Mortgage Blog

Here is the latest from FHA. The implementation of FHA's new policy for the number of condo units that can be financed using FHA mortgage and for project approvals limitations is being delayed until Dec 7th, 2009. FHA will be coming out with the "revised" rules in the next couple of weeks but we expect them to allow more than 30% (possibly up to 100%) of condos being able to go with FHA financing. This is a good sign out of the HUD office in Washington! Additionally, lawmakers should have a final vote on extending the tax credit by Friday of this week. As you may or may not already know - we are going to get the extension but we have to wait for the official word out of Washington.

This is not a Halloween joke and yes it is just the hard cold reality that we do live in a very scary industry right now. As of this morning one of the largest investors in mortgage back securities, is now requiring a 640 FICO score on all FHA loans. This will more than likely trickle down to the rest of the industry and other investors will probably follow suit quickly.

With the change of across the board debt-to-income limitations of 45% starting Dec 12th 2009, (that by the way is not a specific to any one mortgage company that is a Mortgage Industry change) along with this recent announcement, now is the time to tell EVERYONE you know to get under contract now. Don’t let them wait for a better deal because that "better deal" is at this very moment not tomorrow or 1 month from now when they may not even be able to borrow money!!!

I do have some alternative methods by the way to combat all these things. Call me for details and let my 20 yrs of experience walk you through some "adaptive" changes we used to do all the time back in the "good old days"! Its not ALL bad folks, we will get through all this, you just have to work w/ the right people.

Randy Reed

303.809.LOAN(5626) cell

303.524.9191 office

I would like to update you on what is happening out of Washington on the following:

Status of Tax Credit: Things are looking good!

While a final deal was not reached over the last couple of days, there are some encouraging signs that a deal is very likely. It seems to be more a question of "when" rather than "if".

The latest proposal (which is still subject to change) would extend the tax credit until April 30,2010 and also expand it to “move up” buyers.

Details of the revised homebuyer credit reportedly are as follows:

· Credit is changed to 10% of sales price up to $7290

· For first time homebuyers, the income level to qualify is $ 75,000/150,000.

· For "move up" buyers the income level to qualify is $ 125,000/250,000.

· For "move up" buyers, they must have been residing in their primary residence for 5 years.

· The credit runs from Dec. 1, 2009 to April 30, 2010.

· Sales contracts signed as of April 30, 2010 would have 60 days to close.

Extension of Temporary Higher Mortgage Limits

It appears that we are also getting closer to extending the current temporary increase in FHA & GSE mortgage limits for another year. Hopefully, this legislation will also be passed in the next week or so.

FHA Condominium Changes

FHA maintains that they will be publishing the condominium letter shortly (we have been hearing this for about the last week). They held meetings with some of the major trade groups this week and have advised the following:

• FHA concentration will go to 100 percent in established projects, 50 percent in new projects.

• Pre-sale will be lowered to 30 percent

• Owner occupancy remains at 50 percent

• Commercial space will remain 25 percent but FHA will do waivers as requested

• FHA will eliminate "spot loan" approval. They maintain this will not be a problem.

Declining Markets Policy

As suspected, FHA should be eliminating the second appraisal requirement for properties above $417,000 in declining markets.

Randy Reed 303.524.9191

CMPS, CML

I wanted to provide you with an update on what is happening in the mortgage industry. Please read through this completely as this DOES and WILL affect current and future business. Don’t let ANYONE say, “I am going to wait and see if I can get a better deal” because chances are they will have a more difficult time (like its not hard now) to even GET financing!!! Get them closed now before it’s too late…

Effective December 12, 2009 new debt-to-income limits will be at 45% per Desktop Underwriting (DU - computerized approvals)!!!

Additional changes and upcoming guidelines:

* FHA is changing how long an appraisal is good for and stays with a property from 6 months to 4 months.

