FHA Mortgage Insurance Premium MIP Risk Based Pricing

One of the ways that FHA have chosen to combat themselves against increasing the continued risk of foreclosure is by increasing the costs for Mortgage Insurance Premium in the upfront and monthly MIP side of costs. In an FHA loan, you pay up front Mortgage Insurance, and a monthly Mortgage Insurance. In the below chart, the larger percentage reflects the UpFront and the smaller is the monthly. You take the percentage and multiply that times the loan amount on the upfront and you get the cost up front...for example, on a $100,000 loan with 1.75% Upfront MI, your cost would be $1,750. On the monthly, you take the loan amount times the rate, and divide it by 12 and you get the monthly. So, $100,000 loan with .5% monthly means you have a $41.66 monthly MI payment to your total payment.


30/25/20 Year Fixed
All Credit Scores* Up-Front Mortgage
Insurance Premium Annual Premium
= 90% Loan to Value(10% or more down) 1.75% .50%
= 90.01% - 95% Loan to Value(9.99% – 5.00% down) 1.75% .50%
= > 95% Loan to Value (5.01% – 2.25% down) 1.75% .55%


15/10 Year Fixed
All Credit Scores* Up-Front Mortgage
Insurance Premium Annual Premium
= 90% Loan to Value(10% or more down) 1.75% NONE
= 90.01% -94.99% Loan to Value(9.99 – 5.01 down) 1.75% .25%
= > 95 Loan to Value (5.00 – 2.25 down) 1.75% .25%

What's In the Forecast For the Real Estate Market

In a Market Update written by Jennifer Eggen, Regional VP of Wells Fargo, she offered that before we see a market change, the housing market prices have to stabilize so that banks and investors can have harder number to calculate risk on REALLY how much equity they have in their investments. You can see that if they have say, $1,000,000 (small number for easy explanation) loaned out, and they find that the total amount of loan plus assets are $2,000,000, then they know they have 50% equity and can calculate where to loosen guidelines. Jennifer Eggen also reflected on former Fed Chair Alan Greenspan’s expectations of the bottom of this crisis finally being in our sights, and that we may likely see that turn we all have been waiting for in the first half of 2009. Greenspan is probably one of the most well respected experts when it comes to forecasting, so that should leave us all with some hope. Concluding that thought, the housing “starts” a couple weeks back showed an increase, but last week reported a fall…just a sign to say that the volatility is NOT quite in the history books yet.

The House You Are Selling or Buying is UNIQUE, errrrrrrrrrrrrt!

In the recent 4-6 months, I have been in numerous transactions where my clients/buyers were buying a home and appraisal circumstances arose. I use the word circumstances because I don't want to use a negative term when ultimately it's not negative and shouldn't be unexpected. When you are a lender or realtor working w/in a real estate market that is regarded as one of if not the worst foreclosure markets the nation has seen, you have to conform your expectations to what the norm is. Obviously EVERY home sold in the DFW and Collin County is not in a declining, soft, or foreclosure community and I'm not talking to all of you professionals who's target market isn't in a foreclosure situation. On the other hand, it might be pretty safe to say that there are more in those markets than in the non-declining, soft, or foreclosure riddled market. "The majority defines the norm." Think that through and it may change the face of your approach in consulting in these days. "The majority defines the norm". Mortgage and Real Estate Pro's, know the facts of your market and create proper expectations for your clients and educate yourself where the other so-called professionals aren't. This is where we bring value to ourselves and earn our referrals more than ever. If you are a practicing realtor or lender, and in describing your represented home or client's home you have to use description terms and phrases like, biggest, bigger than the others in the area, newest, most upgraded, least upgraded, smallest, and all the other terms that take a description farthest from anything that is TYPICAL, you are not likely to benefit from an appraisal in this market. On the other hand, if you are educated on this and have been through and accepted the fact that there is a better chance that the less than hopeful price shows up on the appraisal, you'll be prepared to educate your seller of their risk in not accepting the lesser value and the unfortunate possibility they run directly into the same problem if they choose to pull out of the contract in hopes to get another buyer who's lender accepts a higher elevated appraisal. Am I saying that the suggested house isn't worth what they think it is? NO!...and I mean NO. If there are people willing to pay $200,000 for a house, but due to appraisal pressures, the appraisers value comes back at $185,000, you can probably get $200,000 for it, IF IT'S A CASH BUYER, or you are willing to wait for some type of pressure relief on appraisals. I am merely saying that the guidelines, restrictions, and pressure that has been put on appraisers in this market have forced them to a more template driven form of appraising and using common sense and "brain power" is not an option. If you are in this type of transaction, your advice to your client might have two options and sound like this when the appraisal comes back less than the contracted agreed amount; "client, nobody knows when the market will turn or restrictions become less restrictive and if you don't lower your sale price to the appraised value (that many times is reviewed by a non-biased appraiser)so that the buyers lender will lend on this property, you are most likely going to run into this in the next 30 day escrow you join into, or think about holding out for the turn in the market in hopes of getting the value you think your house is worth, and the value we all know realistically it is worth." Since the majority/norm of buyers is coming to the table with financing, most sellers are going to eventually succumb to lowering their value or giving up on selling for the time being.
Please realize that there are many communities that are not seeing this at all, and I am not talking to you if that is the case in your market. If you haven't run into this, your community may be turning and churning just great. My reflection on an appraisal that I recieve today is that it is not reliable for my purposes until an underwriter has seen it, and if that underwriter has demanded an appraisal review, then after the appraisal review comes back. This means that just because a seller had an appraisal done before they put their house on the market, or 2 days before the buyer submitted their offer, that doesn't mean respected and accredited underwriters certified to underwrite for Fannie, Freddie, VA, or FHA loans will agree. There are new laws and guidelines in respect to the relationship between lender and appraiser so that the appraiser does not feel pressure in "stretching value", but appraisers will tell you that those guidelines haven't made their effect yet, and appraisers are still trying to meet referral expectations on value, therefore coming up with values that won't make it through underwriting.
One of my favorite motivational phrases is, "some have a strength, call it a talent or capacity, for change." Times have changed. Have you?

