For the past three years borrowers have been told different things from their realtors  and lenders about how a short sale would affect their chances at obtaining a new loan in the future. I posted earlier on how FNMA treats a short sale starting in 2010 and in the new 2011 Underwriting Guidelines for FHA loans it has now been documented how they view a short sale. Below are the guidelines:

A borrower in not eligible for a new FHA -Insured mortgage if  s/he pursued a short sale agreement on his or her principal residence simply to

* take advantage of declining market conditions, and

* purchase at a reduced price a similar or superior property within a a resonable commuting distance.

Borrowers Current at time of Short Sale. – A borrower is considered eligible for a new FHA-insured mortgage  if, from the date of loan application for the new mortgage

* all mortgage payments due on the prior mortgage were made within the month due for the 12 month period preceding the short sale, and

* all installment debt payments for the same period were also made within the month due.

Borrowers in Default at time of Short Sale.-A borrower in default on his/her mortgage at the time of the short sale ( or pre -foreclosure) is not eligible for a new FHA-insured mortgage for THREE YEARS  from the date of the pre-foreclosure sale.  Note: A borrower who sold his or her property under FHA’s pre-foreclosure sale program in not eligible for a new FHA-insured mortgage from the date that FHA paid the claimassociated with the pre-foreclosure sale.

In recent months many of the large banks have reacted to their large losses by increasing the minimum standards, as measured by a borrowers mid-credit-score, for obtaining a mortgage. They have ‘drawn a line in the sand’, disallowing access to the essential FHA mortgage lending options available today,  for borrowers with credit scores  below 640.

Primary Residential Mortgage Inc. dba Magnifund Group, have created a product that erases that ‘line in the sand’ and will allow your borrowers to obtain an FHA loan with a minimum 500 FICO score.  Here are some of the requirements for that product:

•  The borrower’s must have a 500 FICO score. 
• Ficos between 500-579 require a 10% down payment
•  No cash out loans or streamlines. Purchase and rate and Term refinances only.
•  Minimum Loan amount $50,000 
•  Maximum loan amount is $417,000 or the conventional FHA loan limits for your county if lower.  
•  Approved FHA Direct Endorsement Underwriter – I have one in my office.
•  Collections allowed up to $5000 for Fico scores above 620.
• Collections are not allowed for Fico scores below 620. Exceptions for medical.
• 2 months reserves. If using retirement funds 6 months reserves required.
• No gift funds allowed with LTV’s above 85%.
•  12 months on the job instead of minimum 6 months.
•  29% Front End DTI ( Housing ) and 41% Back End ( Total Debt )- Currently  maximum with 640 Fico is 47% Front End DTI  and 57% Back End DTI.
•  Borrowers must have health insurance for all household members including kids.
•  No gift funds for loans above 85% Loan to Value.
•  12 month Verification of Rent or Mortgage.
•  Interest rates are about .25 higher than an FHA loan priced out with a 640 fico score.

Call me to get your client pre-approved today. I can have their application underwritten by my DE underwriter without a property in contract.

For the second time in 4 months, the FHA is changing the way it charges mortgage insurance. The change is forcing homeowners and home buyers using FHA financing to make a monetary decision — use the current system for FHA mortgage insurance, or to wait for the new one to take effect?

The answer roots in mathematics, but first, some FHA background.

How FHA-Insured Mortgages Work

Most people forget — the FHA is not in the business of making loans to homeowners. Rather, the FHA insure loans that lenders make to borrowers. The FHA puts out a set of guidelines says to banks that “so long as your borrowers meets these requirements, we will insure the loans you make to them.”

Now, banks don’t expect their FHA-backed loans to go bad, but when their loans default, the FHA steps in and makes payment on them similar to how any insurance-type company would operate.  And, to fund these claims, the FHA uses its insured borrowers’ own money.

Homeowners backed by the FHA pay into the FHA insurance fund in two ways:

1. With a one-time, upfront payment at closing called Upfront MIP
2. With an monthly, pro-rated annual payment called Annual MIP

Mortgage insurance premiums kick off a lot of money and the FHA has been self-funded for years without issue.  However, as FHA home loan defaults have climbed recently, so have insurance payouts to lenders.  It’s put a ginormous strain on the FHA’s solvency.

For example, in September 2008, the FHA held $19 billion in reserves. Today, In the FHA’s own words, the groups reserves are “perilously low”.

Summarizing The FHA Mortgage Insurance Changes

As a means to help refill its coffers, therefore, the FHA is changing its upfront and annual mortgage insurance premium structure.  It’s the second tweak of 2010 and the changes apply to FHA case numbers issued on or after October 4, 2010.

Under the updated mortgage insurance program, assuming a 30-year fixed rate FHA mortgage with at least 5 percent equity:

• Upfront MIP drops to 1.000% of the amount borrowed from 2.250%
• Annual MIP increases to 0.850% of the amount borrowed from 0.500%

For homeowners using an FHA-insured mortgage, the upfront cost of the loan will drop by a lot, but the long-term costs of the loan will grow.

Using a $200,000 mortgage as an example, upfront MIP falls to $3,000 from $7,750; monthly MIP jumps to $212.50 from $125.00.  The FHA expects the change to yield an additional $300 million in premiums monthly.

Work The Change In FHA Premiums To Your Advantage

Homeowners wanting an FHA-insured mortgage should remember the October 4, 2010 implementation date.

If your FHA case number is assigned on, or after, that date, you will get the 1 percent upfront cost + the 85 basis points each year thereafter. If it’s assigned prior to, you’ll get the 2.25 percent + 50 basis points.

