Effective for FHA loans for which the case number is assigned on or after October 4, 2010 the Upfront Mortgage Insurance will decrease from 2.25 to 1.00 (100 basis points) on most FHA insured loans except Home Equity Conversion (HECM – “reverse mortgage”). Chances are you have heard this or some version of it but until yesterday, September 1, 2010, it was not in writing in the official form from HUD.

When are FHA case numbers assigned?

Case numbers must be assigned prior to ordering third party services such as the appraisal. Appraisals are not ordered until there is a fully executed sales agreement in the lender’s possession. The lender orders the FHA case number and assigns it to the loan application where it becomes permanent record.

Monthly Mortgage Insurance also changing.

With UFMIP going down MMIP is heading up. Much more dangerous to the industry because it impacts monthly payment and thus debt-to-income ration (DTI). Currently on loans of over 95% the MIP is .55% annually and from 95% and lower it is .50% annually. Effective October 4, 2010 those numbers will be .85% and .90% which results in an increased monthly payment.

Contrary to some reports there has been no notification of change in the amount of closing contributions by the seller which can be contributed to cover closing costs which is 6% and has not (yet) changed. The buyer must contribute 3.5% of their own money but it can be a gift.

This information applies to 203b and 203k loans.

Examples – top row is now, second row is after 10/4 and the $43.39 is the monthly payment increase:

Image Wikipedia Commons

Today’s Mortgage Definition is: FHA Streamline Refinance

FHA Streamline Refinance – A Simple Definition:
The FHA streamline refinance is a refinance program designed for people who currently have an FHA loan to be able to take advantage of lowering their interest rate when rates drop with less documentation than a “normal” refinance requires.  The term streamline refers to the reduced documentation requirements that are designed to streamline the process.

FHA Streamline Refinance – An Expanded Definition:
As interest rates have fallen to the lowest point in decades, many people who can are thinking about refinancing. With the FHA streamline program, there are 2 main options: an FHA streamline refinance with appraisal and an FHA streamline without an appraisal.

For many people who are in an FHA loan and owe more on their mortgage than their house is worth, the FHA streamline without appraisal makes it possible where they can possibly refinance. When you refinance in the FHA streamline program and choose the “no appraisal” option, according to a recent rule change by HUD you can no longer roll the closing costs into the loan. This means that you will need to be prepared to bring in your closing costs – or – possibly have the lender cover a portion of your closing costs in exchange for a slightly-higher-than-market interest rate.

If you refinance with the FHA streamline with appraisal, you can still roll in your closing costs if need be and it is sometimes referred to as a “no out of pocket closing costs refinance”.

Regardless if you participate in the FHA streamline refinance program and go with the “no appraisal” or “with appraisal” option – the key is that you need to lower your interest rate enough for it to make sense. When considering whether or not it makes sense to refinance, be sure to consider how long you will be in the property, what your total closing costs will be and how much monthly savings you will realize by refinancing.

The easiest way to calculate these numbers as to whether or not it makes sense?

Talk to your loan officer. Great loan officers can easily help you know whether it makes sense in your situation.

Fannie Mae HomePath Financing

HomePath is a special designation given by Fannie Mae to properties in their portfolio that have been foreclosed on. Fannie claims their goal is to sell these properties in a timely manner in order to minimize the impact on the community. Houses labeled with a HomePath tag become eligible for special financing.

HomePath properties for sale – click here

+ Important Facts

- Fannie Mae will not accept contingent contracts on the sale of your home.

- You must use a Realtor® to purchase a HomePath property.

- You can choose your own title company

- Fannie Mae sells properties “as is”.

- Properties listed for sale include single family homes, townhouses and condos.

+ Financing

- 3% down payment on owner occupied properties

- NO mortgage insurance.

- Available for owner occupied and investment properties

- NO Appraisal – Fannie uses the sales price as it’s valuation.

