If you are planning to use an FHA loan, here is some important information you need to know.A property must be FHA eligible. That means it cannot have any “health and safety issues.” Your real estate agent should be able to advise you as to which properties will not qualify. This will save you a lot of time and disappointment. If your agent is not sure, s/he should consult with your lender. FHA does not require a pest report or section 1 clearance unless the appraiser makes negative comments about the property that would cause the lender to want to know more information. So, if your agent knows, going into the loan process, that there is going to be a potential issue, then s/he needs to make sure that it’s possible to get a section 1 clearance or to get the repairs done prior to the appraisal process.
Approximately half of all mortgage loans are sold from one lender to another, often because the original lender is not equipped to collect payments, manage escrow accounts, pay taxes and insurance, respond to questions, and prepare payoff statements when the home is sold or refinanced. Some borrowers may receive letters in the mail alerting them of the sale of their loan a few days after closing, while others may not receive a notice for years.
In the mortgage-industry, this is called a “transfer of servicing,” and is a common practice. Borrowers should not be concerned about these changes, as the majority of lenders transfer their servicing rights to loans. Generally, the selling of a mortgage loan from one lender to another is a smooth transition and does not impact the borrower. Every so often though, there is a misstep by either the loan buyer or the loan seller.
Under the National Affordable Housing Act, when a mortgage loan is sold, the borrower is required to receive a “goodbye” letter from their current servicers at least 15 days before their next payment is due. The letter must state the name, address, and telephone number of the new servicer; the date the old company will stop collecting payments; and the date the new company will start accepting them. Under the Helping Families Save Their Homes Act, signed by President Obama on May 20, the new owner of the loan—which may or may not be the servicer—also must notify the borrower of the transfer within 30 days, known as the “hello” letter.
The “hello” letter should outline the same information as the “goodbye” letter sent from the former loan servicing company. Borrowers should be cautious if they receive a “hello” letter without receiving a “goodbye” letter, as they may be the intended victim of a scam by someone who is hoping to unlawfully receive the monthly mortgage payments. Concerned borrowers should contact their current loan servicer to verify if their loan has been transferred. If it hasn’t, authorities should be notified immediately.
In most cases, a mortgage payment sent to the old servicer automatically will be forwarded to the new servicer for a brief amount of time, typically 60 days. However, if payments are not sent to the correct servicer, they could become lost, and the homeowner may incur late fees.
Many of you have had questions about the new Tax Credit Laws, so I thought it would be helpful to post these links to two excellent Q & A documents for you from http://www.federalhousingtaxcredit.com/
Be sure you check with your tax professional before making any final decisions.
Enjoy!
Click here for a list of frequently asked questions.
Click here for information specifically about the eligibility requirements for existing homeowners.
For mortgages, 620 is the new magic number
Near historic low mortgage rates, favorable home prices, and the federal tax credit for first-time home buyers have contributed to home purchases in the past year. However, the onset of the credit crisis, new regulations for home appraisals, and more stringent guidelines for purchases and refinances have resulted in confusion for some potential home buyers.
While using a mortgage broker to find the best loan may work for some buyers, it may not always be the best route. In the past, mortgage brokers could “shop” a loan to multiple lenders to help find the best deal. However, new practices and procedures under the Home Valuation Code of Conduct (HVCC) have hampered mortgage brokers’ abilities, namely that lenders may no longer accept home appraisals commissioned by brokers. As a result, consumers may have to pay for new appraisals with each lender, which costs time and money. However, consumers who are very busy or need guidance may find that working with a mortgage broker is the easiest solution.
Qualifying for a mortgage under current lender standards is more difficult nowadays than in years past. Beginning Nov. 1 or Dec. 12, depending on the type of loan, Fannie Mae is tightening its lending standards to the 620 credit score benchmark—including loans backed by the Federal Housing Administration and Veterans Affairs. Borrowers with credit scores of less than 620 will find it very difficult to qualify for a mortgage. However, to qualify for the best rates, consumers generally need credit scores of 720 and must have verifiable, steady income.
To save yourself time and money, be sure you work with an experienced mortgage broker who knows the latest changes in regulations and underwriting practices. A top-notch broker is able to anticipate potential problems and come up with solutions in advance so you can be confident that you will be able to finalize the sale. This affects seller’s also. Your agent should be sure that the buyer is working with a reliable broker.
If you would like a referral to some excellent local brokers, just let me know.
The Federal Housing Administration has set new standards for housing counselors who want to work with seniors taking out FHA-insured reverse mortgages. To provide these services, counselors have to pass an AARP-approved examination and apply to be on FHA’s new roster for Home Equity Conversion Mortgage counselors. “Only those counselors on the HECM roster can provide HECM counseling to potential HECM borrowers,” according to FHA mortgagee letter 2009-47. FHA created the HECM roster in response to criticism that some counseling sessions are pro forma – conducted by counselors that are not knowledgeable about the product. The Government Accountability Office identified problems and Congress directed FHA to take corrective action. Darryl Hicks, a spokesman for the National Reverse Mortgage Lenders Association, noted that the new standards and roster have been a work in progress for the past two years. “We think it is great for the industry because it will establish a higher bar for counseling,” Mr. Hicks said.
