Help for underwater homeowners

This week, a housing regulator reported changes to a government refinancing program that may help a million homeowners from the estimated 11 million that are underwater in their mortgage. These homeowners owe more on their homes than their homes are actually worth.

The Federal Housing Finance Agency that oversees mortgage sources Freddie Mac and Fannie Mae stated they were easing the terms of the 2 year old Home Affordable Refinance Program that aids borrowers who have kept up with their mortgage payments but have not been able to refinance due to drops in home values.

In order to help these borrowers, FHFA stated it would lose the cap that stops any owners if their mortgage is more than 125% of the value of the property from participating in HARP. HARP is a program backed by Freddie Mac and Fannie Mae.

FHFA’s acting director, Edward DeMarco stated, “Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets.”

One lawmaker after talking with DeMarco in October stated that the expanded program could aid between 600,000 to one million borrowers, but went on to say that it is only a small fraction of the around 11 million homeowners that are underwater.

President Barack Obama is likely to endorse the initiative during a speech in Las Vegas. The president will use the trip to raise money for his re-election campaign as well.

The White House is not certain just how many homeowners the program can help, but Gene Sperling, White House economist states it is too early to tell how many homeowners would “benefit from the changes announced today or could be announced in the future.”

The New York Times stated the new initiative as a part of a program that the president would be announcing to help address the nation’s economy while Republicans are reluctant to pass his jobs plan.

This is the latest attempt of the White House to deal with a major factor that is slowing the economy – the housing market – and is also added to the political liabilities for Obama’s re-election bid, which is also jeopardized by high unemployment in the United States.

Previous federal programs to stop or slow down foreclosures have failed.

To encourage banks to get on board in the program, FHFA is remodeling it to protect lenders so they do not have to buy back HARP loans if underwriting problems are found later. Lenders will only need to verify that the borrowers have made six of the last mortgage payments. The new rules also eliminate the need for appraisals in the majority of cases.

FHFA stated that the government-controlled Fannie Mae and Freddie Mac would waive specific fees for borrowers that refinance into loans with a shorter term, like 15 years, intending to encourage homeowners to pay down the amount they owe in a shorter time period.

One of the Obama administrations in the hopes of helping with foreclosure efforts, HARP was announced in March 2009, which was thought, would help around 5 million borrowers. At this time, only around 894,000 borrowers have used the program to refinance their loans.

FHFA announced it would extend the program until Dec. 31, 2013. The program is limited to loans that were guaranteed prior to June of 2009 via Fannie Mae and Freddie Mac.

New York Fed president William Dudley during a speech at Fordham University’s Gabelli School of Business in New York stated, “Breaking this vicious cycle is one of the most pressing issues facing policy makers.”

Potential changes to FHA loans

If the changes in limits for loans through FHA do change instead of being extended it may make it hard on home buyers.

If Congress does not extend the expiration deadline, FHA loan limits will end starting on October 1, which will result in changes that can affect potential borrowers and the housing market. FHA loans provide borrowers competitive rates along with terms, and only require a 3.5% down payment.

Allowable debt ratios are higher than the normal debt ratio limits seen with conventional loans. Additionally, there are not any income limit qualifications, which allow more individuals to qualify for the loans.

In an effort to help the home buying market, Congress raised the loan limit until September 30. Lawmakers at this time have not come to an agreement when it comes to extending the loan limit. If this loan limit is dropped several California home buyers looking for larger mortgage will need to apply for jumbo or conventional loans. This may cause these individuals to have to put up larger down payments and pay higher interest rates.

Potential home buyers should keep an eye on the following if the loan limits are decreased.

• Lower loan limits – The conforming loan limit decides the maximum mortgage amount that FHA, Fannie Mae, and Freddie Mac can buy or guarantee.

• Decreases by county – Under the new FHA loan limits, some counties in California will see major drops in their loan limits. Santa Clara County will see a $104,250 drop.

• Jumbo loans – The current FHA loan limit is $729,750. After October 1, that limit may decrease to $625,500. All mortgage loans higher than this amount will be known as nonconforming jumbo loans, which normally have rates that are 0.875% to 1.5% higher than conforming rates and require higher down payments.

• More stringent requirements – FHA loan requirements may permit lower credit scores.


FHA Releases New MAP Guide

The Federal Housing Administration has released their new version of the Multifamily Accelerated Processing guide better known as MAP centered on improving the time it takes to process.

The new guides combine all of the multifamily program changes along with guidance such as FAQ, mortgagee letters, and notices all in one document. This information was at times hard for lenders to collect and even staff members at HUD had trouble finding. The guide will also provide precise clarity around affordable housing transactions, which is an area that has been neglected in other versions or guides.

In theory, the time it takes to process could improve via using the new guide due to the fact that lenders and HUD staff will not have to spend as much time debating on what is allowed along with saving time on research. On the other hand, do not expect this to be a fast answer to the problem as the business that has flooded in over the last year still has to be gone through which will take some time.

Phil Melton, managing director at New York–based MAP lender Centerline Capital Group stated, “The long-term effect of the MAP changes will be really beneficial,” and went on to say, “But you still have a short-term issue that’s going to take some time to play itself out. You still have to get through the current logjam.”

Turn around times are seeing improvements, however, they are still not quick. A new construction loan via a Sec. 221(d) (4) program can still take up to a year, while a refinance or acquisition loan via a Sec. 223(f) program can take between seven to nine months.