Or, simplified:

• Current system : Big upfront costs, low long-term costs
• New system : Low upfront costs, big long-term costs

So which is best, then?  It depends on your timeline.

The mathematical break-even point on the current FHA system versus the new one is Month 43. If you know you’ll sell or refinance in fewer than 3 years, 7 months, you should wait to start your mortgage application until after the October 4th changeover.

On the other hand, if this is your “last home for life”, give that application as soon as possible!

Start Your FHA Home Loan Application Online

If you’re unsure of how FHA mortgage premiums work, or how the change will affect your payments, etc, just fill out an application on my home page. I answer all of my own emails and will get back to you quickly.

How many of you have past clients that have had a pre-foreclosure sale, short sale or deed-in-lieu of a foreclosure?

There was a big announcement from Fannie Mae today changing the waiting period after a “pre-foreclosure event”. This will go into effect in July. They are also changing the requirements for re-established credit after a significant derogatory credit event. Basically borrowers have only 2 years to wait instead of the usual 4-7 years previously required if they can put 20% down on a purchase. Hopefully you have a list of all your past clients that thought they would be renting for 4 years. Now is their chance to buy a house before the market comes back up. Below I have posted the full announcement from FannieMae.

Download the FannieMae announcement here: FannieMae Announcement SEL-2010-05

FHA SPOT CONDO APPROVALS ARE NO LONGER AVAILABLE FOR CASE #’S ASSIGNED ON OR AFTER 2/01/2010. SEE ATTACHED MORTGAGEEE LETTER

http://docs.google.com/viewer?a=v&q=cache:FceBAPzurksJ:www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-46aml.pdf+MORTGAGEE+LETTER+2009-46A&hl=en&gl=us&sig=AHIEtbQK6XKLL-B_5g8KbrabOOwIlcHYvw

[Update Nov 2009] Following Congress approval, President Obama has signed off on the bill approving an extension of the $8,000 new home buyer tax credit until April 30th 2010. Also, the new provisions in the extension are NOT retroactive. Here is a summary of the new and updated provisions and their impact on you if you have or will be purchasing a home in the future.

- Qualification Period : First-time home buyers who bought after January 1, 2009 and before April 1 2010 (with closing to take place before July 1), would get the $8,000 home buyer tax credit. For the purposes of claiming the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner. This is an update from the original November 30th 2009 deadline. If you and your spouse claim the credit on a joint return (both of you must meet the income and past ownership criteria to qualify), each spouse is treated as having been allowed half of the credit for purposes of repaying the credit. So the total amount claimable is still only $8000 (up to April 30th 2010).

- Income qualification limits: The home buyers’ credit would be available to individuals with a modified adjusted gross income (MAGI) of up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the original rules. The higher income limits are only for homes purchased after Nov. 6, 2009. That is, the existing MAGI phase-outs of $75,000 to $95,000 or $150,000 to $170,000 for joint filers still apply to purchases on or before Nov. 6, 2009. Those with incomes higher than the above limits do not qualify for any part of the tax credit.

- *NEW* Current Homeowners looking for a replacement primary residence could also qualify for a $6,500 (up to $3,250 for a married individual filing separately) under the new “long-time resident” provision. They must have lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased. This new provision also only applies to homes purchased after November 6^th, 2009.

- Claiming the new home buyer credit: For qualifying purchases, taxpayers have the option of claiming the credit on either their 2009 or 2010 return. A new version of Form 5405, First-Time Home buyer Credit, is available on the IRS website. Taxpayers claiming the credit on their 2009 returns, will not be able to file electronically but instead will need to file a paper return by using the new version of Form 5405. A taxpayer who purchased a home on or before Nov. 6 and chooses to claim the credit on an original or amended 2008 return may continue to use the current version of Form 5405.

If you are shopping for a home loan and you want to find a property that is USDA approved use the link below:

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

Many of the county’s loan limits have decreased; therefore, it is important to carefully check for VA loans that will be closing on or after January 1, 2010 to ensure the correct loan limit is being applied. 

 http://www.homeloans.va.gov/loan_limits.htm

The Department of Veterans Affairs Loan Guaranty program does not impose a maximum amount that a veteran may borrow; however, county limits must be used to calculate VA’s maximum guaranty amount for a particular county, thus limiting the maximum loan amounts that are acceptable in the secondary market. It is important to note that county limits were lowered in some markets due to the decline in house prices. 2010 limits apply to all loans closed on/after January 1, 2010.

Lots of stress over the new approval process for FHA financing for Condos.  To keep things simple, the deadline to use the old rules to buy a condo with FHA financing is 10/1/2009. Your FHA case number needs to be pulled before that date on the property you wish to purchase.

You should first find out if your condo project is FHA approved. If it’s approved you are good to go and dont need to worry about the new rules. If its not FHA approved the project needs to get approved by HUD.  To speed things up they are allowing lenders to get the project approved. At this momement I have not found a lender that acutally will do this. They are all telling me they will send in the file to HUD directly. These are major banks telling me this.  Or they are telling me they are just not sure ,and dont have anything in place to handle these approvals.  I did call Santa Ana HOC and they said they will be sending out a memo extending the deadline to 11/2. But this memo has not been sent out yet so the date before the new rules will take affect is still 10/1/2009. HUD is currently at 6-8 week turntimes to get a project approved and they expect longer turn times after 10/1 of course.  When I get any updates I will let you know.

 Thanks,