* FHA Condo Project Approval: Effective date currently is 11/1/09 and it might be pushed to 12/1/09. FHA is reviewing the announcement which caps the maximum number of financed Condos in a complex from 30% to potentially changing that up to 100% on existing and new projects could go up to 50%! This is big news because the announcement they made about 1 month ago, would have completely destroyed the nations Condo markets. Spot approvals still look like they will be going away so getting project approvals will definitely take longer and it will be more expensive to actually get a Condo closed going with FHA financing.

* 5 yrs from foreclosure, in order to qualify for new loan a minimum 680 FICO w/ a 10% down, no 2^nd home or investment property will be permitted w/ in 7 yrs of a foreclosure, no cashout refinances for those who have a foreclosure in the last 5 yrs.

* If a borrower has a Deed-in-lieu (not short sales) within 4 years from date listed on credit report can not obtain financing.

* CHFA is tightening credit guidelines and will be taking a closer look at borrowers who have credit scores below minimum guidelines (620). Even though they will go to 580 on a FICO they will be more critical on low credit scores along with debt-to-income ratios over 45% but chances are they will require ratios at or below the 45% requirement which is what the rest of the industry will be moving towards starting on December 12, 2009!!!

This is a letter I wrote to the Federal Reserve in response to them discussing changes recommended from our elected officals in Washington, called R1366. This new proposal eliminates what is known as Service Release Premiums (SRPs) to mortgage lenders when origianting new mortgages. SRPs are traditionally a huge part of the income generated from mortgage originations. If R1366 is adopted, investors to Mortgage Back Securitites would no longer provide SRPs to the mortgage community. This essentially would destroy not only how mortgages are generated but more importantly would wipe out the traditional mortgage loan origiantor as we know it today. Here is my comment submitted on 10-5-2009:

I am a 20 year mortgage banking professional. When I first heard about our government talking about R-1366 last year, my initial response was, are you kidding me? This proposal would literally destroy the mortgage industry and completely devastate our economy in a way that the average homeowner would find it even more difficult than it already is to borrow money for their homes. Why do you ask? By changing the way Mortgage Back Securities are exchanged and managed in today’s current system, you will narrow the ability of any investor in MBSs to receive any type of return enough to justify the investment. Our government can not control the free open-market financial system. As much as you may think you can, the fact of the matter is, if you do this, you will cripple institutional investments in MBS. Ultimately, the average working US citizen would no longer be able compare and shop for the best mortgage because and you would have created a Mortgage Monopoly as it will be the local “Banks” that would be the only “game in town”. Interest rates will actually be higher for the consumer since those institutions offering mortgages will have a higher over head to conduct business, will build their profit margins into interest rates, and the quality of service and advice given to the consumers will be no different than driving up to a fast food restaurant and saying, “Give me a # 1 please without any lettuce” and getting the response from the order taker, “sorry we cant do that any more – it all comes prepackaged nowadays”. We have and always should be (mortgage providers) advisors to our clients for their biggest asset (home) which has the biggest liability (mortgage) and if you eliminate individuals such as myself to conduct business, we will just become order takers – not professionals who provide quality advice and superior service for those in need of a mortgage.

The mortgage industry, financial institutions, and investors in MBSs, have all made changes which began over 2 yrs ago to control things that quite honestly fixed the mess that our Federal Reserve gave the “ok” to Fannie Mae and Freddie Mac over a decade ago which allowed bundling of MBS of lower quality B paper in A paper trades. That was our government’s doing – not ours. Stop trying to control free trade and limit the ability of US Citizens to work through the toughest time economically of our country’s history and work more towards actual improvements of economic growth. Concentrate on job growth not job loss (that’s what would happen by the way) if you pass R-1366. If R-1366 becomes a reality, you will destroy approximately 70% of the mortgage industries ability to produce. Our industry helped us get out of the tough economic times after 911 and we are providing the same thing this year. Just look at the impact mortgages have done this year vs any other year to our overall GDP (Gross Domestic Product).

Now is the time to act as true representatives of what is ultimately best for our nation in the LONG run not just another governmental change that is reacting to something from years past and quite honestly, just isn’t how things are today. We, as an industry, have already made changes corrective measures. It is definitely harder to get financing today than it ever has been before in the history of mortgage lending.