Of course, the timeline will vary according to the program as well as the HUD office you are using. A few offices such as the one in Columbus, Ohio states their turn around for Sec. 223(f) applications is 60 days.

This can be confusing once again as the definition of days was also changed in the new guide. The agency now guarantees a pre-application review of 45 days for Sec. 221(d) (4) loans with another 45-day review of the firm commitment application. Prior to this new guide, calendar days were used but now they are measured in business days, which make the time line longer.

Even with these days outlined in the new guide, the idea is of course the best practice but they are not reality.

Ed Tellings, FHA chief underwriter at Columbus, Ohio–based MAP lender Red Mortgage Capital stated, “To be honest, I don’t think many offices at this point, given their staffing and resources, can meet the time frames that are established,” and went on to say, “It’s a little better now than it was six months ago, and that has a lot to do with HUD getting through that volume of business they received last September.”

The current loans being processed are from last September. The loan changes by the FHA were changed in July of 2001 to make them less generous for market-rate deals while debt service coverage went up, and leverage went down. The deals were sent prior to September 1, 2010, which was placed in under the previous generous terms, which buried the agency in more paperwork and of course more volume.

What this did was cause the FHA to become a victim of their own guidelines. During the last fiscal year, the FHA processed a record $10.4 billion in multifamily deals, which surpassed in August, with more than a month left to go in the 2011 fiscal year.

The capital markets are improving and more lending options are slowly becoming available, several borrowers still think waiting on FHA is the best way to go. Sec. 221(d) (4) deals are quoted under 5 percent, which is an awesome rate for a 40-year, non-recourse money that can go up to 83.3 percent leverage on market-rate deals. While a Sec. 223(f) deal for a refinance or acquisition are currently being quoted in the low–4 percent range.

The FHA has made other improvements to keep it all moving. The FHA will refund the fee for an application that has not been gotten to yet while some of its overwhelmed offices, like in San Francisco, are sending their workload to less-overwhelmed offices, like Phoenix, Arizona. The FHA also overhauled its loan closing a document that has not been done in the last 20 years, regulating underwriting and narrative templates and streamlining the process.

Lenders are delighted with how the new MAP guide turned out and congratulate the HUD multifamily team, in particular Chris Tawa, Dan Sullivan, and Janet Golrick, for delivering on their promise.

Tellings stated, “By providing clear guidance, it should allow people to move quicker on those issues where HUD offices and lenders get hung up,” and went on to say, “HUD’s done a really good job of taking a lot of questions and issues and putting them all in one place.”

Tear Down Programs in San Diego

Some select lenders in the San Diego area are faced with inventories of foreclosures rising have started tear down programs to help lower their existing home inventories. Instead of allowing these homes to enter the already flooded market, which will bring on more pressure on the existing home sales, some major banks are tearing down the homes that have recently foreclosed. In San Diego close to 27,000 homes are foreclosed on each year. Last month, San Diego was in the 2nd position for REO filings with Maricopa County in Arizona topping the list, which is up 534 percent.

JP Morgan, Wells Fargo, and Bank of America are now destroying their REO inventory. The way the properties are chosen varies from lender to lender. One major consideration is the projected tax write off for the transaction. If the home was not foreclosed on with the idea of tearing it down, tax write offs can be given at up to full market value.

The problem of foreclosed homes

Bank of America foreclosed on over 40,000 homes during the 1st quarter of 2010. The southwestern US is affected more than other areas of the US at this time. Just last month there were over 42,462 homes in pre-foreclosure and found in auction filings, which equals 4 out of every 10 filings across the United States.  

There is controversy concerning this new program.  Families that have lost their homes due to foreclosure over the last four years are now homeless, living in shelters, on the street, or with family or friends.

What is better? Should these families still be living in their foreclosed homes? Should the homes be used for shelters for others that are homeless? What should be done with the homes that are fast becoming eyesores and in need of repair?

What is the real solution for the banks that are holding 100,000 foreclosed homes? Should the banks just hold on to the properties, pay the property taxes, and keep maintaining these homes until the market is better?

Low Mortgage Rates & Compliant Loan Limits Extended

Good News! Mortgage rates are considerably low right now. What this means is if you are considering refinancing, now is the time. With rates this low, you can save a huge amount of money each month by reducing your monthly mortgage payment.

This will allow you to have extra money to put away in your child’s college fund or your own retirement fund, home repairs, home improvements, or for that brand new car. If you wait, you may miss the chance to save hundreds of dollars. The market changes at a blink of an eye and you do not want to miss the opportunity while mortgage rates are low. Let me help you get started today on that refinancing loan.

More good news! Congress has extended higher conforming loan limits that are backed by FHA, Fannie Mae, and Freddie Mac until September 30, 2011. The higher loan limits were established by the Housing and Recovery Act in 2008.

Before this time, the conforming loan limit was $417,000 in the high-cost areas. After the Housing and Recovery Act was signed, the conforming loan limit has been $729,750 in most high-cost areas.

This conforming loan limit is very helpful in high cost areas across the nation such as in New York and California where the average housing costs trends are quite a bit higher than other areas around the US. With housing prices down, many homebuyers in these high-cost areas have discovered they are eligible for refinancing with a high balance conforming loan. Do not wait if you wish to refinance as you only have until September 30 to close the contract.

You can contact me today and I will provide you with all the information about these new great developments and how they can save you money.