreclosure. The plan, which is designed to help address the adverse economic conditions affecting many communities across America, will help break the cycle of house price depreciation that is being caused by an increasing number of foreclosures and the overall contraction in the credit market. Under the new plan, HUD’s Federal Housing Administration (FHA) would have the added flexibility to insure more mortgages, including those for borrowers who were late on a few payments and/or received a voluntary mortgage principal write-down from their lender.

This FHASecure expansion will help more homeowners who are struggling to keep up with mortgage payments on their high-cost subprime loans. With this expansion of FHASecure, the Administration expects about 500,000 families to refinance into prime-rate FHA-insured mortgages in total by the end of this year.

“Our plan will help hundreds of thousands of desperate families who have no place else to turn for safer, lower cost ways to keep their homes,” said Federal Housing Commissioner-Assistant Secretary for Housing Brian D. Montgomery at a hearing of the House Financial Services Committee. “We want to be able to help families who are in the right house, but the wrong mortgage.”

In August 2007, FHA modified its refinancing program to help creditworthy homeowners who missed payments after their teaser rates reset. Now, FHASecure is expanding its eligibility standards. Homeowners who believe they meet this additional eligibility criteria must fall into one of the following categories:

1. Borrowers with adjustable rate mortgages who were late on two consecutive monthly mortgage payments or at two different times over the previous twelve months. FHA will require a 97 percent loan-to-value (LTV) ratio for these borrowers to refinance, the same LTV as FHA’s current standard.

2. Borrowers with adjustable rate mortgages who were late on three consecutive monthly mortgage payments or at three different times over the past 12 months. FHA will require a 90 percent LTV ratio for these borrowers to refinance.

With these new criteria, the expanded FHASecure can help additional borrowers access a more viable refinancing option and will offer lenders an alternative to foreclosing on these individuals. Lenders may voluntarily write down the outstanding subprime mortgage principal balances to a 97 percent or 90 percent LTV ratio depending on the borrowers’ circumstances. FHA will also encourage lenders to make other arrangements, such as subordinate financing, to “fill the gap” between the existing loan balances and the FHA-insurable loan amount. The refinanced loan amount backed by the FHA would be based upon a new appraisal, performed by an FHA-approved appraiser.

FHA will insure new, more affordable mortgages in exchange for this equity cushion, which will protect FHA’s insurance fund, and thus the taxpayer, against risk. Currently, FHA’s insurance fund is self-sustaining, meaning that it requires no appropriation of taxpayer dollars because homeowners pay for the product themselves. Further, any new FHASecure loans will continue to meet FHA’s no-nonsense underwriting standards. Lenders will be required to ensure borrowers have the capacity to repay their mortgages; show a reasonable credit history; employment history; and fully document and verify their incomes.

Like all FHA-insured loans, borrowers will be required to pay upfront and annual premiums on their loans, which directly contribute to the soundness of FHA’s insurance fund and protect taxpayers. FHA will also be simultaneously updating the pricing policy for these premiums. The new policy will base premiums on the individual borrower’s credit risk profile. More than 90 percent of FHA-backed loans are 30-year fixed rate mortgages. Homeowners currently using FHASecure are saving $400 a month on average compared to their previous subprime loans.

“More homeowners continue to turn to FHA to find mortgage terms they can afford. We’re keeping families in their homes while doing what’s in the best interest of future generations who will rely on the safety and soundness of FHA to put a roof over their heads. The modifications to the existing FHASecure product offer a prudent, yet appropriate, way to help more families refinance without putting the government or taxpayers at risk. Consistent with FHA’s historical mission, the changes are designed to help FHA provide additional liquidity and stabilize local real estate markets.”

Since September 2007, FHA has helped pump nearly $68 billion of much-needed mortgage activity into the housing market, $28.5 billion of which was through FHASecure. FHASecure has helped more than 150,000 homeowners who are current or past due on their loans avoid foreclosure, and, with today’s announcement, it is expected to assist 500,000 total families by December 31, 2008.

FHA to the refinance rescue??

Jeff — Mon, 17 Mar 2008 02:30:00 +0000

Rep. Barney Frank Proposes Major FHA Changes

Rep. Barney Frank (D-MA), chairman of the House Financial Services Committee, is now circulating a proposal entitled the “FHA Housing Stabilization & Homeownership Retention Act.” While just a discussion draft at this stage, the proposal would significantly modify the FHA mortgage program. In particular, the proposal would allow HUD to refinance “at-risk” borrowers, essentially delinquent conventional homeowners who are now facing or are likely to face foreclosure in the near future.