Appraising a Home In a New Build Subdivision

"Right off the bat" I'm going to say I'm NOT an appraiser, but have a little bit of bones to pick. Talking to a new client today, I heard some unsatisfactory news. My new client is trying to refinance their house they bought only a little over a year ago. They bought the house grand brand spanking new, and it was one of the first homes built in the division. Since then, there has been numerous homes sold in this division from the same builder, with the same upgrades, similar square footage, and all the other things that tag properties as comparable to this one. My client had an appraiser appraise the home, and the value came back much less than what she bought it for. I call the builder, the owner of the company, and he tells me that there is plenty of homes that are selling in that subdivision that are comparable and selling for more than she paid for her's, in relation to dollar per square foot. I've never appraised a home, but I have done my due diligence in trying to ask experience appraisers the right questions during my time in this business so I can hold intelligent conversations at the coffee table. My understanding is that when a home is being appraised in a new build subdivision, the recent sales many times are not listed on the MLS or Multiple Listing Service that Realtors list homes on and the appraiser won't find newly sold homes in their system because they don't register. So, an appraiser must contact the area builder in that subdivision and request a list of comparable homes to be included in his appraisal. Talking about someone not having pride in their work. It is really disappointing to know that an appraiser in this market is taking clients' money for an appraisal and his service to them is not worth one penny they give him. This appraiser was referred by her current lender. Does the lender not want her to refinance and pay them off because they know that they are going to make less money on a refinance to a lower interest rate, or does the lender even know that the appraiser lacks the pride and motivation to produce credible and quality work? Are you getting the value you desire?

This is why you need to research the lender, realtor, or builder you decide to use before you hire them for their work. Don't forget to interview and research a little, or at least, ask friends, family, or coworkers for a referral when making big money decisions.

Free Bees for Delinquent Borrowers Thanks to the FDIC

In a blog report by Dan Caplinger he brought attention to more help that the FDIC/Federal Deposit Insurance Corporation would be bringing to current mortgage delinquent borrowers all over the nation. It appears in Dan's report that "thousands of IndyMac borrowers who are delinquent or in default on their mortgage loans could expect to see their loan terms modified in the near future." It appears that the target purpose of this mortgage modification is to make the mortgage payments affordable to these borrowers to help make these loans what are called "performing loans".
The cap rate on these modification loans will be 6.5%, and for those borrowers that can't afford the payments at even the 6.5% rate, there will be additional opportunities for them where the rate will start off even lower, but over the short future rise back to that 6.5%.
We'll see how this turns out. It always seems like the relief opportunities that come out come with strict guidelines that cut the majority of the needing population out on qualification points.

Short Term Future of Interest Rates

The Mortgage Rate Trend Survey which is a survey done by Mortgage-X Mortgage Information Services, surveys and summarizes where mortgage professionals think mortgage rates are going in the short term. To conduct this survey, Mortgage-X asked more than 250 experts in the mortgage field each Monday about their expectations for the mortgage market.

