Blog of the Mortgage

Blown Mortgage Post:

August 27th, 2008 9:20 PM

Thank you to Morgan Brown of Blown Mortgage for giving me the space to present something to his readership:

http://blownmortgage.com/2008/08/26/why-fha-could-be-the-loan-to-help-you-this-year/

Enjoy!

My Family and I appreciate all of the support this year.

Posted by Raoul Badde on August 27th, 2008 9:20 PMPost a Comment (0)

How to Handle DPA Options After September 30th

August 25th, 2008 10:22 AM

The disappearance of DPA is going to effect our business yet again in 2008. Don't you just LOVE Congressional action?

We have about 4+ more weeks of this product being allowed and we'll be funding it for only 4+ more weeks.

The Question is: what are you going to do to prepare yourself for its removal?

Your borrowers are going to need to come up with the 3% (Soon to be 3.5% in as of January 1st) in some form or another.

I'm going to spell out some borrower options that will help to soften the blow in many instances.

1. Down Payment can still be a gift (every penny)

2. Gifts may come from: Relative (Mom, Dad, Sister, Brother etc.)

a. Non-Purchasing Spouse

b. Union

c. Employer

d. Non-Profit Organization (like a church)

e. A Close friend with familial ties to the borrower

f. City/State funded 2nd mortgage program

3. Gifts that are wired into Escrow don't need to be sourced or seasoned.

4. Gifts that are made by check deposit into Escrow must also show the source from where the came and that the funds were available (but not seasoned)

5. Gifts can come from Credit Cards (see #4)

6. Any funds that are deposited in the borrowers account must only be seasoned for 30 days. ie. if your borrower has a bank statement with a 30 day window showing a beginning and ending balance and there are no "unusual" deposits made during that time we may never know of the "gift" activity.

7. Funds deposited inside of 30 days into the borrower's account must otherwise be both sourced to show that funds were available for gifting. They do not need to be seasoned.

8. Borrower's can raid their 401k's/IRA's and other tax sheltered investment vehicles for up to $10k or more depending on the account - 401k loans do not count against our borrower for DTI Calulcations

9. Your borrower's may be eligible to obtain additional assistance through their local city or county programs. The following links provide information to some of these available programs. HUD Programs by County - CA , HUD Programs by City - CA

10. There are also 2nd Mortgage's provided by some cities, counties and CALHFA as well which would possibly alleviate the down payment stress.

So, let's educate our borrowers out shopping and our Realtor's on what is next on the horizon for us and the blow will likely be softened significantly.

Posted by Raoul Badde on August 25th, 2008 10:22 AMPost a Comment (0)

Hope for HomeOwnership

August 19th, 2008 8:52 PM

Now onto the Hope for Home Ownership Bill: One blogger eloquently(?) called this bill the HO-HO bill. I guess you can get that with your Twinkie Tax break?? It was funny because the way that this provision of HR3221 was written is fairly laughable. I have attached a copy of the complete Analysis in this link.
To be clear:
Franklin American WILL NOT BE PARTICIPATING in this program.
It's too risky a product for a banker like us to play with and their are even issues within the Bill that don't create near the amount of Guarantee a traditional FHA loan would.
Now, you're asking, is this something I'll be able to provide my clients with for Origination purposes? Sure, likely through a Flagstar, Wells or similar type of bank. The question you have to ask yourself is:
IS a good loan to pursue and should you to try and write some of this business?
Question 1. Is it a good loan? Sure, if the borrower can still afford the drastically reduced balance at the new interest rates and monthly MI Rate (1.50% annualized!!).
Question 2. Do you try to attract this business for origination purposes?
-Short Answer: NO
-Long Answer: Double NO
Here's why:
Can't have a second note after closing
must have 90% of the new value based on appraisal ordered by you for the new transaction
Must qualify based on traditional FHA Guidelines (31/43-mostly)
a Few other highlights:

