Another Great Road to Recovery Mortgage Program

Texas Highway

Back in August of 2013 we wrote Buying Today Despite Short Sale Yesterday, which addressed the fact that those who were victims of a recent short sale (less than two years ago) could possibly obtain a mortgage for purchase or refinance, provided certain elements existed.  The elements for success included: 1. No other credit issues, 2. Solid equity/down payment of 30% or more, 3. Solid reserve funds and 4. solid income.  That program has been extremely effective, especially for non-conforming loans; in fact, an existing client is pre-approved for a $2.5mm purchase and the foreclosure occurred only two years ago!

Now, Housing and Urban Development (HUD) has stepped up their game with a similar program, the Federal Housing Administration (FHA) Back to Work Program.  In short, if a borrower lost their home over 12 months ago due to financial hardship and she/he have re-established credit (or maintained otherwise good credit), then they may qualify to get a new mortgage to purchase a home without the standard two to seven year waiting periods required under conventional mortgage programs.  A financial hardship is defined as a loss in income of 20% or more for at least a 6-month period and it must be documented.  The borrower must also document that she/he has fully recovered from the hardship.  Finally, the borrower(s) must attend a credit counseling class prior to submitting an application.  All other FHA requirements apply as well, but the rates are extremely competitive and help to stretch the qualifications of applicable borrowers.

For complete information on this program or any other mortgage program, contact your trusted mortgage advisor at Absolute Mortgage Banking.

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QM? ATR? WTH?

Floating House

Despite all of the chatter around Qualified Mortgages (QM) and proving a mortgage borrower’s Ability to Repay (ATR), many local homebuyers will be UNAFFECTED by these recent Dodd-Frank changes effective January 10. Why? To begin with, all of the conforming, FHA and VA loans are given a temporary reprieve from these new provisions and are business as usual. Secondly, and frankly, these new rules are really Underwriting 101 for the most part since all fully-documented loans are underwritten to ensure that they are appropriate and affordable for the borrowers who receive them. Finally, all of the non-conforming (“jumbo”) options available today, like 40-year terms, interest-only payments, 100% financing, bridge loans, etc., will continue to be available to clients through mortgage advisors of reputable mortgage banks.

So what is a QM? In a nutshell, a QM:

• Is underwritten to ensure that a borrower has the ability to repay the mortgage
• Has a 30-year term
• Is absent of features like interest-only payments and negative amortization
• Has reasonable fees (for our area, total fees not to exceed 3% of the loan amount…)

What I find rather comical is the alleged “safe harbor” status that a QM provides to a lender, meaning that the lender can’t be sued if it issues a QM, yet the provision clearly states that a consumer can sue the lender if the consumer feels as though the lender did not properly follow the QM requirements.

One question that we’re all waiting an answer for is what the pricing impact with be on non-QM loans. While it’s certainly reasonable to presume that the rates will be slightly higher for non-QM loans, our prediction is that rates today will remain steady on non-QM loans and that QM loans will be slightly better priced in the future.

When you think about it, every loan is priced based on risk. As such, the higher the risk on a loan, the higher the price of that loan. And while QM loans may be considered as lowest risk, it’s hard to argue that a borrower who qualifies and desires a 15 year fixed mortgage is riskier than a 30 year fixed QM mortgage.

What a Government Shutdown Means in the Mortgage World

Capitol

As a courtesy to all of our realtor and business partners, we want you to know that everyone at Absolute Mortgage Banking is prepared with contingency planning and greater communication should a government shutdown occur tomorrow.  It is important to know that a shutdown will cause delays, and everyone needs to plan accordingly.  Believe it or not, the Federal government is directly involved in nearly all U.S. residential mortgages, so any shutdown will have an impact, and it’s important to know where the problem areas are in this case.

