Is The National Association Of Realtors Hurting The Real Estate Market? by Brett Reichel, Brettreichel.com


Yesterday, a fairly sophisticated home buyer called me about a pre-approval.  He and his wife own a home, and a vacation home.  This is a successful business couple who are doing well in the residential construction market despite the current economy.  He indicated that they wanted to buy a new primary residence.  His question to me was “We can get together about 10% down.  Can we even buy a new home with less than 20% down?”

It’s no wonder they are confused.  Every other article where leadership of the National Association of Realtors is quoted, every press release they issue usually has the quote that “tight lender guidelines are hurting the real estate market”  or “buyers need to have 20% down and be perfect to accomplish a purchase” or some words like that. 

Unfortunately, these types of statements are blatantly untrue in most markets, and are very damaging to the real estate market at large and to home buyers and sellers everywhere. 

It’s true that lenders are giving loan applications MUCH greater scrutiny than they have in any time since 1998.  Rampant mortgage fraud on the part of borrowers, Realtors, lenders, and mortgage originators have required lenders to check and recheck everything represented in a loan application.  Unfortunatley, until we get everyone to realize that the “silly bank rules” they are breaking consititutes a federal crime we are stuck with the extra scrutiny.  Fortunately, the new national loan originator licensing and registration systems should make loan officers everywhere realize the seriousness of this issue and root out fraud before it get’s to the point of a loan being funded.  The safety of our banking and financial systems is too important to allow the kinds of games that have been played over the last few years. 

The National Association of Realtors is right about appraisals.  Appraisals remain a very serious issue.  Pressure from Fannie Mae and Freddie Mac on lenders results in pressures by lending institutions on appraisers to bring in appraisals very conservatively.  It’s common for appraisers to use inappropriate appraisal practice due to the Fannie Mae/Freddie Mac form1004mc, which results in innacurate appraisal (see previous posts).

It’s also true that underwriting guidelines are stricter than they were during the golden age of loose underwriting (1998 thru 2008).  What people don’t realize that underwriting guidelines are easier now than they’ve been in any previous time frame.  In fact, it’s a great time to buy for many folks who have been priced out of markets previously.

How can I make that type of claim?  Because I remember the “bad old days”…..Prior to 1997-1998, debt-to-income ratio’s were much stricter than they are now.   A debt-to-income ratio compares your total debt to your total income.  In the old days, if you put 5% down on a conventional loan, you couldn’t have more than 36% of your total income go towards your debt.  Now?  If you’ve been reasonably careful with your credit, have decent job stability, and a little savings left over for emergency it’s pretty easy to get to a ratio of 41%!  With only 5% down!  On FHA loans, it’s really easy to go to 45% DTI with only 3.5% down!   In fact, there are times that we go even higher.

Is that obvious in the mass media?  No.  They paint a dire picture based, in part, on the statements of NAR. 

So, if you are a Realtor, press NAR to paint a more positve picture of financing.  Nothing that is “puffed up”, just reality.  If you are a buyer, don’t be fooled by what you read in the mainstream press.  Talk to a good, local, independent mortgage banker.  They’ll give you a clear path to home ownership and join the ranks of homeowners!

 

 

FHA Loan Limits Can Drop Much Further, Study Finds, by Mortgageorb.com


Logo of the Federal Housing Administration.

Image via Wikipedia

The Obama administration‘s proposal for Federal Housing Administration (FHA) loan limits to reset to lower levels in October will have only a small impact on the agency’s current market share, a new study suggests. According to researchers at George Washington University (GW), larger reductions may be necessary to return the FHA to its traditional role as a lender to first-time and low- to moderate-income borrowers.

The report, titled “FHA Assessment Report: The Role and Reform of the Federal Housing Administration in a Recovering U.S. Housing Market,” concludes that the FHA still could serve 95% of its historic targeted market even if the maximum FHA loan limits were reduced by nearly 50%. To serve its target population, the report concludes that the FHA only needs a market share of somewhere between 9% and 15% of total mortgage originations. Currently estimates by the administration show that nearly one-third of new originations have FHA backing.

“FHA’s expansion played a major role in keeping the housing market afloat during the economic collapse of 2008 and 2009,” says Robert Van Order, co-author of the report. “However, we now are left with large loan limits that were set when home prices were at the top of the bubble. They don’t reflect current market conditions and are unlikely to assist the FHA in reaching its historical constituencies – first-time, minority and low-income home buyers.”

As part of its broader proposals to reshape the housing finance industry, the Obama administration wants to reduce the FHA’s high-end loan limit of $729,750 to $629,500. The GW report says an FHA limit of $350,000 in the high-cost markets and a limit of $200,000 in the lowest-cost markets is sufficient to satisfy more than 95% of the FHA’s target population.

The report also finds that the administration’s proposed reductions in loan limits would affect only 3% of loans endorsed last year.

“We find that FHA’s current market share exceeds what is needed to serve these markets,” says Van Order. “In the wake of significant declines in home prices, we believe the FHA could reduce its loan limits by approximately 50 percent and still almost entirely satisfy its target market. That would reduce its currently large market share, which is difficult for FHA to manage.”