Participation by the lender and the homeowner is voluntary.
Borrower (as of March 1, 2008) has total housing expense ratio greater than 31% and possibly higher at the Board's discretion.
Borrower certifies they have not defaulted "intentionally" and has provided accurate income/expense information.
Borrower must have reasonable ability to make mortgage payments using criteria established by the Board.
Lender must document borrower's income via two most recent tax returns.
Lender must do criminal background check on borrower (no mortgage-related fraud last 10 yrs).
Equity is shared in a sliding scale formula w/ HUD keeping 100% if home is sold or refinanced in first year. Over next five years, HUD's share declines 10% each year and levels off at 50% for the life of the loan.

Sound complicated? You bet it is! Remember when FHA Secure came out. Everyone thought, awesome! a program for the benefit of defaulting borrowers. And then you read the details. Myriad is putting it kindly.
This program is ultimately going to be most efficiently handled through the in-house customer retention division of the servicers of these existing notes.
As Brokers our access to this program will be extremely limited and it will take countless hours to negotiate, in the name of our borrowers, a better position for them financially.
Is the $300BB if our Tax Dollars actually going to be used up in the 2.25-3 years that it's available? Maybe. It depends on how many people that purchased/refinanced homes with Stated Income loans and 1-2% min pay Option arms are going to be able to call their existing lien holder and actually obtain the newly renegotiated lower balance. My guess is for the next 12-18 months very few. Then as criticism over the effectiveness of the program grows many will suddenly belly up but likely it will be an effort of too little too late.

Posted by Raoul Badde on August 19th, 2008 8:52 PMPost a Comment (0)

Amendatory Clause Importance

August 17th, 2008 7:54 PM

My son is 20.75 months old.. yes..almost Drinking age. I know.
He's been using Dad-da to identify basically all adults in a room for at least a year now. You probably remember this time, it was really cute at first when your little one did it but then when they start arbitrarily pointing at bigger people and saying the same thing you have to step in and make sure your child correctly identifies only you (in this case me) as the dad-da.
Well, much to his mother's chagrin Felix has completely neglected the Mom-ma term this entire time.
Even though we were right there: he points at me = dad-da. WE point at my wife and say: Mom-ma it's been going on like this forever(at least it felt like that). Well:
He dropped the mom-ma and pointed(correctly) at his mother. Let me tell you what a relief that was :)

This story sort of ties in with the Amendatory clause. Us Lenders have been telling our Realtors FOR-EVER: we need to get this Amendatory Clause (download here) signed WITH the final contract acceptance.
And yet, much to all of our Chagrin they continue to ignore this form, we've been having it signed at funding for quite some time.
Well, now it seems some of the Realtors are getting the hang of it. They are finally recognizing the value of this form for their customers and in case you didn't know why You will too.
From the actual disclosure:
It is expressly agreed that notwithstanding any other provisions of this contract dated ________________, the
purchaser shall not be obligated to complete the purchase of the property described herein or to incur any penalty by forfeiture of earnest money deposits or otherwise unless the purchaser has been given in accordance with HUD/FHA or VA requirements a written statement by the Federal Housing Commissioner, Department of Veterans Affairs, or a Direct Endorsement lender setting forth the appraised value of the property of not less than
$__________________. Thepurchaser shall have the privilege and option of proceeding with consummation of the contract without regard to the amount of the appraised valuation. The appraised valuation is arrived at to determine the maximum mortgage the Department of Housing and Urban Development will insure. HUD does not warrant the value nor the condition of the property. The purchaser should satisfy himself/herself that the price and condition of the property are acceptable.
- - - - - -

This is a great tool for you and your customer in your contract negotiations.
If the appraisal doesn't come in at contract price (lower) then your client has the right to re-negotiate the terms or walk away without penalty.
Why Selling Agents aren't takin a hardline and having this signed with the intitial contract is well beyond me.

