If you need an FHA loan to buy a home or refinance, then you have until April 6th to call me, before the cost goes up. Plus, we have new updates on the HARP 2.0 government refi program, and it’s good news! Watch today’s video for details.
There are lots of terms we use in the mortgage industry that aren’t part of everyday parlance. Today, I’ll talk a little bit about “loan-to-value”, or LTV for short.
In fact, I have a video that’s less than 90 seconds long if you’re in a hurry:
So, just to recap what I said in the video, your loan-to-value is the percentage of your home’s value that you finance with your home loan.
Whether you a purchasing a home, or refinancing your existing mortgage, LTV is an extremely important factor in making an educated decision about your home loan.
I’ll give you an example:
FHA – When purchasing a home using an FHA home loan, you can finance up to 96.5% of the appraised value of the property. If you are refinancing, you have two options: “rate & term” or “cash-out”. Rate & term means you are refinancing to lower your rate or change the length of your loan. A rate & term refinance is capped at a 97.75% LTV for FHA. Cash-out FHA refinances are limited to 85 per cent of the value of your home. If your current mortgage is an FHA loan, you can refinance with an FHA streamline, which does not have an LTV limitation.
So your needs define your loan-to-value, which helps define what home loan program you are going to apply for.
If you would like to learn more about loan-to-value, other mortgage terminology, or home loans in Oregon and Washington, I invite you to visit my site or contact me. I am long on answers and short on sales pitches 🙂
Thanks for taking a minute to read this post!
Jason Hillard – homeloanninjas.com
Mortgage Advisor in Oregon and Washington MLO#119032
a div of Pinnacle Capital Mortgage Corp
1706 D St Vancouver, WA 98663
NMLS 81395 WA CL-81395
- What the heck does “loan-to-value” mean? (oregonrealestateroundtable.com)
- The Boogeyman, Loch Ness Monster, and Custom home loans (oregonrealestateroundtable.com)
- The Home Loan Application, by Jason Hillard , Homeloanninjas.com (oregonrealestateroundtable.com)
- Refinancing your Underwater Fannie Mae home loan (oregonrealestateroundtable.com)
- Real Estate News On The National Scene, by Phil Querin, Q-Law.com (oregonrealestateroundtable.com)
- Fha Home Loans Requirements (themortgagepot.com)
- FHA Clarifies Annual MIP on 15 Year Loans Less Than 78% LTV (fhaloanadvice.com)
- FHA Mortgage Insurance for Kentucky Mortgage Loans (louisvillemortgageguide.com)
- Help for first-time buyers (confused.com)
- Will lenders add to reverse mortgage requirements? (hsh.com)
this post was originally published on home loan ninjas on July 2nd 2010
Perhaps the biggest advantage to being an affiliate branch of a mortgage bank is our inherently “hybrid” nature. We are the bank; we have more responsibility and control than ever before. However, there are some hard and fast guidelines that all loans we originate and underwrite “in-house” must adhere to. These are policies that ensure our good standing with the investors we sell the loans to. Without access to these investors, we wouldn’t be in business because we do not service loans.
One of these steadfast rules is a minimum FICO score of 640, regardless of the loan program. This is where the “hybrid” nature of our operation kicks in and really sets us apart from a traditional bank. If we have clients that don’t meet certain underwriting criteria as prescribed by our investors, we can broker the loan to another bank. Hybrid: part bank, part broker. It really is a beautiful thing because it allows us to assist more customers than before. And we can be faster on our feet because we aren’t always relying on third parties, and provides more options to the consumer.
This, of course, brings up an important question…
Just because we can, does that mean we should?
My partner and I, as I have previously mentioned, rarely fill out a client’s home loan application the first time we talk to them. Many people out there don’t qualify for their “ideal” mortgage right away. Others don’t know how much income they truly make. The point is, we get to know the down and dirty details before we begin the process in earnest. Outside of a few exceptions, this is the only responsible way to do business.
Now many times one of those details is a “less than perfect” credit score. Frequently, this can be remedied in 6 to 12 months with a little hard work, diligence, and a willingness to pay the items that are negatively impacting the client’s credit score.
We help people climb back up. Its what we are supposed to do. We are advisors, not just salesmen.
Can you make a case in the post-bubble (fingers-crossed) era for doing loans for people with a 580 credit score?
Right now, we have quite a few clients that are in this range. Actually, we always do because we talk to a lot of people and we don’t believe in simply turning people down with no plan to become “approvable”.
So how do we determine whether or not to proceed?
The answer, to me, lies in whether or not the consumer is climbing the stairs up, or riding the slide down.