Below Market Interest For Some Home Buyers Rate Available , by Brett Reichel, Brettreichel.com


If an interest rate below 4% is appealing to you, you should consider the Oregon State Bond Loan as an option in your next home purchase.

 Yes – it can be used in a “next” situation.  Though the program is a first time home buyer program, there are options for previous home owners to use this program.  The Bond Loan defines a first time home buyer as someone who hasn’t owned a home in the last three years.  So, if you owned a home, but sold it prior to 2007, it’s possible that you could qualify for this loan.

Currently, the State Bond Loan has an interest rate of 3.875%* and an APR of 4.721%*.  These low interest rates might be a once in a lifetime opportunity. 

The program is underwritten to FHA guidelines so it’s a pretty easy program to qualify for.  FHA allows for less than perfect credit, and has flexible debt-to-income guidelines as well. 

 There are income limitations, but they are quite generous.  You should plan on being a long term owner due to the potential “recapture” tax penalty (which isn’t automatic, nor is it as bad as many loan officers make it out to be).

Any “first time” home buyer should be considering this tool to minimize their housing expense!

*Based on a $200,000 sales price and $194,930 loan amount.  Finance Charge $157,406.55, Amount Financed $190,935.08 and Total of Payments $348,341.73.  Credit on approval.  Terms subject to change without notice.  Not a commitment to lend.  Call for details.  Equal Housing Lender.

 

Brett Reichel’s Blog  http://www.brettreichel.com

 

Fannie Mae Homepath Review, by Thetruthaboutmortgage.com


Government mortgage financier Fannie Mae offers special home loan financing via its “HomePath” program, so let’s take a closer look.

In short, a HomePath mortgage allows prospective homebuyers to get their hands on a Fannie Mae-owned property (foreclosure) for as little down as three percent down.

And that down payment can be in the form of a gift, a grant, or a loan from a nonprofit organization, state or local government, or an employer.

This compares to the minimum 3.5 percent down payment required with an FHA loan.

HomePath financing comes in the form of fixed mortgages, adjustable-rate mortgages, and even interest-only options!

Another big plus associated with HomePath financing is that there is no lender-required appraisal or mortgage insurance.

Typically, private mortgage insurance is required for mortgages with a loan-to-value ratio over 80 percent, so this is a pretty good deal.

HomePath® Buyer Incentive

Fannie Mae is also currently offering buyers up to 3.5 percent in closing cost assistance through June 30, 2011.

But only those who plan to use the property as their primary residence as eligible – second homes and investment properties are excluded.

Finally, many condominium projects don’t meet Fannie’s guidelines, but if the condo you’re interested in is owned by Fannie Mae, it may be available for financing via HomePath.

Note that most large mortgage lenders, such as Citi or Wells Fargo, are “HomePath Mortgage Lenders,” meaning they can offer you the loan program.

Additionally, some of these lenders work with mortgage brokers, so you can go that route as well.

Final Word

In summary, HomePath might be a good alternative to purchasing a foreclosure through the open market.

And with flexible down payment requirements and no mortgage insurance or lender-required appraisal, you could save some serious cash.

So HomePath properties and corresponding financing should certainly be considered alongside other options.

But similar to other foreclosures, these homes are sold as-is, meaning repairs may be needed, which you will be responsible for. So tread cautiously.

Report Reveals Racial Disparities in Mortgage Lending, Posted in Financial News, Mortgage Rates, Refinance


Funds used for refinancing home mortgages were less available in the minority sections of major U.S. cities than in predominantly white areas after the recent housing crash, according to a new study released on Thursday. The study, compiled by a coalition of nonprofit groups across the country, revealed that refinancing in minority areas has decreased since the recession.

Mortgage Refinancing Drops 17 Percent in Minority Areas

The report, titled “Paying More for the American Dream V,” took a look at seven metropolitan areas–Boston, Charlotte, Chicago, Cleveland, Los Angeles, New York City and Rochester, N.Y.–to explore conventional mortgage refinancing.

The study, compiled by groups like California Reinvestment, the Woodstock Institute in Chicago and the Ohio Fair Lending Coalition, revealed the following:

  • Refinancing in minority areas decreased by an average of 17 percent in 2009 compared with the year prior.
  • Refinancing in white areas jumped by 129 percent.
  • Lenders “were more than twice as likely” to deny applications for refinancing by borrowers living in minority communities than in majority white neighborhoods.

The report also found that minority borrowers were more likely to obtain a high-risk subprime mortgage loan than white borrowers, even if their credit was good.

Lenders Urged to Invest More in Low-Income Communities

Because of the inconsistency the study’s authors found in lending practices, they are concerned that there are ongoing racial disparities in mortgage lending as a whole.

Adam Rust, Director of Research at the Community Reinvestment Association of North Carolina, noted in statement “Lenders are loosening up credit in predominantly white neighborhoods, while continuing to deprive communities of color of vital refinancing needed to aid in their economic recovery.”