So, if you're looking to gain some new Real Estate agents in your area I would print out 100+ of the form above and take your business cards and go to every office you know. There isn't a selling agent in the world that wouldn't appreciate another strong negotiation form in their arsenal and with so much purchase business moving to FHA, well, now you've positioned yourself twice over!

From a disclosure perspective, IF the Realtor hasn't had this form signed AND you're in with your client I would place this little insurance form right on top and spend a little extra time in advising the client about their rights under FHA. What a great way to position yourself and gain additional trust.

I look forward to your continued business and support.

Posted by Raoul Badde on August 17th, 2008 7:54 PMPost a Comment (0)

ML letter on Buy & Bail likely: Potomac Partners update

August 8th, 2008 1:29 PM

First I'm going to let you know about a likely HUD Mortgage Letter (ML) coming in the very near future. After FNMA issued their letter on the Lateral Mover (08-16) requiring 30% equity and 6 months of combined PITI etc. We all knew that under FHA rules this was not required.
A number of my competitors have adopted these FNMA requirements for the FHA loans right now. Franklin American HAS NOT.
It looks very likely that HUD will be issuing a similar letter on these Lateral Mover's (FNMA is calling them effectively "Buy & Bail"). Just a heads up.

From Potomac Partners:

Latest Information

· FHA hopes to publish the Notice announcing the new premium structure next week for loans w/ case numbers assigned on or after October 1st. They confirmed that loans in process will follow premium structure in place when case number was assigned.
· FHA hopes to publish the mortgagee letter on the new cash investment requirement (3.5%) in the next 30-60 days. FHA expects the new cash investment requirement to be effective on January 1st. FHA did not say what would be the trigger (i.e. case numbers, sales contracts, etc.).

FHA confirmed that the LTV/closing cost calculations in the existing law are eliminated.
FHA will use the lesser of appraised value/sales price to determine the maximum loan amount.
FHA expects to publish a new mortgagee letter on “buy and bail” loans in the next couple of weeks.
FHA’s instructions will place underwriting restrictions on the purchase of properties using FHA financing w/ the intention of renting out the existing home.

HUD has provided Frequently Asked Questions (FAQs) about the legislation on the www.fha.gov website.

They have also provided a fact sheet for the “Hope for Homeowners” program (i.e. foreclosure avoidance) at the following link.http://www.hud.gov/fha/home080730.cfm

Below is information that we provided last week that has been updated based on the latest information.

· Down payment calculation & minimum cash investment

The loan-to-value (LTV) ratio value will be capped at 100% of the lesser of appraised value/sales price. The mortgage insurance premium must now be included in the 100%. (Previously the MIP was added to the maximum loan amount.) The borrower must have a 3.5% investment from cash or an acceptable gift. The combined LTV (CLTV) can exceed 100% for state and local financing programs.

For example, on a property with a $100,000 appraised value (lesser of appraised value or sales price), the borrower would be required to have $3,500 in cash or an acceptable alternative (gift or government financing). As long as the borrower meets the cash investment requirement, there is flexibility on the source of other funds needed to close. For example, the seller (subject to the 6% seller contribution requirement) could pay closing costs and fees or closing costs or fees could be financed in a premium rate.

Implementation:

FHA plans to have a mortgagee letter published in 30 -60 days w/ implementation on January 1st. They have not yet indicated what the implementation trigger will be (i.e. case numbers assigned, borrowers approved, etc.)

· Seller funded down payment assistance programs
FHA said “due to legal restrictions”, there will be “no policy guidance” on this subject. It will be mid-late September before we know whether the proposed legislation continuing the seller funded down payment assistance programs will be enacted. This legislation, while possible, faces an uphill struggle.

Implementation:

The seller or interested third party cannot participate in a downpayment assistance programs unless the borrower is approved prior to October 1st. FHA confirmed the definition of “borrower approved”. For cases run through the Scorecard, eligibility will be determined by the “date of the last scoring event”. For manually underwritten cases, eligibility will be determined by the date of underwriter signature on the MCAW or the Loan Transmittal form.