If you are trying to decide whether you want to hold on a home bid, or have a contract on a home and are not sure if you would like to float or lock your rate, maybe this will help. (click on the "float" hyperlink to see a great definition from www.moving.com above.
Here are the findings for what experts forecast Home Loan Interest Rates for the next 30 days:
6.9% said rates would rise significantly
34.5% said rates will rise slightly
41.4% said rates would ultimately remain unchanged
17.2$ said rates will decline slightly
0% forecasted a better of rates in significant amounts
Here are the findings for what experts forecast Home Loan Interest Rates for the next 90 days:
6.9% said rates would rise significantly
44.8% said rates will rise slightly
27.6% said rates would ultimately remain unchanged
20.7$ said rates will decline slightly
0% forecasted a better of rates in significant amounts


Mortgage-X concluded and summarized that, "about 41% of the participating mortgage professionals believe mortgage rates will remain unchanged over the next 30 days and 45% believe mortgage rates will rise slightly over the next 90 days".

Enjoy your weekend and for what my opinion is worth, gambling in this mortgage market for best interest rates is not a great strategy unless market signs show obvious directions at some point...they haven't but one or two times in recent months. In my opinion, if you are gambling on a rate and are active in a purchase transaction with a 30 day escrow or less, you are probably gambling because you have that personality type (conservative vs aggressive/liberal)and need to "play the game" so you feel like you played a roll in the future of your mortgage strategy, or you may have not been educated or advised by the right Mortgage Consultant to make a different decision. I'm a conservative, so there is a chance that thousands who read this might jump up and down all over this theory. It's my theory, and I'm sticking to it. Rates have been so volatile in recent months, even experts' gambles are more like playing darts with their eyes closed in my opinion. Have a Great weekend, and "gamble lightly so you can afford to gamble another day".

Housing and Economic Recovery Act and Tax Credit Explanation for Dummies

First and foremost, the Tax Credit from the Housing and Economic Recovery Act is money LOANED to a 1st time buyer (1st buyer means nobody in house has owned a home in 3 years) in the form of cash at the time you get your tax refund. This money must be repaid...aaaaaaaaaaaanT!!! Yeah, that's the kicker. After two years, the buyer will start repaying that money like a 15 year interest FREE loan and if they sell the home before it's paid off, they'll just take that money from the proceeds of the home. The amount will be either $7,500 if you are buying a home for $75k or LESS and 10% of the price of the home for homes priced over $75k. Trust me, that is much easier to understand that way, than the way they write it...yuck, it's like they don't want people to read their stuff when the government writes stuff. Back on track here now.
The second part of this Housing and Recovery Act is about Down Payment Assistance. Plainly said, IT's gone. There was non profit organizations and charities and so forth that offered down payment assistance in the past for low to moderate families, and some didn't even target low to moderate...but they are prohibited now and thats that. Moving on.
On October 1st the minimum cash investment a buyer must have in an FHA loan will be 3.5% now.
Hope this was an easy read and touched the important parts. As far as the Tax credit goes, there are some further details and guidelines, but we can't remember ALL the details by memory with all the other changes we are seeing from our industry right now, so just let me know what else you need and I'll hunt it down myself.

Title Company and Builders Going Out of Business

You know, we all keep thinking that the companies today dependant on the real estate market that are still in business today, especially the large ones, made it through this real estate crisis. On the other hand, that just is not the case. If you are interested in seeing just how many mortgage companies "bit the dust" since the real estate fall, go to mortgage implode and take a look. You'll say, "WOW" and you'll recognize some too! Back on track to what prompted me to write this today; established Title Companies are imploding still. My wife works for Stewart Title North Texas and she hears first about the different Title Companies that fall, and I've heard of two major ones just in the last two weeks. From the beginning, so many Realtors have chosen to work with some of the more risky title companies that "walk all up and down" the P53 law that put limits and restrictions on how you can market in the real estate world. It hand cuffed many title companies. One of my fellow Active Rain Bloggers Mark Macejewski blogged about his experience and thoughts about this. Again trying to stay on track to conclude my thought here, Stewart Title has chosen NOT to walk that line and has aggressively held their business development officers (biz development officer=marketing person for a title company)accountable for not crossing that P53 rule that could cost mucho money in fines. At times, many folks, including myself, thought that Stewart Title may be one of those companies that might just fall out of site because they just aren't keeping up with the aggressive style of the new "5.0 version", if you will, of today's title company. Stewart is alive and well in this down time, and it shows that trying to "keep up with the Jones's" isn't always what it's built up to be. Stewart Title is one of the oldest title companies erected, and because they didn't change their ways when everyone else did, they are alive. This all feeds back to, if you gamble big, you win big but you lose big too. If you gamble conservatively, you win and lose small, but you stay alive to gamble another day. I think that is how it goes...OK, I just made it up, but it sounds good right?

