Mortgage Loans & Refinancing

Most homeowners, consumers and politicians do not realize that there are significant differences between FHA lending guidelines and the revised guidelines that the mortgage giants like Countrywide, Chase, Wells Fargo, Suntrust and B of A.  Clearly, FHA home loans have dominated the mortgage product line for prime, subprime and foreclosure prevention.  Unfortunately, most of these lenders are spending much of their time staffing up their loss and mitigation departments to provide mortgage loan modifications to their clients who are delinquent on their adjustable rate loans.

Even though FHA has set these changes to take effect on January 1st of next year, you can already see mortgage banks adjusting for HUD’s new FHA policies by shifting their lending requirements to benefit the bank and shareholders.  A select few of FHA mortgage lenders are enabled to implement these new provisions because they are allowed to introduce their own lending restrictions.

The 2009 FHA Mortgage Loan Limits have been set and since the foreclosure crisis continues to pull down comparable sales for appraisals across the nation, the temporarily increased loan limits from the 2008 Economic Stimulus Bill are exactly that–temporary.   The FHA mortgage loan limits will be decreasing in 2009 and so will the hope for many good borrowers who were planning for a mortgage refinance loans next year.  Many California mortgage refinancing opportunities will disappear…

Borrowers in high cost areas like Southern California, have to search for alternative lending options because as of January 1st 2009, FHA will no not insure mortgage loans above $625,500.  These jumbo mortgage loans will likely see higher interest rates and more borrowers could find themselves in line for a loan modification. 

Hopefully the new year will bring true mortgage refinance opportunities for homeowners who need it most.  The FHASecure program and Hope for Homeowners looked great on paper, yet very few homeowners were actually able to qualify for the foreclosure prevention programs because the lenders simply didn’t want to take the risk that FHA guidelines allowed.  Only time will tell, but maybe President elect, Obama can throw some optimism this mortgage brokers direction.

The Federal Housing Finance Agency announced the conforming loan limit will remain $417,000 for 2009 for most areas in the U.S. but specified higher limits in specific high cost cities and counties. The conforming home loan limit is the maximum size of loans that Fannie Mae and Freddie Mac can purchase in 2009. According to provisions of the Housing and Economic Recovery Act of 2008, the national mortgage loan limit is set based on changes in average home prices over the previous year, but cannot decline from year to year.  Home loan limits for two-, three- and four-unit properties in 2009 will remain at 2008 levels as well: $533,850, $645,300 and $801,950 respectively, for houses in the continental U.S.

The national mortgage limit was left unchanged at $417,000 based on declines in FHFA’s monthly and quarterly house price indexes over the past year. The monthly purchase-only index declined 5.9 % over the 12 months ending August 2008, and the quarterly all transactions index dropped 1.7 % from second quarter 2007 to second quarter 2008.  Virtually every other measure of house prices has also fallen, with many showing even larger declines.

FHA has not yet determined whether it will continue to use a currently existing FHA price index to gauge price movements in future years. For this year, however, all reliable metrics point to lower prices and a price decline of any size is sufficient to determine that the national limit will not change.  Following the provisions of HERA, FHFA has set FHA home loan limits for “high-cost” areas in 2009. These limits are set equal to 115 % of local median house prices and cannot exceed 150 % of the standard limit, which is $625,500 for one-unit homes in the continental U.S. The new limits affect loans purchased by an Enterprise in 2009, unless the home loans were made permanently eligible for purchase under the Economic Stimulus Act enacted earlier in 2008 and has generally larger limits. FHA said it might choose a different method in future years and will seek public comment on the best approach. 

Under rules set forth in the Stimulus Act, loans originated in 2008 and the second half of 2007 are subject to limits of 125 % of local price medians up to a maximum of $729,750. As a result of the difference in the formula for determining high-cost area limits, many of the high-cost area loan limits are different for 2009 than they were for 2008. They are generally lower because of the lower median price multiplier in HERA (i.e., loan limits are 115 % rather than 125 % of median prices) and the lower ceiling ($625,500 rather than $729,750). For mortgage loans originated during the period covered by the Stimulus Act, the higher of those limits and the 2009 limits will apply.  In calculating loan limits, FHFA used median house price estimates calculated by the Federal Housing Administration of the Department of Housing and Urban Development.