· Risk-based Pricing Moratorium

FHA confirmed that a new “across the board” premium structure will be implemented for case numbers assigned on or after October 1st. They indicated that they are still in “negotiations” w/ OMB over the amount of the new premium. Delinquent FHASecure loans will have a separate premium structure. FHA expects to publish a Notice early next week.

Implementation:

FHA hopes to have a Notice with the premium structure and instructions “ASAP”. However, FHA confirmed that case number assignment is the determinant for the premium structure.

For case numbers assigned prior to July 14th, use the old structure (i.e. 1.5% upfront – .50 annually/monthly)
For case numbers assigned on or after July 14th but prior to October 1st, use the risk-based premium structure HUD implemented on July 14th
For case numbers assigned on or after October 1st, use the new premium structure (to be determined)
HUD hopes to publish the Notice w/ the premium structure next week.

· Mortgage Limit Increase

As we have discussed, the mortgage limits will be lowered in high cost areas to 115% of area median sales price up to a maximum of $625,500 when the Stimulus bill expires on December 31st. Since the annual update will be occurring in November, it is difficult to determine what the new limits will be. On the HECM limits, there is considerable confusion over the limits in the bill. HUD is still trying to determine whether it is $417,000 across the board, $417,000 “floor” and higher limits in high cost areas or $625,000 across the board. We will keep you apprised.

Implementation

With regard to the December 31st trigger for the termination of the higher limits in the Stimulus bill, FHA has confirmed again they will use the same standard of “borrower approved” as was mentioned above for seller funded downpayment assistance loans. For cases run through the Scorecard, eligibility will be determined by the “date of the last scoring event”. For manually underwritten cases, eligibility will be determined by the date of underwriter signature on the MCAW or the Loan Transmittal form.

· Condominiums

FHA will develop a hybrid approach. FHA will still process project approvals, the lender could process the project approval or the lender could loans on a “spot basis”.

We also expect HUD to permit manufactured housing condominium projects and to also implement a streamlined process for “site condominiums”.

Implementation

FHA hopes to have a mortgagee letter published in 60 days w/ implementation no later than January 1st if not sooner.

Be sure you prepare your borrower's and especially your Realtor Partners for these changes if Conventional/Conforming is your bag. We do a ton of this business in our Office and I know you would all want to be prepared before you send your loans into us.

I look forward to your continued business and support.

Posted by Raoul Badde on August 8th, 2008 1:29 PMPost a Comment (0)

FNMA is Changing their Pricing October 1st

August 6th, 2008 9:49 PM

FNMA is Changing their Pricing October 1st

Alright! August is THE MONTH.
1st, we have the housing Bill. What a mighty Cluster that's going to turn into.
Then we have MI companies Changing the Game again for us as of Monday August 4th...no more 95% in California.
NOW: FNMA.. this gal: she just won't be left out in the rain. She's ready to PARTY!

Print this little 3 pager out for your records here:
New LLPA(risk based pricing) 08-18

Very quietly and without any fanfare (who wants to fan bad news in this market?) FNMA delivered a brand new LLPA grid for us all to wrap our heads around.
Since this will take effect on October 1st of this year be prepared to see your rate sheets adjusted sometime in mid-August to early September.

Bottom Line: we have new hits adding up to .500 in adverse markets BUT there's a Gem in there for your well-qualified borrower's with over 720 FICO AND 90% LTV. .25% fee IMPROVEMENT!
For high LTV high FICO borrowers. How cool is that?

Be sure you prepare your borrower's and especially your Realtor Partners for these changes if Conventional/Conforming is your bag. We do a ton of this business in our Office and I know you would all want to be prepared before you send your loans into us.

I look forward to your continued business and support.

Posted by Raoul Badde on August 6th, 2008 9:49 PMPost a Comment (0)