The entire proposal is below:

I. Expanded FHA-Refinance for Individual Borrowers

Summary. Program would permit FHA to provide [up to $300 billion] in new guarantees that would help to refinance at-risk borrowers into viable mortgages. In exchange for the acceptance of a substantial write-down of principal, the existing lender or mortgage holder would receive a short payment from the proceeds of a new FHA loan if the restructured loan would result in terms that the borrower can reasonably be expected to pay. The existing lender or mortgage holder will have a cash payment and no further credit exposure to the borrower. This could potentially refinance between 1 and 2 million loans (and help these families stay in their homes), protect neighborhoods and help stabilize the housing market.

In addition to a first lien, the program gives the government a soft second lien to help defer the government’s costs and prevent unjust enrichment (e.g., borrower flipping). When the borrower sells the home or refinances the loan, the borrower will pay from any profits the higher of (1) an ongoing exit fee equal to 3 percent of the original FHA loan balance; or (2) a declining percentage of any profits (e.g., from 100 percent in year one to 20 percent in year five and 0 thereafter). After year five only the 3 percent exit fee will apply.

Eligibility Requirements for Existing Loans (Requires All of the Following):

___ Owner-occupied principal residences only (no investors, speculators or second homes);

___ [Existing senior loan being refinanced must have been originated between January 1, 2005 and July 1, 2007];

___ To remove any incentive for borrowers to “purposely default,” the borrower must have had a mortgage debt-to-income ratio of no less that 40 percent as of March 1, 2008, and must certify that he/she has not intentionally defaulted on existing mortgage(s). Regulators can make exceptions for involuntary changes after that date;

___ Participating mortgage holders/investors must waive any penalties or fees on the existing mortgage and must accept proceeds of the new loan as payment in full;

___ Existing mortgage holders/investors must accept their losses – taking substantial write-down sufficient to establish a 5 percent loan loss reserve for the FHA, bring the loan-to-value ratio on the new FHA-loan down to no greater than 90 percent of property’s current appraised value, result in a meaningful reduction in mortgage debt service by the borrower, and to pay all up-front fees for the new loan. Accordingly, to qualify, mortgage holders would need to accept a substantial write-down, receiving no more than 85 percent of the property’s current appraised value as payment in full for the existing loans.

Requirements for New FHA-Insured Loans:

___ New FHA loans must be properly underwritten and must be based on current appraised value of the house and borrower’s documented income (borrowers with higher (but not disqualifying) debt levels would need to make six months of timely payments at the new FHA payment level to qualify for the guarantee);

___ New FHA loan must extinguish all existing liens and meaningfully reduce the borrower’s mortgage debt service;

___ New FHA loan must be within applicable FHA loan limits;

___ HUD will set reasonable limits on loan fees and interest rates; and

To reduce costs to the government – and avoid inappropriate enrichment to the borrower – the government will retain a second lien on the property. When the borrower sells the home or refinances the loan, the borrower will pay from any profits the higher of (1) an ongoing exit fee equal to 3 percent of the original FHA loan balance; or (2) a declining percentage of any profits (e.g., from 100 percent in year one to 20 percent in year five and 0 thereafter). After year five only the 3 percent exit fee will apply.

Coordination of Existing Lien-Holders. The Secretary of HUD will be authorized to take action to facilitate coordination among different existing lien-holders.

Separate FHA Fund. To protect the FHA Mutual Mortgage Insurance Fund, these new loans will exist in a separate fund in FHA – and will be permitted to be resold (together or separately) through GNMA.

Improving FHA Capacity. The FHA shall take actions as necessary to increase its capacity, including:

___ Contracting for the establishment of underwriting criteria, pricing standards, and other factors relating to eligibility;

___ Contracting for independent quality reviews of the underwriting of these mortgages; and

___ Increasing personnel.

Of course this is could be a huge help to our troubled Michigan real estate market, so keep your fingers crossed or better yet call or email your congressman.

Repair Money for your new Home!

Jeff — Fri, 07 Mar 2008 16:18:55 +0000

If you are buying a home here in our Macomb County marketplace and your considering a house that needs to have some rehabilitation done. The product is called a FHA Streamline 203k loan……check out some of the things you can do with this great home loan.

What eligible improvements are acceptable under the $5,000 minimum requirement?

A. Structural alterations and reconstruction (e.g., repair or replacement of structural damage, chimney repair, additions to the structure, installation of an additional bath(s), skylights, finished attics and/or basements, repair of termite damage and the treatment against termites or other insect infestation, etc.).

B. Changes for improved functions and modernization (e.g., remodeled bathrooms and kitchens, including permanently installed appliances, i.e., built-in range and/or oven, range hood, microwave, dishwasher).

C. Elimination of health and safety hazards (including the resolution of defective paint surfaces or lead-based paint problems on homes built prior to 1978).