Let’s say we had a client come in to review their credit history with us 6 months ago, and at that time, their score was 493. We highlighted a plan of action, and they set their minds to achieving those goals. Let’s now assume that client followed all the steps and now they have a 597 credit score. They mention that they saw a house for sale over the weekend that they absolutely fell in love with. They want to know if they can get approved to purchase the home. I am morally OK with my Originator beginning the process with them. They have worked hard to improve their situation, and want to take an advantage of the opportunity to buy a house they really want, rather than settling for something now and trying to upgrade later.
Now let’s look at another situation that isn’t uncommon. A borrower comes to my mortgage company to get pre-approved to buy a “to be determined” property. They have a 641 credit score at the time of application. They start house-hunting, but can’t find anything they want for 60 days. Then they find something, put an offer in, and the offer is rejected. They put an offer in on another house; this one’s a short sale. They go back and forth with the seller over the next few weeks about closing cost concessions and inspection addendums. Suddenly the credit report is over 90 days old, which means we have to pull a new one. Low and behold, the borrower has maxed out a credit card, or taken a new loan out and missed a payment. Their credit score has dropped to a 599. Should we go ahead with the home loan?
The answer is not so clear cut, but I am damn certain about this: we are not acting in the consumer’s best interest if we don’t at least review the situation with them and determine the delinquency’s validity. It’s not professional to negotiate a mortgage for someone who is on the slippery slope of credit decline.
We aren’t trying to be “negative”, just honest and professional. The collective irresponsibility of borrowers, brokers, lenders, and banks got us into the current mess, and professional responsibility is the only way to prevent a repeat.
question mark image credit Image: jscreationzs / FreeDigitalPhotos.net
slide image credit Image: Tina Phillips / FreeDigitalPhotos.net
- Are banks unfairly denying certain loan applicants? (seattletimes.nwsource.com)
- Banks Tighten Mortgage Standards for FHA-Insured Loans (dailyfinance.com)
- HUD investigates lenders’ fair-housing practices (thegrio.com)
- Home buying gets tougher as lenders restrict FHA loans (seattletimes.nwsource.com)
- Housing Shaky as Lenders Tighten (online.wsj.com)
- Consumer advocates allege mortgage discrimination (reuters.com)
- Group accuses banks of violating gov lending rules (sfgate.com)
(originally posted on October 2nd, 2010)
I have had this rolling around in my head for a few weeks now, and with the change in FHA mortgage insurance monthly premiums bearing down on us in a few days, I had to share my thoughts. We’ve been doing a lot of FHA loans in Oregon & Washington, as I’m sure is the case all around the country, and this change is going to affect a lot of people. (I apologize for the low quality of the video, I have successfully screwed my phone’s camera up!)
Again, everything that’s changing about the mortgage industry is done under the auspices of avoiding another meltdown, curbing foreclosures, and making the mortgage-backed security a good investment. So, if you have an insurance policy which is designed to avert the risk of a loan in default to the lender, why would you want the premium on that insurance policy to be collected over time?
From a simple risk-assessment perspective, it would seem that the more time you are exposed to loss, the greater the likelihood that it will happen. The fear is that homeowners will default on their loan payments, so why would you push more of the premium to the monthly payment side (rather than the upfront funding fee) if the reason for the policy is to protect the investor from people who default on those payments?
It seems like the reasonable position would be to get the premium covered from day one. This reminds me of when the downpayment requirement for FHA went from 3% all the way up to a whopping 3.5 per cent. Does that extra .5% really invest the homeowner so much more that it reduces their likelihood of default? I’m not saying their should be less “skin in the game”, but if that’s going to be your approach, why not really DO IT? Make the downpayment 5%, or make some portion of the upfront mortgage insurance on an FHA home loan payable from the borrower’s own funds?
It may just be that I am making the age-old mistake of applying logic to government policy, but I am thinking that the intended purpose isn’t really what we are being told.
You can read some related posts on FHA loans and mortgage insurance:
If you have any questions about FHA financing, mortgage insurance, or home loans in general, feel free to send us an email or comment on this post! And if you have any thoughts on why the monthly mortgage insurance premiums for FHA mortgages are increasing while the upfront funding fee is decreasing, we’d love to hear them!
- It’s official – FHA has formally announced the mortgage insurance changes for FHA loans (annarborundressed.com)
- FHA Mortgage Insurance Premium Changes Made Official (fhaloanadvice.com)
- FHA To Increase Mortgage Insurance Premiums Nearly 64% – Prospective Buyers Tip (chicagonow.com)
- FHA Raising Annual Mortgage Insurance Premiums (fhaloanadvice.com)
- FHA Mortgage Insurance fees changing Oct 4th (seattlecondosandlofts.com)
- FHA 2010 Mortgage Guidelines (brighthub.com)
- FHA Feature: FHA is Changing…What is the Upside? (pinkbananaworld.com)
- Mortgage Definition: FHA 2/1 Buydown (zillow.com)
This week, the federal government is said to be announcing a new federal program designed to keep our economy vacillating between deflationary collapse and contrived recovery. The program, referred to as the Special TARP Underwriting Program to Impede Development, will first tackle the challenge of bringing the government’s most inane economic stability plans together under one larger, yet infinitely more purposeless program banner.