- Eligible for HomePath Renovation Financing

Loan limits up to $729,750 depending on property location for single family homes. Four unit loans available up to $1,403,400 in high cost areas. Minimum credit score is 600 although many investors will not approve loans at this score. Borrower must have 5% of their funds towards the purchase. Seller may offer up to 9% help on CLTV’s less than 75%.

***I have closed these loans in less than 10 days. Understanding the guidelines is key.

Whether you are a first time home buyer or an seasoned investor, I recommend to work with experienced HomePath lending specialist and Realtors® who understand the guidelines and can fully explain your options.

“This may be the best time in the history of the world to purchase a home” – LP

Find out more about Fannie Mae HomePath financing – click here

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If you’ve ever shopped around for a mortgage, you’ve undoubtedly heard the phrase “mortgage points” tossed around when looking at closing costs and fees.

It’s a simple way of saying you’ll be charged “X” amount for obtaining the loan with this mortgage broker or that bank.

A point is just a fancy (or not fancy, depending on how you look at it) way of saying a percentage point of the loan amount.

So if a bank says it’s charging you one point and your loan amount is $100,000, the cost of the mortgage point is $1,000. If your loan amount is $200,000, that fee is $2,000. And so on…

While this is easy enough to understand, how much you’re charged (and why) may not be.

For example, a lender may not charge you anything out-of-pocket (no points), but offer you a higher interest rate to compensate.

So instead of snagging that hot 4.5% rate on the 30-year fixed you qualify for, you may wind up with a 5% rate and no points.

That might make sense if you don’t plan on staying with the loan (or the home) for a long period of time, but it could also mean you’re getting a bad deal.

There are situations where you might be charged one mortgage point upfront while also getting pushed into the higher rate, effectively paying twice what you should in fees (thanks to the yield-spread premium and/or service release premiums).

Sometimes Paying Points Lowers Your Interest Rate

Keep in mind that you can also pay mortgage discount points to lower your interest rate.

So if you qualify for a rate of 4.5%, but desire a rate of 4%, you can pay “X” number of mortgage points to lower the rate to that level.

These are considered a form of pre-paid interest and are therefore tax deductible – you’re essentially paying the interest upfront at loan closing as opposed to monthly.

Remember to inquire about all costs and fees and do plenty of price comparisons to ensure you get the best deal, especially when using Zillow’s Mortgage Marketplace to shop for home loan offers.

(photo: a2gemma)

Although there are many posts on the internet about FHA MIP rising to 1.55% that is factually inaccurate. The act signed into law on August 14, 2010 (HR 5981) does not state FHA monthly mortgage insurance premium (MIP) is increasing to 1.55% – it simply states MIP “may” be increased to a maximum of 1.55% (of the loan amount per year) by the commissioner without further need for congressional approval.

Currently no official FHA announcement has been published as to exactly how much MIP will increase. There has, however, been printed and spoken information circulated stating the increase on FHA monthly insurance will be to .90% on loans with less than 5% down payment and 85% on loans with 5% or more down payment.

On August 10th Deputy Assistant Secretary  Vicki Bott sent a letter which ended with an italicized paragraph including the statement that on October 4th 2010 FHA MIP would increase. “FHA’s upfront mortgage insurance premium will be adjusted down to 100 basis points on all amortization terms and the annual mortgage insurance premium will increase to 85-90 basis points on amortization terms greater than 15 years.”

Statements that indicate the Federal Housing Authority will be adjusting the monthly MIP to 1.55% are unfounded and not factual. A final announcement from FHA will be made prior to the October 4th date of implementation.

HR 5981 - Amends the National Housing Act with respect to requirements for the insurance of mortgages secured by a one- to four-family dwelling which are obligations of the Mutual Mortgage Insurance Fund. Authorizes the Secretary of Housing and Urban Development (HUD) to establish and collect annual premium payments of up to 1.5% of the remaining insured principal balance on such a dwelling.