Bottom line, if you’re dealing with an FHA, VA, or USDA loan, processing those loans will slow dramatically until the shutdown is over.  Fortunately, if you are dealing with either a conforming or non-conforming loan, processing will continue, but certain government-related elements to complete the file will be on hold, such as:

  • Social Security Administration verifications
  • Income verification by federal tax transcripts known as 4506(T) forms
  • Flood Certifications
  • Employment verifications for certain government employees

Don Frommeyer, President of the National Association of Mortgage Professionals, has said, “With a shutdown, lending isn’t going to stop” and that “the main problem would be for military personnel, who could be affected in the sense that they wouldn’t be getting paid.  We also don’t know if rates are going to be affected because the market often responds to what the government does.” 

Additionally, certain U.S. economic data would likely be delayed. During the 2011 budget battles (the last time we were faced with a possible shutdown), U.S. officials said no data would be coming from the Commerce Department or from the Bureau of Labor Statistics, which handles the closely-watched monthly employment report.  Without data, rates will likely be quite volatile, but our sense is that uncertainty will likely keep rates low.

And what about loans in line to fund..?  Fortunately, the FED wire system will remain intact to process wires and fund transactions, but it’s best to prepare for possible delays. 

Let’s not sound the alarm bells yet, though; aside from 21 days back in 1996, the government rarely shuts down for more than a day or two.  One would hope that this exercise in futility by our legislative branch is short lived enough to not cause us a serious distraction.  Should the shutdown persist, Absolute Mortgage Banking will be closely working with its counterparties to ensure business continuity and as few disruptions as possible.  

If you have any questions, feel free to reach out to any of our qualified mortgage professionals.

FHA Fees Rising Again

 

FHA loans are some of the very best loans available for those who want to preserve cash, have credit issues or are lower income.  Problem is that FHA loans continue to cost more to obtain.  In the latest Mortgagee Letter issued from HUD, we see that fees are increasing, and cancellations of the Mortgage Insurance Premium (MIP) being extended.

house-mortgage_ju_top

Here’s what you need to know to advise your clients accordingly:

  1.  Effective with all loans originated and case numbers issued on or after April 1, 2013, the monthly MIP premiums are increasing by 10 bps across the board, which ranges from 0.95% to 1.30% of the loan amount depending on loan program, loan amount  and loan-to-value
  2. Effective with all loans originated and case numbers issued on or after June 3, 2013, the automatic cancellation of the annual MIP premiums has been rescinded.  
  3. All FHA loans with a loan-to-value  less than or equal to 90%, will have annual MIP for the first 11 years of mortgage, or until the end of the mortgage term, which ever comes first.
  4. All FHA loans with an LTV greater than 90%, will have annual MIP for the life of the loan, or 30 years, whichever comes first.

Please contact your preferred Mortgage Advisor at Absolute Mortgage Banking for further guidance on FHA loans or to inquire about the literally hundreds of loan programs that AMB provides.

Q4 2012 Really the Time to Sell?

Traditionally, the best time to sell property is in the Spring.  Realistically, the best time to sell property is whenever one can command the highest price, which may be right now.   So while the historical charts suggest that Q4 is a more challenging time to sell real estate, the following facts may just make for a very surprising Q4.

San Mateo County home sales showing a dip in inventory in Q4 for the past five years.

First let’s consider the basic facts that in Santa Clara and San Mateo Counties (versus 2011): 

1.       Inventory is DOWN by over 60%
2.       Sales up over 17% in Santa Clara County; up over 32% in San Mateo County
3.       Pending sales up 2% in Santa Clara County; up over 7% in San Mateo County
 

Santa Clara County home sales showing a dip in inventory in Q4 for the past four years.

Combine the above with the fact that over 10 new off-market listings and over 20 new buyers were added to Producers Forum in just the last WEEK, and it’s clear that demand continues to outstrip supply.  And finally, with interest rates continuing to be at their most attractive levels in history, affordability for homes is at a high point.  Really, did you ever think that fixed-rate loans are available BELOW 3.00%..?
Finally, if you further add the above to the changes scheduled for 2013 that I wrote about in my last article, this quarter may end up defying the odds.