Inflation and the Recent Affect on Interest Rates

As normal, our market takes moves in anticipation of reports and expectations. Early last week we saw higher interest rates because the expected outcome of inflation going into the last days before expected reports delivered the facts were fearful. On the other hand, the regional Vice President of Wells Fargo, Jennifer Eggen wrote last week that the CPI (consumer price index-go to the link to get a brief explanation of what the CPI is...your welcome)brought the facts, and the facts were that the inflation was not as expected and the week ended in a bettering of the interest rates. Lastly in Jennifer's message, she made another note that was well worth sharing. Now, if you have bought a home recently and can remember the huge stacks of papers that you signed, you know that it was probably a little too much and therefore you didn't read all of it and just trusted that your Title agent explained it to you. Well, recently RESPA (Real Estate and Settlement Procedures Act- go to the link for a brief...I know, your welcome)had been proposed to add another document for home buyer to sign. Finally, 240 House of Representatives sent the HUD a letter mentioning that with so many disclosures that must be signed at a closing, people already skip the reading, sign, and move on, and adding one more isn't going to do anything but reinforce "skippage". Long story short, we save a couple trees. (:

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The Best Realtor or Lender for Your Real-Estate Transaction

Lets just start it off like this. "Practice makes perfect" is a phrase that doesn't really tell all. Practice makes permanent too. That being said, if someone practices being lazy for 25 years in real-estate, they'll be a perfect practiced lazy realtor or lender. I could stop here and my point should come across to most readers, but I'm going to elaborate a little so that my blogs aren't just following the real-estraight and narrow, using only numbers with percentage signs behind them, or rolling out a bunch of mortgage terms that some people have only heard but managed to make it through w/out understanding. Moving on, if someone wants to be an expert in their field, they have to continue to educate and UPDATE themselves in the real-estate world. The RE (real-estate) world is like fluid, and is ever changing. The different seasons bring different tides of buyers. It's forever changing, and many times unpredictable. In business practices where lives are at stake, there is a mandated "continued education" procedure to keep professionals like Medical Doctors sharp, and it's a reliable and useful education with useful applications. In real-estate, the continued education is at best, weak. So to keep sharp in this industry, it is important that a professional seeks his own continued education. During a many past transactions, I have encountered Realtors and lenders both that felt it necessary to tell me "I've been in the business for 'umpteen years' sir". Then, they start unleashing every sign that shows they are not in this business for ambitious or accomplishment reasons, but solely because they have to earn to pay a bill each month...many times with vulgarities about their own client. One "practice" I run into quite often is, when times get a little tough and a transaction doesn't just roll straight and smooth, many Realtors or lenders get scared, throw up their hands and start pointing fingers at each other like children in a classroom. Again, that many times follows in the form of talking in vulgarities about their "seller" or "picky client" or what ever. A successful person knows in this industry to "expect the unexpected" and when turbulence shows it's face, they are like a spider on it's web waiting for that victim to strum it's web...AND THEY POUNCE IN and change the face of the unexpected to the face of expected. You see, unexpected scares buyers and sellers like dark scares children...they aren't familiar with it and can only react with fight or flight. Yes, there are literally hundreds of variables that can become unexpected and turbulent in a RE transaction, but they are just pieces of turbulence and it is rare that turbulence brings down the plane. That being said, a RE pro should just "come over the speaker system and announce to their client that they are only encountering a little turbulence, everyone should stay seated, and they'll direct them out of this turbulence as quickly and smoothly as possible". At that point, they need only talk with their "copilot, control tower, stewardesses, and headquarters" to recognize that turbulence has occurred and discuss the best course of action to take that best gets their clients/passengers to their designation in the way that also best meets their interests. It is just too often that I have worked with Realtors or lenders that have been in this business for 10-25 years, and the minute that times got tough, they responded with anger and frustration in hopes that their tension would force enough pressure on others in the transaction to resolve the issue for them, and then they turned their back and started the finger pointing. If it's not a popular belief, I'm going to say it a thousand times so it is, frustration and anger is birthed from lack of understanding and education. If such RE pros have been applying anger, frustration, and scare tactics (which are like a dog that barks and has no bite) into the turbulent "opportunities to learn" for 10-25 years, rather than taking that turbulence and researching for themselves the best route to reach the desired destination, THEY HAVEN'T BEEN PRACTICING PERFECTION, they have been practicing poorly for 10-25 years.
Best of luck in your next purchase.
Brad