It also authorizes an annual premium of up to 1.55% of the remaining insured principal balance of any 30-year mortgage on such a dwelling involving an original principal obligation greater than 95% percent of such value. (Currently, an annual premium of up to 0.55% of the remaining insured principal balance on such a mortgage is required.) Authorizes the Secretary to adjust the amount of any initial or annual premium through notice published in the Federal Register or mortgagee letter, which shall establish the effective date of any such adjustment.

Today’s Mortgage Definition is: No Cost Mortgage

No Cost Mortgage – A Simple Definition:
The no cost mortgage (also sometimes called the zero cost mortgage) is an option when interest rates are falling and is when the lender agrees to pay all of the closing costs associated with the loan. All closing costs as in nothing is added to your original loan balance.

No Cost Mortgage – An Expanded Definition:
Just because the mortgage is a no-cost mortgage doesn’t mean there aren’t costs — it just means that the lender agrees to pay for the costs in exchange for a slightly higher interest rate. So just because you aren’t paying for an appraisal, an underwriting fee, a credit report fee or any other type of fee doesn’t mean that someone isn’t paying them… it just means that the person paying these fees isn’t you.

One of the common questions people ask is “how much higher of a rate will I get if I want a no-cost mortgage rather than pay my own closing costs?” and the answer is — it depends. As a general rule of thumb, expect to have a .25% to .50% higher rate if you decide to opt for a no-cost mortgage.

As counter-intuitive as it may sound, no-cost mortgages are not always the best financial choice – it depends on your situation. Typically, the longer that you plan to keep the home (or, more specifically, the loan on the home) the more sense it makes to pay the closing cost and get the lowest possible rate.

Is a no-cost mortgage right for your situation? Maybe. But be sure to double check with your loan officer to see what the numbers stack up to be in your situation.

The VA is urging mortgage companies to extend a helping — and patient — hand to veterans affected by the BP oil spill.

Several companies have already pledged to waive late charges and suspend negative reporting to credit bureaus for Gulf state veterans, according to Secretary of Veteran Affairs Eric K. Shinseki. The secretary issued a plea Monday asking all mortgage companies to make similar concessions for affected veterans.

“Through no fault of their own, many of our veterans are out of work and are struggling to earn an income,” Shinseki said in a news release. “We must assist these veterans in this difficult time, just as they have supported us in their sacrifice to the nation.”

The VA already has an array of avenues to help veterans battle foreclosure. Perhaps lesser known is its guidance for veterans affected by major disasters. Veterans with and without VA-guaranteed loans can contact their closest VA Regional Loan Center at 1-877-827-3702 to obtain free mortgage counseling.

Image: jim.greenhill

It must have seemed like a great plan to the president. Mortgage modifications certainly seem like the best choice to avert more foreclosures. At least to anyone who doesn’t understand or appreciate free market capitalism. Then again we’ve never actually had any of that.

First the feds would pour billions of taxpayer dollars into a “toxic asset” recovery plan which would be distributed to the biggest banks. Only those banks who are most friendly with the ruling party, though. Then when that didn’t do the trick the feds, having now nationalized these big banks, would “suggest” they modify the home mortgages on a few million homes. After all when you have the president (Obama), Nancy Pelosi, Harry Reid, Barney Frank and Chris Dodd all on a rocket tour through the destruction of the American economy who could say no?

The banks did not. At least the ones who were walking around with their lips around the teat of the mother of all bailouts. It appears Robin Hood was, after all, a modern American socialist. Only he stole from the rich and gave to the poor people. This version is different wherein the Robin hoodlums steal from the commoner and their children and give to the rich … or at least the mega rich. In fact evidence shows if you are not large enough to affect an entire national election you aren’t due for any of the people’s gold.

In the end nearly one-half of the home owners who applied and who were/are underwater in their homes, not able to keep up with their “toxic mortgage” payments for any number of reasons or simply looking for some of that very personalized socialism have fallen out of the all but forced Home Affordable Modification Program (HAMP). All but forced upon the banks that is. After all, the banks owe the president and the four horsemen of the recession their sworn allegiance. Instead of letting the banks fail, as open market capitalism requires, the executives of the behemoths still have their positions and have pockets lined with tax payer sacrifice ripped from the altar of belief in an increasingly communistic way of life.