According to Erik Hand, president of John L. Scott Real Estate’s Response Mortgage Services Fannie Mae announced that they will impose additional restrictions for mortgage loans between $417,000 and the maximum loan limit. The new restrictions will reduce the maximum loan-to-value ratio from 97 percent of a home’s value to 90 percent.   Since home values have been declining dramatically nationwide, this is a huge setback for homeowners and mortgage lenders trying to provide refinancing solutions.   They plan to roll out more restrictions for cash-out refinancing and loans for investment properties. Hand said industry officials are pushing to have the larger loans treated just like any other conforming mortgages.  Conforming home loans are defined as that Fannie Mae and Freddie Mac agree to buy for their portfolio.  Jumbo mortgage loans will continue to feature higher interest rates because the risk for default remains greater.   

FHA will allow a 30-day appeals period for those wishing to contest its median price estimates. Appeals are to be based upon data suggesting a potentially higher price median for a given area. Details concerning the appeals process will be released today in an FHA mortgagee letter. To the extent that appeals are deemed valid and HUD’s median price estimates change in response to the one-time appeals process, the FHA loan limits will be changed to reflect the updated data.    

As in previous years, the 2009 maximum conforming limits are higher in Alaska, Hawaii, Guam, and the U.S. Virgin Islands than in the contiguous U.S. In those areas, as delineated in the attached list, loan limits vary from $625,500 to $721,050 for one-unit properties.  Link to 2009 High-Cost Area Loan Limits (PDF)

The new FHA loan program, Hope for Homeowners was created recently to help minimize foreclosures, but so far there are too many hurdles for the average distressed homeowner to overcome and very little borrowers have been able to qualify.  FHA continues to actively consider several mortgage loan modification plans and most lenders believe they will see a good mortgage refinancing solution in 2009.  The housing market is complex and when it comes to lending guidelines to decrease loan defaults and foreclosure there is a sharp contrast between loan guidelines and loan work-outs.  Hopefully FHA, Fannie Mae, Freddie Mac and the mortgage lenders will work together for a solution that provides foreclosure prevention and loan performing results that will get our economy and housing market back on track

FHA eliminated their down-payment assistance loan Programs on Oct. 1. These mortgage loans designed to help first time homebuyers enabled the seller to offer the buyer down payment assistance.  Housing Wire reported recently that FHA commissioner Brian Montgomery criticized DAP, reported the mortgage news site Here’s a clip from that story:  Montgomery recently stated, “Data clearly demonstrates that FHA home loans made to borrowers relying on seller-funded down payment assistance go to foreclosure at three times the rate of loans made to borrowers who make their own down payments.”  These high risk mortgage loans presently make up one-third of the FHA’s loan portfolio.  Montgomery added that the agency booked an additional $4.6 billion in long-term losses when reassessing their annual figures.  “No insurance company can sustain that amount of additional costs year after year and still survive,” he argued. “Unless we make corrections to mitigate these losses, FHA will soon either have to shut down or rely on appropriations to operate.” 

On a more positive note, DataQuick recently announced a 62% increase since last year with 2,667 SFR home and condo sales were reported in September.  This is the largest 1 year gain since DataQuick started tracking this data in the last twenty years.  FHA mortgage lending continues to soar with 28.6% of August buyers using the program, up from 27.2% in July and 9.5% in August 2007.  According to the Census Bureau, FHA released data for new home sales indicating that homebuyers continued to use FHA home financing 17% of the time in the 3rd quarter which is up from 15% in the 2^nd quarter and 4% in the 3^rd quarter last year.

Obama says he will stop mortgage fraud from mortgage lenders and brokers.  He and Biden claims that under his watch, homebuyers get more information related to their mortgage loan options. He offers all this and a promise to provide additional tax credits to all middle-class homeowners.  How do you define “middle class” Mr. Obama?  $250,000 a year is the line they used on the campaign trail.  If stick to that – God Bless him! 