Initial funding for the Special TARP Underwriting Program to Impede Development will come primarily from contributions made on a voluntary basis by the nation’s largest and most insolvent financial institutions, through the sporadic unannounced printing of twenty and fifty dollar bills, and from change found in the couches left behind in foreclosed homes.
Names floated in the press for program director included initial frontrunner, Carrot Top, followed by Dan Quail and Paris Hilton, although confirmed reports say that Treasury Secretary Tim Geithner and White House economic advisor, Larry Summers, have thrown their considerable combined clout behind Elizabeth Warren.
“I can’t think of anymore more qualified for this job than Liz,” the Treasury Secretary said while attending a Telethon for the Boatless in Miami Beach, sponsored by the magazine, Unbridled Avarice, and through a grant made by Goldman Sachs. (In the spirit of full disclosure, Goldman did file papers with the SEC stating that the firm does plan to short that grant in an effort to remain vigilant about it’s risk profile.)
The Special TARP Underwriting Program to Impede Development is known by the acronym, STUPID. The program is projected to provide assistance to responsible American homeowners who have high credit scores, equity of $200,000 in a second home, and surnames that begin with “Gh” or “Pf,” assuming they did not file a tax return in 1992, and reside primarily in a state that ends in the letter “E”. Qualified homeowners can apply for assistance under the program by calling a toll-free number at HUD; area code 212-GET-STUPID.
Secretary Geithner explained the program to reporters while waiting for his dessert soufflé to rise. Those in attendance said that he told the group that the program would help homeowners and get the economy back on track by removing the key obstacle to the future profitability of financial institutions. He also mentioned that the soufflé was dry.
“So, now that you understand what STUPID is, let’s talk about what STUPID does,” Geithner told the group. “I think you can see why Larry and I feel so strongly that Liz Warren be asked to run the new program. I think that she, more than anyone else I can think of, is representative of what the program is all about. I’m hoping that within a very short period of time, the entire country will associate the name Elizabeth Warren with STUPID. I know Larry and I both do already.”
The good news is that almost all of the HAMP participating servicers have already signed on to participate in the new program, so most homeowners are very likely to find that they have a STUPID Servicer handling their loan.
Though it’s months away from awarding a single dollar to struggling homeowners, Oregon’s newly established foreclosure-prevention program keeps growing.
Oregon’s Homeownership Stabilization Initiative is in line to receive another $49.2 million, the U.S. Treasury Department announced Wednesday. That’s on top of the $88 million already awarded by the Treasury.
Oregon officials are still refining the details of its program and won’t be ready to begin dispensing money until the end of the year, said Michael Kaplan, director of the program.
“We’re thrilled,” Kaplan said. Even with the addition of the new money, he said, “we have so much more demand than we have resources.”
The foreclosure epidemic has claimed thousands in Oregon, largely due to the state’s high unemployment. Though it remains far behind foreclosure epicenters like Nevada and California in sheer numbers of foreclosures, Oregon is now seeing new mortgage defaults increase at the third-fastest rate in the country.
The new funding comes amidst a heated debate in Washington, D.C. about government spending and the spiraling federal deficit. While many economists argue the government needs to increase spending to jumpstart the economy, others maintain the country is drowning in red ink.
With the new anti-foreclosure money, the Obama administration is sending a clear signal it intends to continue to inject public money into the economy.
In addition to the new foreclosure prevention money, the Department of Housing and Urban Development announced Wednesday the launch of new $1 billion short-term loan program for at-risk homeowners.
The 24-month loans will be available to homeowners facing foreclosure in part due to “a substantial reduction in income due to involuntary unemployment, underemployment or a medical condition,” HUD announced.
Sen. Jeff Merkley, D-Ore., who has emerged as a vocal advocate for individuals slammed by the economic crash, hailed the new programs. “This funding will help Oregonians who have lost a job through no fault of their own while they get back on their feet,” said Merkley.
Obama first announced formation of the Hardest-Hit Fund in February, steering money to the 17 states most impacted by the foreclosure wave. The Treasury Department announced Wednesday that it is sending another $2 billion to the program, aimed at states where unemployment has remained high.
Qualifying standards for Oregon’s program are still being worked out, as are many of its details. Tentatively, the state envisions four different types of aid:
Loan modification assistance will help homeowners who are on the verge of successfully modifying their existing mortgages but require a small amount of additional financial resources to do so.
Mortgage payment assistance will help economically distressed homeowners pay their mortgages for up to one year.