More a sign of the times than actual necessity for the preservation of America we now are burdened with poorly written regulation mixed with a recipe of lack of foresight, failed introspect, atrocious levels of community involvement (nil), and “how can we make this work for re-election” publicity. The Summer of Recovery hasn’t even so much as sparked before it fizzled. It’s a dud bomb that only poisoned the waters of the free market with yet another failure in the HAMP program. I can’t wait to see how they spend our children’s money next. Surely there must be yet more ways to fail the American people.

Who’s fault is it? Why Chris Dodd and Barney Frank of course. The same people entrusted to make America safe from the horrible bankers for years and years. The same horrible bankers who followed their regulatory changes to open the mortgage market to the “underserved” citizens of America under the Clinton administration. These are the same underserved people who continually get the very short end of the stick and still find themselves uninformed enough to vote for the same kings and queens election after election. I suppose the sheep doesn’t really know he’s a sheep. He just wonders why every time the lord of the barn invites him in he leaves cold and naked having his shearing blamed on the shearer, not the lord of the barn. But there’s plenty of grass to eat and it’s so green …

Agree? Disagree? Got an opinion? Share it!

Not so fast.Preying on people who have a real need and are often blinded by their own circumstance is an age old practice. In today’s darkened economic and political climate the scammers are as likely to advertise their mostly empty promises as the trustworthy service providers. Perhaps the scams are even more prolific.

Credit scoring was introduced in 1958 by the Fair Isaac Corporation. Today FICO, a publicly traded company, provides scoring software to most reporting agencies in the United States. Equifax, the oldest of the three major credit bureaus founded in Atlanta in 1899, uses the FICO model with a range of scores from 350-850. Experian, based in Dublin, Ireland, uses a FICO model with scores between 350-800 and also offers the VantageScore® with a range of 501 to 990. Lastly, the third most popular bureau for credit reporting, TransUnion, uses a FICO modeled score with a range of 350-850.

Almost every borrower knows if you have a lower credit score you will either be denied credit or pay a higher cost to borrow money because of the risk to the lender. While the more liberal members of the federal government believe banks, lenders and retailers should cover the risk spread and make all loans equally to all people the simple truth is that will never work. Improving credit scores through a legitimate program, however, will allow higher risk borrowers to become lower risk and thus deserve the better loan pricing.

According to data from TransUnion borrowers with a credit score of less than 500 are 87% likely to be slow to pay or default on the loan.  Conversely those with a credit score of 700-749 are less than 5% likely to be delinquent or in default. Though the term is over-used it is a “no-brainer” to the economy that lending to people with lower scores cost more than lending to people with higher scores.

Credit restoration and credit repair companies do have a legitimate function. Unfortunately, according to government investigations and concerns, many of these companies are not licensed, have no liability to the customer and use questionable techniques to attempt to deliver on promises of dramatic score increases almost overnight.

Until recently one of the favored techniques of certain credit enhancement companies was to position their customer as an authorized user on the credit of another individual who had long, good standing credit. For a while it worked until lenders stopped using “authorized user” credit unless there was a very close relationship and the applicant (authorized user) could provide paper evidence of having paid or contributed to the repayment of the debt. The practice of having another individual’s good credit placed on an applicant’s credit report is now examined as a red flag of loan fraud.

Other credit repair companies choose to dispute all negative credit remarks, whether legitimate or not, in hopes that even the legitimate claims will not respond to the allegations within the 30 day period allowed by federal law. If the lender does not respond within 30 days the bureaus are required to remove the negative information.

In the end these companies are not scamming only their own clients but adding massive expenses to the lender who is legally due the debt. If they do not recover the cost is then passed on to the consumer thus increasing prices. This does not even take into consideration the massive number of labor hours required to respond to illegitimate contests of reporting accuracy.