Seriously, please elaborate on your “mortgage credit” that is said to be a 10% home mortgage credit that enables homeowners to benefit if they choose not who do not itemize the mortgage interest with their tax returns.  They say on average that will yield $500 to 10 million homeowners.  One question Mr Obama…Wouldn’t the average homeowner get more back with present tax incentives already being practiced?  The answer is yes.  So is it a tax credit or increased tax on homeowners?

Obama’s website suggests that they have been examining the sub-prime mortgage lending issues for years.   This is good because it is imperative that the next president thoroughly understand the housing sector and mortgage financing.  Apparently, Obama introduced legislation to fight the war on mortgage fraud.   He vows to protect consumers against abusive mortgage lending practices. The STOP FRAUD Act offers a federal definition of mortgage loan fraud and increases the funding for federal and state law enforcement programs.  He vows to implement new criminal penalties for home financing professionals found guilty of fraud while requiring co-workers to report fraudulent activity.  Who can argue with this…People want to put a face with the housing crisis that has cost them the equity in their home and in some cases the home themselves. 

Obama says he will eliminate laws that prevent bankruptcy courts from introducing loan modifications. This is a good thing if banks are going to modify loans why not do it at this level as well.  Obama says he will introduce a HOME score which enables borrowers to compare several home loan products while better understanding the total cost of the mortgage.  This is what the Federal Truth and Lending Statement does.  It multiplies an average of the borrower’s monthly payment over the months they have the loan.  (ie.  3,000 a month over 360 months will cost you $1,080,000)   The truth in Lending Law is pretty darn clear.  We all should take some responsibility with this mortgage meltdown.  Whether you are a homeowner, loan officer, lender, bank or politician, we all played a role that led to this foreclosure epidemic.

Here is the problem Mr. President, the sub-prime meltdown and the foreclosure crisis problem is far more complicated than predatory lending from unscrupulous mortgage brokers.  Banks do not like mortgage brokers and for years they fueled the fire that mortgage brokers caused the sub-prime meltdown.  For the last decade, Banks have created mortgage guidelines that created a housing boom.  American homeowners prospered and what could go wrong.  Lending guidelines in 2005 and 2006 went too far in allowing no money down home loans for borrowers with little, no or bad credit.  The housing bubble bursted and jobs were lost.  The mortgage industry melted and banks tightened their guidelines to the point where average homeowners could not qualify top refinance into a fixed rate mortgage they could afford.  FHA home loans have started to require certain credit scores and lenders like to play appraiser and reduce their appraised value to the point where everyone has been wasting their time.  Home values plummeted and the foreclosure concerns became an epidemic.  Loan modifications have become the modern refinance loan and now when the Fed cuts interest rates, mortgage rates actually rise.  Welcome to my world Mr. President….I’m an unemployed mortgage broker who like to write about the truth. 

Article was written by Bryan Dornan who is the marketing director with Nationwide Marketing.

The private sector has begun to default on home loans and add fuel to the mortgage crisis with the first broad-based, systemic attempt to prevent foreclosure. Both Bank of America (BAC) and JPMorgan (JPM) are attempting to help hundreds of thousands of troubled homeowners with massive loan modification efforts.

Regulators and bank executives are operating under the assumption that reducing foreclosures will slow record drops in home prices. In turn, this will help stabilize the financial system - and, by extension, the economy as a whole.  Most foreclosures are concentrated in communities that built large developments, using cheap financing to help fuel speculation and massive over-valuation. These areas, especially those where homes were purchased by lower income buyers, are being decimated by delinquencies and repossessions.