Home Investors w/ Multiple Financed Properties Needing Financing

Professional residential real-estate investors are having trouble right now in their original financing plans for building their property portfolio, and they are in a holding pattern right now. It may be the time that beginners take advantage of this.
You see, many investors have found that the best deals that come available on homes many times need very short escrows (escrow is the time from which they contract to buy, to the time the money/funds are sent to settle the transaction). That being said, traditional lending for permanent loans was not designed for quick turntimes and most of the time these homes are not in good enough shape for a permanent loan lender to fund on. So, successful investors have credit lines with local smaller banks, or cash readily available for when that perfect deal comes along. After that home is targeted, bought, and funded with cash or the credit line, fixed up to at minimum average condition that permanent loans require, they refinance the credit line or cashout refinance the new buy to reimburse their bank account with enough liquid funds for the next great deal that comes along. That plan has worked great for the past 10 years now, but things have changed. Most regular banks and lenders would allow a new borrower to have up to 10 FINANCED properties and then they would not loan money to those borrowers anymore, and that is when those borrowers would have to work with an "alt lender" that had unlimited property financed guidelines, and they would charge a little bit higher interest rate, but not so high that it kept the real-estate investors from making rental properties cash flow. OOOOPSSSSS! Mortgage market falls, foreclosures run rampant, and guidelines change. The first thing that happened was that the lenders that held their own "portfolio" loans/alt loans that allowed unlimited properties, they completely cut these loan programs out of their loan opportunities and stopped lending on those programs. This meant that any investor that had a portfolio of rental properties more than 10 could no longer reimburse themselves for cash they recently put into a home, or payoff their line of credit they recently used to buy a home. Even more recently, major banks and lenders have cut back their "10 properties financed" guidelines to just 4. What might this have to do with our real-estate market right now? Maybe this is one more way that will slow down the buyers market even more as many of these investors can't or wont choose to pay cash for properties they can't reimburse themselves with shortly after.
A thought to leave you with. Beginner investors always struggled with getting that super deal because the professional and more seasoned investor could steal a property with their quick purchase style, escrow cash or credit line purchase, because the seller would take those offers over an offer where the buyer was needing 25-30 days to acquire financing in the traditional way. Is it possible that beginner investors have a window in time right now to get that steal while large investors sit back "licking their wounds" waiting for the lending world to turn around and reimburse them for those last properties they sank their cash and credit line teeth into?
As an experience loan officer, I have a number of investors in this situation and know first hand, my investors are not buying homes now for that very reason.
Best of luck in your investing!
Brad

Dallas Home Sells and Listings

In the recent months, we may have seen that the number of homes sold has declined, but the average price for Dallas homes was reported in a recent Dallas Morning News blog are up 2%.
That is better than the majority of U.S. housing markets.
The Dallas market also saw a decline in the number of houses on the market. Inventories rose in just six of the 26 home sales markets that Altos Research and Real IQ survey. "Pricing in the Dallas market has been stable to slightly positive over the past several months, and inventory has been basically flat to down," said Stephen Bedikian, partner and research director for Real IQ. "That's a good environment as supply and demand look to be in good balance."
As a Dallas resident, that gives us a little pride to stand behind, but is this just our "big Texas pride" and "big Texas placebo"....and will this placebo or positive thinking just prolong the inevitable? What is the inevitable? More loan programs going away, down payment assistance going away, possible higher and higher and higher down payment demanded on home loans in the near future, Fannie/Freddie issues; people can demand higher prices for their homes, but if there are less and less available buyers weeded out by tighter and more strict loan guidelines, SOMETHING has to give, right?
I had hopes of selling my home around this time as I had more kids and needed the space, but I honestly couldn't see jumping out into a market with my eyes covered. When I say that my eyes are covered, I just mean that there are too many variables that are "not given" where they were "given" in the past that hinder my ability calculate my risk versus reward between selling my current home and buying a new one. If the rest of the population decides to hold where they are at until the market becomes more predictable, therefore decreasing the number of "move up buyers" in the market, and all the super low down payment options are missing in action for the young first time buyers, who is going to be there to drive up the home values?
It has never been more important than now to make sure you are using a very experienced realtor or Loan Consultant when buying or selling a home.
Brad