What are your views of the credit reporting system? Do you support these techniques of “credit repair”, “credit restoration” and “credit enhancement”?

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Ever hear of the Law of Unintended Consequences?  It states that when Congress passes a law to fix one problem, it will create five more.  Government, being by and large populated with people that have not had jobs in the industries they regulate, is the poster child for “oh, I didn’t think of that.”  With that preamble, here is a recap of the latest financial reform bill, the Dodd/Frank Wall Street Reform and Consumer Protection Act.

Credit Scores: Good: You are entitled, and have been for years, to a free credit report from each of the three credit bureaus every year.  You get these at www.annualcreditreport.com.  Now, though, if you’re denied for a loan, the denying company has to tell you what your credit scores were.

Bad: Seriously, we still can’t get our scores before we get denied for a loan?  What was the point of this change?

Mortgage qualifying: Good: Um.  Well, from my perspective, there isn’t anything to put here.

Bad: All sorts of things.  If you’re self-employed, you better start paying a lot more tax, or you’ll never get a home loan again.  Stated income loans are now illegal.  Banks are now required, except in narrow circumstances, to retain 5% of the mortgage loans they make, which means there will be less capital to lend and banks will make fewer mortgage loans.  It also means that FHA loans will continue to ratchet up their market share, since FHA loans are exempt from these requirements.  Eventually, the government will own practically all the mortgage loans in the US.  Lending in Utah, where I’m based, as well as every other state, will get increasingly difficult for both brokers and borrowers, with fewer loan options and less competition among lenders.

Mortgage broker regulation: Good: Well, theoretically, if you make it so that loan officers can’t get paid based on the kind of loan they sell or the interest rate on the loan, that should lead to better deals for consumers.

Bad: Except that in the real world, the lenders are the ones that get paid, and they still do.  Now, though, instead of the money going to the loan officers, the banks get to keep it.  If you think this leads to reduced interest rates, you belong in Congress.  Coming January 1, watch for flat-fee pricing from lenders, where the closing costs will be a flat percentage of the loan.  A higher percentage than is currently normal, I shouldn’t have to tell you.  Lending will consolidate further until only the biggest banks are left.  That should make things muuuuch better.

Credit Card regulation: Good: Retailers now cannot require you to buy more than $10 of goods if you want to use your credit card.  The Fed gets the power to regulate what percentages banks, but NOT card issuers (Visa, Mastercard) can charge on purchases.

Bad: Retailers already had agreements with Visa and Mastercard requiring them to accept the card for any amount.  Now they don’t have to do that.  Transaction percentages were already usually below 2%; now they will be wherever the Fed sets them, most likely higher.  But because of the threat of the Fed and the loss of control over those fees, banks will respond by chopping out freebies (like free checking) and raising overdraft fees (seen that already, haven’t you?), and bringing back the annual fees for credit cards.

Creation of the Consumer Financial Protection Bureau: Good: There will be thousands of new federal government jobs, alleviating some unemployment.

Bad: Financial rules for mortgages, banks, credit cards, car and student loans, and everything else will now be made by unelected bureaucrats in Washington, rather than by Congress, your state representatives, or, Heaven forbid, the companies that actually have to make a living in finance.  We get a whole new government bureau for the purpose of promulgating these rules.  Because as we were all aware, we don’t have enough of them already, and the ones we do have are doing such a splendid job.

I could go on to discuss such things as the creation of the new Office of Minority and Women Inclusion, which I’m sure you would agree is an integral part of any Wall Street reform, but you get the idea.  Overall, the good is that if you are totally ignorant of even the most basic financial concepts, you may continue to be so and it will be less likely that you’ll accidentally do something stupid.  The bad is that if you are smart and do your homework, your life just got more complicated and less rewarding.  Again.  Continuing the trend toward crushing the entire population into a narrow band of mediocrity in the name of “protecting” us, Congress has served up another heaping plate of mystery meat in this bill.