D. Changes for aesthetic appeal and elimination of obsolescence (e.g., new exterior siding, adding a second story to the home, covered porch, stair railings, attached carport).

E. Reconditioning or replacement of plumbing (including connecting to public water and/or sewer system), heating, air conditioning and electrical systems. Installation of new plumbing fixtures is acceptable, including interior whirlpool bathtubs.

F Installation of well and/or septic system. The well or septic system must be installed or repaired prior to beginning any other repairs to the property. A property less than 1/2 acre with a separate well or septic system is not acceptable; also, a property less than 1 acre with both a well and a septic system is unacceptable. Lots smaller than these sizes, usually have problems in the future; however, the local HUD Field Office can approve smaller lot size requirements where the local health authority can justify smaller lots. The installation of a new well or the repair of an existing well (used for the primary water source to the property) can be allowed provided there is adequate documentation to show there is reason to believe the well will produce a sufficient amount of potable water for the occupants. (A well log of surrounding properties from the local health authority is acceptable documentation.) Refer to HUD Handbook 4910.1, Appendix K, for additional information.

G. Roofing, gutters and downspouts.

H. Flooring, tiling and carpeting.

I. Energy conservation improvements (e.g., new double pane windows, steel insulated exterior doors, insulation, solar domestic hot water systems, caulking and weather stripping, etc.).

J. Major landscape work and site improvement (e.g., patios, decks and terraces that improve the value of the property equal to the dollar amount spent on the improvements or required to preserve the property from erosion). The correction of grading and drainage problems is also acceptable. Tree removal is acceptable if the tree is a safety hazard to the property. Repair of existing walks and driveway is acceptable if it may affect the safety of the property. (Fencing, new walks and driveways, and general landscape work (i.e., trees, shrubs, seeding or sodding) cannot be in the first $5000 requirement.)

K. Improvements for accessibility to a disabled person (e.g., remodeling kitchens and baths for wheelchair access, lowering kitchen cabinets, installing wider doors and exterior ramps, etc.). Related fixtures such as new cooking ranges, refrigerators, and other appurtenances, as well as general painting are also eligible; however, it must be in addition to the $5,000 requirement.

$100 Down Payment on HUD Homes

Jeff — Thu, 06 Mar 2008 02:19:12 +0000

Wonderful news was announced with HUD homes for sale
and FHA financing in Michigan.

I’ve spent some time on getting the details on this new program rolled out by HUD.

In Michigan you can purchase a HUD home for $100 down
and if you are using an FHA mortgage HUD will also gift you with $2500
that you may use towards your closing costs or to pay for repairs.

One area that I spent some time on was getting clarification
from FHA on whether this $2500 is above and beyond the 3% in
sellers concessions that HUD currently allows to be paid on a buyers
behalf if so requested. After many hours spent talking with the HUD
marketing team for our state, with FHA, and with underwriting supervisors
it was revealed that both sellers concessions from HUD and the “incentive”
of $2500 could be used on the buyers behalf.

HUD still hasn’t waived it’s minimum good faith deposit of $1000 for an
offer to purchase, but that initial $1000 may be all most buyers need out
of pocket to purchase a home once the FHA incentive and HUD sellers
concessions are used.

If you are going to take advantage of this program be sure that
your real estate agent and your mortgage lender know how to draw up
the contract so that both the gift from HUD and the sellers concessions are
applied in your purchase agreement.

Please feel free to contact me with any questions you may have about this wonderful home buyers program and to see if
it fits your current home buying needs. I would also be happy to refer you to one of my real estate agent partners who knows how to find many HUD homes currently on the market for sale.

Good Old Sears…

Jeff — Thu, 06 Mar 2008 01:51:53 +0000

The Way It Used To Be

The New York Times had a nice article over the weekend regarding Sears kit homes. These were houses you could buy from a catalog. You’d place your order and then a kit would show up ready for assembly. Between 1908 and 1940, says the article, more than 100,000 kit homes were sold.

The part in the article that jumped out, however, had very little to do with wooden parts or windows. The paper interviewed Amy R. Pappas, co-curator of the New Castle Historical Society, and here’s what was reported:

“In the 1930s, during the Depression, the housing market took a sharp downturn, and by 1940, Sears stopped selling kit homes, as many people had lost their jobs and defaulted on their loans. In 1934, Sears liquidated more than $11 million in mortgages and stopped financing kit purchases.

“’Because Sears did not want to be known as a heartless corporation that took people’s homes from them,’” said Ms. Pappas, the curator in New Castle, “’it absorbed most of the losses.’”

Imagine that! A lender that absorbed losses rather than ruin its reputation — even though the lender was not the source of bad loans, bizarre terms or toxic clauses.

Whatever happened to such lenders?