What main mortgage insiders are concerned about is the crisis broadening:  More and more delinquencies are being reported in the prime mortgage loan market where borrowers with good credit scores have begun to miss home loan payments with alarming frequency.  The most recent mortgage delinquency data suggested that defaults on subprime mortgage loans are occurring at measured pace than in recent months, good credit homeowners are beginning to show more and more delinquencies

“The increase in prime ARMs foreclosure starts was greater than the combined increase in fixed-rate and ARM subprime loans. Thus the foreclosure start numbers will likely be increasingly focused on by refinancing ARM loans with fixed rate home mortgages.” There is still a wide misconception that only “subprime” people maxed out credit cards, took out loans they couldn’t afford, and were generally reckless with their personal finances.   As the economic slowdown swirls outward into the broader economy, cracks are starting to form in established neighborhoods that have thus far experienced minimal home price depreciation.  FHA home loans continue to dominate the origination for purchase and refinance

As mortgage refinance underwriting requirements have tightened in recent months, home buying has slowed in these more well-to-do areas. This trend is being masked by spikes in the distressed sales driving broad housing market indicators.   As layoffs continue, borrowers in these regions will be forced to sell for the first time in years. The illiquidity in these markets means it will take just a few such sales to readjust prices dramatically downward. Homeowners that don’t sell by choice, particularly if they’ve accumulated equity in their homes, are apt to be less picky about their price.

San Diego, California - Nationwide Mortgage Loans introduces HOPE for Homeowners that should help reduce foreclosures across the country. Congress finally raised the loan limits for FHA home loans offer a unique opportunity for homeowners to refinance into a lower interest rate loan that is fixed with 15 or 30-year terms. The FHA mortgage lender is excited to release this FHA loan  program because it is an alternative to foreclosure preventions like loan modifications that can take up to 90 days.  Homeowners can execute a rate and term refinance loan up to 97.5%.

If financing a new home, applicants can also buy a home with less than 3% down.  The President recently signed into legislation a mortgage refinance program that will enable the Federal Housing Administration to continue providing targeted foreclosure prevention to homeowners. The Hope for Homeowners loans will expand on FHA’s existing guidelines that have been assisting distressed homeowners that are trapped in mortgage loans they can no longer afford. Under this FHA loan program, certain borrowers struggling with their home loan would be eligible to refinance into fixed FHA-mortgage loans that they can afford. The FHA Hope for Homeowners program was rolled be out October 1, 2008.

This unique government insured mortgage product allows homeowners to escape their adjustable rate mortgage that has been draining their savings. FHA mortgages were created by the HUD in 1934 with the goal of guaranteeing fair lending to all Americans regardless of their race or bank account.  FHA has always provided alternative home financing for first time homebuyers and borrowers with poor or limited credit.  Until Congress raised the loan limits, many people found it impossible to find low interest rates for a mortgage refinancing because their 1^st and 2nd mortgages exceeded the FHA and conforming limits, but now the problem is equity.  Property values have declined to the point where the mortgage balances are now higher than the property values.

FHA Hope for Homeowners loans still maintains the long-standing requirement that new loans be based on a family’s long-term ability to repay the mortgage. FHA only offers this program to borrowers who will be occupying the property. In addition, applicants must meet the following criteria below:

• Home mortgage must have originated on or before January 1, 2008;
• Their home loan debt-to-income must be at least 31 percent;
• They cannot afford their current mortgage
• They did not intentionally miss mortgage payments
• Borrowers cannot own 2^nd homes.

Features of FHA-mortgage loans under the new program include:

• 30-year, fixed rate mortgage;
• Maximum 90 percent loan-to-value ratio;
• No prepayment penalties;
• $550,440 maximum mortgage amount;
• Extinguishment of any second mortgage liens;
• New home appraisals from FHA-approved appraisers.

According to former Ditech executive, Jeff Morris, “Mortgage lenders are out of touch with the reality of American borrowers, because most homeowners no longer meet the requirements for income or home values.”  31% Debt to income ratios and full income documentation are difficult requirements in this economy.   If you do not qualify these FHA loan requirements, consider a mortgage loan modification that allows debt to income ratios as high as 100%.

Home Loan Applications
*FHA home loans received 2,008,157 single-family loan applications.
*More than 90 % of applications were for existing home purchases or refinances.
*977,550 borrowers applied to purchase homes
*885,972 applied for a FHA refinance
*144,635 applied for reverse mortgages.
*147,992 refinance applications were from current FHA borrowers seeking new FHA home loans
*727,225 conventional borrowers applied for FHA home mortgages.
*10,755 delinquent conventional borrowers sought FHA mortgage loans.