I understand you are trying to make things more evident to the consumer and even out the playing field for them, but quite honestly – it already is. Have you personally tried to get a mortgage lately? If you haven’t then I say you should be required before you recommend any new changes to our financial markets to PERSONALLY get a mortgage before you make changes that will impact every single homeowner in America. You’ll know instantly why people like myself are so important to your success in buying or selling a home!!!

There are fewer people in my industry than there were 20 yrs ago, homeowners need and want experienced people handling there mortgage loan(s), they honestly could care less if I get paid more from one investor to another when I go sell my note to them. All that matters to the consumer is quality service at a fair price – the product is the product, in my business it is all about service and removing SRPs from the equation will devastate the industry to where the “good guys” in my industry will get out!!! We, investors, and you have eliminated the bad apples in the mortgage industry.

Now is the time to do something by stabilizing our mortgage environment – not make it more difficult or nearly impossible for people to borrow money into future by allowing R-1366 become a law. Stop R-1366 in its tracks!

Sincerely,

Randy Reed

The most recent developments economically and financially came out of Washington lately as VP Joe Biden commented over the weekend that our administration miscalculated how bad the jobless problem would be (our unemployment rate is over 10% and the effective rate is closer to 13-15%). This is causing speculation as to whether our not our government should try to work on more "stimulus" money for 2009!

Speaking of our so-called "Stimulus" money, members of Congress admitted to voting on passing the first stimulus package with out even reading through it!!! They also went on to say that now that they look back, have discovered the $800 BILLION was not earmarked in actually stimulating the economy. Is this really coming out now? Yes it is. This is such a huge story. I knew then as I know now, our politicians have no CLUE how to run our financial markets and economic development! I don't know about you, but I am writing my congressmen to voice how sickened I am of their total incompetency and what kind of impact this is going to have for generations to come! This news out of Washington can create a negative impact both economically and worldwide as investors opinions may soon change!

On another note, whether or not you are a listing agent or a selling agent, investors for mortgage back securities are now requiring appraisal square footage to coincide with what the county assessor's office says. So in other words, for homes that have additional living space, the homeowner has to provide that the proper permits where pulled and/or meet the local codes if a permit wasn't obtained. Add-ons, finished basements, etc will fall into this category. If a seller did the work themselves and they were trying to cut costs by not pulling the proper permits, your deal will blow up, because lenders won't be able to sell the mortgage on the open market. DO YOU RESEARCH now vs. later on all transactions!   

My recommendation is to lock transactions - take what we can get now. For anyone who think that rates will fall back below 5% you will be sadly mistaken. The odds of it happening are very small at this moment.  

Marketing Recommendation: We are down to our last few months of the year to take advantage of first time buyers and the tax credit. This is our number one category for purchases right now. Go FIND a first time buyer now before it's too late!

Randy Reed, Certified Mortgage Planning Specialist

303.524.9191

randy.reed@mpspecialists.com

So many changes in our market place over the last couple of months has made me announce a few changes coming our way. First, the biggest news as of today, is the Financial Accounting Standards Board (FASB) voted favorably to relax mark-to-market accounting principals to help financial institutions. This huge change will significantly reduce the "writedowns" banks have had to take on investments such as mortgage backed securities. This doesn’t help those who have already had to take the writedowns over the last 1 1/2, but it could improve earnings by 20% for banks into the near future. This change is effective starting in the 2nd quarter of this year.

Secondly, starting yesterday, FHA appraisers have to start addressing declining market conditions for subject properties. We have had to deal with this on our conventional appraisals for quite some time and now FHA has jumped on board to whereby we have to start meeting/addressing declining market conditions for properties that get FHA financing. This will affect appraised values and underwriting conditions on FHA transactions.