Loan preservation assistance will provide financial resources that a homeowner may need to modify a loan, pay arrearages, or clear other significant financial penalties after a period of unemployment or loss of income.
Transitional Assistance will help homeowners who do not regain employment during the period of mortgage payment help with the resources needed to move to affordable, most likely rental, homes.
Oregon Real Estate Wanted (http://www.oregonrealestatewanted.com) is a web site created for the marketing of the needs of people seeking to buy real estate in Oregon. Buyers are listed along with their needs and qualification so those that are seeking to sell real estate can contact them just like buyers approach sellers of real estate.
How it works:
Each buyer listed on the site will be given a serial number that will identify them to the public. We offer this so their privacy is protected and fairness in the presentation of all opportunities is assured.
Before being listed on OregonRealEstateWanted.com. A buyer must have met with a loan officer and obtained a pre-qualification letter. This letter will not be listed on the site, but the name and contact information of the loan officer the buyer will be working with will be included with their listing. We encourage the buyer to allow the loan officer to pull their credit report and review all of their income documentation so that loan officer can ensure the buyer is qualified for the loan program they will be applying for. We want sellers and real estate brokers that visit the site to have confidence that the buyers listed have the ability to close on a loan.
We will promote a detailed wish list the buyer(s) are looking for so people that have real estate for sale can compare that wish list with their property. If they feel they have something that is a good fit, they will be encouraged to contact us and we will then notify the buyer of an opportunity.
When a seller or broker notifies us of a property or listing that fits the buyer’s criteria we will present that property to the buyer for their consideration.
By doing this we will allow the buyer to have full access to the available properties that are available. Both properties listed on the multiple listing services and For Sale By Owners (FSBO) will be considered.
This web site will allow Stewart Group Realty to present our clients to a wide range of opportunities.
Oregon Real Estate Wanted
Multnomahforeclosures.com was updated today (July 31, 2010) with the largest list of Notice Defaults to date. With Notice of Default records dating back over 2 years. Multnomahforeclosures.com documents the fall of the great real estate bust of the 21st centry. The lists are of the raw data taken from county records.
It is not a bad idea for investors and people that are seeking a home of their own to keep an eye on the Notice of Default lists. Many of the homes listed are on the market or will be.
All listings are in PDF and Excel Spread Sheet format.
Multnomah County Foreclosures
The collapse of Colonial BancGroup poses another hazard to the still-shaky housing market: Mortgages could become even harder to get.
The Southern regional bank, based in Montgomery, Ala., was the largest remaining player in warehouse lending, which provides short-term financing to independent mortgage bankers. At one time, these mortgage bankers originated half of all U.S. home loans using these funds.
Today, the warehouse lending market is decimated. In 2007 it was worth an estimated $200 billion; now there is just $25 billion available — 25% of which belongs to Colonial. With Colonial’s failure, those funds could become even more scarce.
“It’s like if they shut down half the concession stands at the baseball game,” said Scott Stern, CEO of the Lenders One mortgage bankers group in St. Louis. “It means the guy who’s last in line is going to have to wait a lot longer to get a hot dog, and in this market who knows what the price is going to be when he gets there?”
The money began drying up when investors started shunning mortgages not guaranteed by government-backed agencies such as Fannie Mae. These loans, made by the independent mortgage bankers, had become closely associated with the worst excesses of the housing bubble.
Among the biggest players in the market were Countrywide, rescued last year by Bank of America, and Washington Mutual, which collapsed last September. This year, two other prominent lenders had to unwind their warehouse business: National City, the troubled Cleveland bank acquired last fall by PNC; and Guaranty Bank, the Texas thrift that warned last month that it expects to be taken over by regulators.
To be sure, everyone isn’t fleeing the market. ResCap, a troubled home lender owned by the government-supported GMAC finance company, said earlier this year that it would expand its warehouse lending business. Citi said this month it expects to put $2 billion into warehouse lines this year.
But with small banks failing and pulling back and many larger players, such as JPMorgan Chase and Wells Fargo, not aggressively pursuing new business, few expect the new entries to reopen the market.
Thus the industry is lobbying Washington to give government-backed Fannie Mae, Freddie Mac and Ginnie Mae a bigger role in warehouse lending.
But with those entities already backing some 90% of current U.S. mortgage originations — and taxpayers on the hook for potentially hundreds of billions of dollars of losses at Fannie and Freddie — that idea is proving a hard sell.
Still, mortgage bankers are hoping the latest tremors in the banking industry will make Washington more receptive.
“We’re trying to show people how important this is, but I’m not sure the urgency is there,” said Glen Corso, a longtime mortgage industry executive who now heads the Warehouse Lending Project that’s advocating an expanded federal role. “We’d like to see a private solution, obviously, but failing that we need to get something in place to keep financing flowing.”