Government Endorsements
*FHA loans approved 1,199,624 mortgage loan applications.
    (up 125 % from fiscal 2007 when the FHA insured 532,337 mortgages)
*631,667 FHA loans were made to people purchasing a new home
    (up 126.9 % over the 278,422 purchasers who got loans in fiscal 2007.)
*Among those financing a new home, 492,295 (77.9%) were first-time buyers.
*455,803 loans (38% of all loans insured by the FHA) were made for refinancing

* 356,722 mortgage loans converted from conventional loans to FHA financing.

* 166,475 FHA home loans (36.5% of refinances endorsed) were cash-out refinances.

First the “subprime mortgage meltdown”, then the foreclosures, then the government announce the $750 billion dollar bailout and finally the stock market tanks.  After watching the 3 presidential debates and listening to a few of their mortgage foreclosure speeches, in which both candidates promised financial assistance to homeowners while blaming the “big banks”, I realized - this country is in denial.  Like an alcoholic claiming “they just like a few glasses of wine with dinner”, Americans have a spending problem. Think about it - every year credit card debt breaks the previous year’s record and somehow people who don’t even have jobs are watching big flat panel TV’s and walk around in expensive “name brand shoes.”  

Now I’ll step down off my soap box, and be real.  Let begin by apologizing to those of you who have worked hard, saved your money and come into some financial misfortunes that were not your fault.  For the rest of us - Let’s look ourselves in the mirror and admit that we have spending problems.  We simply spent more than we made, because for so long the equity in our home always seemed to bail us out.  According to mortgage data, debt to income ratios continues to rise while the average incomes for Americans have actually been declining slightly.  After a decade of lavish spending, 2006 will be the year remembers because the mortgage companies started going bankrupt and the housing bubble finally bursted.  Home values have continued to drop rapidly because so many homeowners had adjustable rate mortgages and mounting credit card debt that they could no longer afford.  Homeowners no longer had the luxury of refinancing the home loans and unsecured debt and people began losing their homes.  The lending tightened with a credit crunch and it has ultimately become a foreclosure epidemic of the greatest proportion since the Great Depression.  The problems swam upstream and now the banking institutions began to fail because with the increasing home loan defaults created a liquidity problem that prevented banks from lending to each other.   The only option became loan modifications where banks would restructure a mortgage that had already been securitized, bundled and sold on Wall Street.  This will have a ripple effect on our economy for many years to come.

Now American consumers are trapped with credit card debt and home loans that significantly exceed the value of their assets. Homeowners can longer borrow to consolidate debt.  For all intensive purposes, second mortgages have vanished and new wave of debt relief has arrived.  Debt settlement is all the rage, because it completely legal and there are millions of testimonials throughout the neighborhoods in America that will tell you that it worked.  Debt settlement provides the opportunity for consumers to eliminate their debt without filing for bankruptcy.  Debt negotiations often provide a fresh start for people who have truly been struggling with credit card debt. 

My solution is for the credit abusing crowd to get together and make a pact that we will be more responsible and stop spending money we don’t have.  So let’s meet at Jimmy house on Saturday and we celebrate the beginning of a new era where we borrow less and save more!

With all of the hype regarding the $850 billion bailout of the financial sector many people have overlooked the new FHA home loan that is designed to prevent foreclosures and help homeowners get back on their feet. This new FHA home loan program, Hope for Homeowners was passed by Congress passed last summer and President Bush signed it into law on July 30.  The Federal Housing Administration officially took control the mortgage program on October 1^st.  According to California mortgage broker Jeff Morris, “For most borrowers its refinance or renegotiate into a lower monthly mortgage that they can afford.”