Thirdly, starting May 1st all of us lenders have to abide by HVCC rules which prevent anyone of us, in ordering appraisals or having communications directly with an appraiser. This will have a huge impact on how long it will take to get deals done, conditions on appraisals, potentially higher fees being charged, and lower valuations on homes in general. This is a big big thing people, and if you have any one on the “fence” on whether or not they should buy now vs later, more than EVER before, this is our last ditch effort in securing deals today! ACT NOW BEFORE ITS TO LATE and get appraisals done before the end of this month!!! This is only for Conventional mortgages but I wouldn’t be surprised if FHA jumps on board later on down the road.

For anyone who thinks rates are going down below 4.5% because this is what the media has brainwashed the public to think – its NOT HAPPENING!!! There are several reasons why this won’t happen but here is the evidence:

The 1.3 TRILLION dollars our Federal Government has and will be investing in mortgage back securities (MBS) is on the 5.0-5.5% coupon rates. They are NOT buying 4% MBS’s! The other reason why, is that investors themselves are not allowing rates to go down that low INTENTIALLY because we literally don’t have the man power to take on such a “flood” gate of applications PLUS if you think about it, they want to take as much profit as they possibly can today, given all the trillions they have lost over the last 1 ½ years. So, if you have people who say they are waiting for 4.5-4% rates to buy or refinance, tell them what you know (because you are the educated one) and the reasons why it won’t happen! Because, if they wait, the rates we have today, will be in their “rearview mirror”!!!

If you have questions, please feel free to call me at 303.524.9191

Randy Reed – CMPS, CML, Licensed Mortgage Broker (MBCO100015425)

FHA increases the loan limits for the Denver-metro area to $406,250! This is an incredible opportunity for all of us to increase sales activity by allowing those with a low down, better than conventional interest rates, and the lowest monthly mortgage insurance option for those who wish to become homeowners. Some investors are accepting FHA locks up to this new loan limit today and all others will follow in the coming weeks. If you wish to receive the latest City/County loan limits email me your request at randy.reed@mpspecialists.com

Speaking of homeowners, President Obama in part of his Stimulus plan, announces this past week his Homeowner Affordability and Stability Plan. The "Plan" calls for increasing subsidized loan modification programs to banks who participate in any TARP II monies. The objective is to encourage banks who have at risk or failing loans to modify existing terms for homeowners to lower their interest rates as well as to possibly lower their principals. Basically, if an investor does a loan modification, they can receive up to $1000 as an upfront fee and $1000 per year for 3 years if the loan stays current. A homeowner can receive up to $1000 per year in principal reduction for each year they stay current for the first 5 years. More details on this will come in the next week or two.

The other portion of President Obama's Homeowner Affordability and Stability Plan, is to offer homeowners who are current on their existing mortgages to refinance up to a 105% of the value of their home. Now, this is going to be a tad tricky because if a homeowner has a second mortgage; the second lien holder has to agree to the terms AND re-subordinate the existing lien. Again, more details to follow in the coming weeks.

Interest rates are awesome and are still at their 40 year lows. Tell everyone you know that they literally have a "once in a lifetime opportunity" with home prices being the way they are AND rates being lower than what we have seen in my 18 years in the business! Things are taking a bit longer to get loans through the system, so show some courtesy and be patient with those who are working harder than they have ever had to especially with all the restrictions we have going on in the mortgage industry.

Randy Reed - CMPS, CML, Licensed Mortgage Broker

303.524.9191

As we eagerly await the Senate’s vote on the stimulus package today, Secretary of Treasury, Tim Geithner, will reveal proposals for spending on the remaining TARP money. It will be interesting to watch as the financial sector reacts to these announcements. Meanwhile, Mortgage Bonds are higher this morning.

Also today, Federal Reserve Chairman Ben Bernanke will discuss the Fed’s liquidity efforts. Today the Treasury will auction $32B in 3 year T notes. The Feds also state that they are committed in buying $600B in mortgage backed securities. These events will have a major impact on stocks and bonds.

Trading this morning has been positive. Today’s recommendation is to float. However, watch closely as things can change very rapidly.

Randy Reed

(303) 524-9191