To aid the issue, the authors are urging lenders to make changes, including:

  • Investing more in low-income communities
  • Improving disclosure requirements to protect unwary borrowers

They noted that it is subprime loans that contributed largely to the housing market crash because not only were they given to those with poor credit, but income was never checked to confirm that borrowers could repay the balance.

With foreclosures expected to flow heavily in the months to come and home sales still struggling, the authors believe that expanding fair lending opportunities to all who qualify could help repair the housing industry. It’s for this reason they think changes to lending practices should be a top priority for financial institutions.

Mortgage Apps Rise as FHA Loan Demand Surges, Thetruthaboutmortgage.com


Mortgage application volume increased 5.3 percent on a seasonally adjusted basis during the week ending April 15 as government mortgage demand surged, the Mortgage Bankers Association reported today.

The refinance index increased a meager 2.7 percent from the previous week, but purchase money mortgages jumped 10.0 percent, mostly due to a 17.6 percent spike in FHA loan lending.

“Purchase application volume jumped last week largely due to another sharp increase in applications for government loans. Borrowers were likely motivated to apply for loans before the scheduled increase in FHA insurance premiums,” said Michael Fratantoni, MBA’s Vice President of Research and Economics, in a release.

Refinance activity increased somewhat, as rates dropped to their lowest level in a month towards the end of the week.”

That pushed the refinance share of mortgage activity to 58.5 percent of total applications from 60.3 percent a week earlier.

So it looks as if purchases will eclipse refinances in the near future, which is good news for the flagging housing market.

Meanwhile, the popular 30-year fixed-rate mortgage dipped to 4.83 percent from 4.98 percent, keeping the hope of refinancing alive for more borrowers.

The 15-year fixed averaged 4.07 percent, down from 4.17 percent a week earlier, meaning mortgage rates are still very, very low historically.

That alone could bring more buyers to the signing table this summer.

QRM Rule Could Cause FHA Mortgage Share to Skyrocket, by Michael Kraus , Totalmortgage.com


Recently I’ve spent a good deal of time discussing upcoming changes to risk-retention rules regarding mortgage origination that could potentially increase the cost of mortgages for a great many people.

Under the Dodd-Frank regulatory reform, loan originators will be required to retain capital reserves equal to five percent of all but the safest mortgage loans. The safe loans that will be exempt from this risk retention are called “qualified residential mortgages” (QRMs). The definition for a QRM is expected to be released in the next couple of weeks, but the expectation is that in order to be a QRM, a mortgage loan will need a 20% downpayment. This means that those that do not have a down payment of this size will be subject to increased mortgage rates to make up for the risk retention on the part of the lender. The Treasury, the Federal Reserve, the FDIC, the FHA, and other regulatory and governmental agencies are responsible for defining a QRM.

The rule is intended to ensure that lenders have “skin in the game”. In the past, some mortgage originators would make risky loans, and in turn bundle them into mortgage backed securities and sell them to investors, effectively passing all the risk to another party. These practices were partially to blame for the meltdown of the housing market. Theoretically, the QRM rule would end these risky lending practices.

There is an exception to the QRM rule, and that is that loans issued or guaranteed through government agencies (not Fannie Mae or Freddie Mac) are to be exempt from the rule. See section 941 of Dodd-Frank, specifically (ii):

‘‘(G) provide for—‘‘(i) a total or partial exemption of any securitization, as may be appropriate in the public interest and for the protection of investors;

‘‘(ii) a total or partial exemption for the securitization of an asset issued or guaranteed by the United States, or an agency of the United States, as the Federal banking agencies and the Commission jointly determine appropriate in the public interest and for the protection of investors, except that, for purposes of this clause, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation are not agencies of the United States;

‘‘(iii) a total or partial exemption for any assetbacked security that is a security issued or guaranteed by any State of the United States, or by any political subdivision of a State or territory, or by any public instrumentality of a State or territory that is exempt from the registration requirements of the Securities Act of 1933 by reason of section 3(a)(2) of that Act (15 U.S.C. 77c(a)(2)), or a security defined as a qualified scholarship funding bond in section 150(d)(2) of the Internal Revenue Code of 1986, as may be appropriate in the public interest and for the protection of investors; and

‘‘(iv) the allocation of risk retention obligations between a securitizer and an originator in the case of a securitizer that purchases assets from an originator, as the Federal banking agencies and the Commission jointly determine appropriate.

As FHA mortgages would be exempt from QRM, it is very easy to imagine a situation where FHA loan volume greatly increases as a result of the rule change. The FHA only requires a down payment of 3.5%, but I can easily picture those with less than 20 percent down opting for an FHA mortgage in order to avoid higher mortgage rates resulting from the risk-retention requirements (obviously it will depend on whether or not the increased rates cost more or less than the FHA’s up front mortgage insurance premiums, which remains to be seen).

In any case, this could put the FHA in a tough spot, as it is already undercapitalized, and was never really intended to do the volume of loans that it is doing presently. The VA and USDA could also see increased loan volume, but the increase wouldn’t be as great as with the FHA, as these loans are restricted to a smaller group of people.