Hope for Homeowners, also known as FHA- H4H enables bad credit borrowers and those in jeopardy of losing their home in a foreclosure to refinance their mortgage into 30-year home loan with a guaranteed fixed rate.  Like other FHA mortgages, they are insured by the government. Meanwhile, FHA lenders have agreed to renegotiate and “write down” the loan principal to 90 percent of the property’s present appraised value, which in most cases is significantly lower than the original purchase price and existing mortgage balance.  Clearly the government has been actively creating mortgage products to help fight this foreclosure epidemic.

In the wake of this catastrophic financial melt-down, John McCain’s proposed to buy bad mortgage loans from the banks in an effort to fight off foreclosures and keep homeowners in their home.  The purchase mortgage proposal would also increase the liquidity and cash flow of these national banks and these financial institutions should be able to begin lending money again. McCain said he would utilize almost half the $700 billion from the recent Wall Street bailout package to aid American consumers immediately, rather than rescue the financial markets.  The Republican presidential candidate announced in the televised debate he would order the federal government to use $300 billion of specified treasury funds to buy the delinquent mortgages while enabling the struggling homeowners to retain their homes. 

Last month, Democratic nominee Barack Obama spoke of a similar plan, when he proposed that the U.S. government take great steps to help homeowners who were fighting to make their mortgage payment each month. McCain’s home loan plan was far more detailed.  “I would order the secretary of the Treasury to immediately buy up the bad home-loan mortgages in America and renegotiate at the new value of those homes — at the diminished values of those homes — and let people be able to make those payments and stay in their homes,” he said.  McCain called this loan modification proposal the “American Homeownership Resurgence Plan.”  Clearly the struggling economy has played a significant role in helping Obama pull ahead of McCain nationally and in critical battleground states as well.

Recent reports indicate that Americans have reacted negatively with great concern regarding the $700 billion rescue for the major U.S. banking institutions.  The fact that many Republicans voted against the mortgage bailout package did not stop McCain from going against the grain with his purchase mortgage bailout.  Most Republicans objected to the bailout bill’s size and to the basic belief that government intervention in the free market economy would be damaging. McCain’s plan for mortgage refinancing and loan modifying would be committing a much greater role for government and potentially the American taxpayers could take an even greater financial loss.  McCain continued, “It’s my proposal,” McCain said. “It’s not Sen. Obama’s proposal. It’s not President Bush’s proposal.”  As conceived by Treasury Secretary Henry Paulson and as passed by Congress, the rescue package would be used primarily to purchase mortgage-backed securities. It would allow, but not require direct purchase of mortgages. Under McCain’s plan, the Treasury would be required to modify mortgage loans directly with homeowners whose homes were experiencing declining values.

Economic adviser Douglas Holtz-Eakin remarked that the mortgage refinancing plan projected mortgages in “the low 5 percent” range that should help the sinking property values across the nation. 30-year mortgage interest rates remain relatively low between 5.75 and 6%.  It was unclear — either from McCain’s remarks or from the backup materials provided by the campaign — how such a massive plan would be administered.  Eakin also said the plan would help stabilize the plunging values of mortgage-backed securities that have been at the heart of the crisis in the financial markets.  “Sen. McCain believes this is exactly the right kind of policy,” Holtz-Eakin said. “Provide direct help to homeowners; at the same time, support the financial markets and keep them from further damaging the availability of credit to Main Street America, one of the — the real threats to the economy at this point in time.” 

McCain’s plan is bold and risky, but Roosevelt took similar action to end the great depression by purchasing homes from failed banks and those rescuing transactions helped banks find liquidity and helped homeowners keep their homes.  The American economy recovered and the era was marked as the “Great Depression.”  I will commend McCain for taking the first steps at proposing a solution to the mortgage and housing crisis.  Simply handing banks more money will not solve the mortgage crisis.  The fact that McCain proposes that “mortgage loans” will be restructured using the current value” signifies that he at least understands some the roots to this problem.  Most politicians love to blame the mortgage crisis on corporate greed and predatory lending, but the reality is that we had a housing bubble predicated on low interest rates and loose mortgage underwriting.  McCain’s plan is probably not the safest plan for America, but it’s likely not too far away from a solution to this mortgage mess.