This is good news because reverse mortgages were getting a bad reputation due to the lack of good counseling. Reverse mortgages are not for everyone, but I have clients who have done them and are extremely happy. If you would like a referral to a trustworthy reverse mortgage consultant, just let me know. I’m always delighted to help.
Here is the great news we’ve all been hoping for! Following the Senate’s favorable vote yesterday, the U.S. House of Representatives just voted 403 to 12 to extend the homebuyer tax credit, expanding the parameters to include existing homeowners and not just first-time buyers. The California Association of Realtors (C.A.R) and the National Association of Realtors (N.A.R.) have worked for months urging Congress and the Senate to extend and expand this crucial piece of legislation. We expect President Obama to sign the legislation in short order.
As it now stands, the federal tax credit will be extended through April 30, 2010, with a 60-day extension if a binding contract is in place prior to the deadline. First-time homebuyers will continue to be eligible for a tax credit of up to $8,000, while existing homeowners will be eligible for a reduced credit of up to $6,500. To qualify for the $6,500 credit, existing homeowners must have lived in their current residences for at least five years. The bill also increases the qualifying income limits from $75,000 for single tax filers and $150,000 for joint filers to $125,000 and $225,000, respectively. The purchase price of the home is capped at $800,000 in both instances.
Under additional provisions included in the bill, taxpayers can claim the credit on purchases completed in 2010 on their 2009 income tax returns. The legislation maintains the provision that homebuyers do not have to repay the credit provided the home remains their primary residence for 36 months after purchase, and waives this requirement for active duty military personnel who move due to a military order.
Nationwide, more than 1.4 million first-time homebuyers were given the opportunity to become homeowners as a result of the Federal Tax Credit for First-time Home Buyers. We expect that number to increase dramatically in the months ahead with this new legislation in place. Thank you to my fellow members of C.A.R. and N.A.R. We called, wrote, and e-mailed our congressional representatives and voiced our support for the homebuyer tax credit. Our voices were heard and today’s vote is a direct result of our actions and involvement.
The Federal Housing Finance Agency (FHFA) is expected to announce, as early as next week, the new conforming loan limits for 2010. The conforming loan limit determines the maximum size of a mortgage that Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac can buy or guarantee. Non-conforming or jumbo loans typically carry a higher mortgage interest rate than a conforming loan, increasing the monthly payment and negatively impacting affordability for households in California.
Currently, as a result of the economic stimulus plan, the conforming loan limit is $417,000 for most areas in the U.S., but $729,750 in high-cost areas, including many in California. The loan limits are set to expire at the end of this year, and could be lowered to $625,500 for high-cost areas. If the current loan limits are reduced to $625,500 for high-cost areas, lenders likely will adjust their loan underwriting standards to align with the new 2010 loan limits, to ensure the loans can be purchased or guaranteed by Fannie, Freddie, and the Federal Housing Administration (FHA).
To ensure consumers are not negatively impacted by the proposed changes, C.A.R. is working with NAR on a one-year extension of the current loan limits, and will keep REALTORS® apprised of the latest developments.
Senate Banking Committee chairman Chris Dodd, D-Conn., went on the record Tuesday calling for a seven-month extension of the $8,000 first-time homebuyer tax credit, which is set to expire in five weeks. Sen. Dodd said home prices are stabilizing but “we still need to use every tool at our disposal to try and fix this problem.” The White House has yet to reveal its position on the extension. The National Association of Realtors and other trade groups are supporting the extension. Jay Brinkmann, the chief economist for the Mortgage Brokers Association told the committee that one great unknown facing the market is the affect on interest rates when the Federal Reserve stops purchasing mortgage-backed securities from Fannie Mae and Freddie Mac. He noted that there is growing concern over the issue saying, “While the most benign estimates are for increases in the range of 20 to 30 basis points, some estimates of the potential increase in rates are several times those amounts.”
Pay close attention to this last bit. At our office meeting last week, Dick Selzer said that he thinks interest rates will go up rapidly.
I’ll keep you posted.
Here’s more important FHA information:
Although the Federal Housing Administration (FHA) has confirmed that as of Sept. 30 it will fall short of its legal requirement to maintain supplementary reserves of 2 percent of the loans it insures, FHA Commissioner David Stevens says that it will not be seeking a taxpayer bailout.
Instead, to help mitigate losses, the FHA will tighten credit standards to rebuild the cushion to 2 percent or more, without raising the premiums borrowers pay or seeking an increase in its down-payment requirement of 3.5 percent.
Under the new rules, lenders making FHA-insured loans would need to show net worth of at least $1 million, an increase from $250,000. The agency is seeking to ensure that lenders have funds available to compensate the FHA if their loans fail to meet quality standards.
The FHA also will impose a maximum loan value of 125 percent of the current estimated home value on refinanced loans, in line with Fannie Mae and Freddie Mac.
Appraisals will be valid for no more than four months, a decrease from the previous six to 12 months validation period. The FHA also plans to implement appraisal changes adopted earlier this year by Fannie and Freddie. Mortgage brokers or bank employees paid on commission won’t be allowed to order appraisers.
If you are sitting on the fence about purchasing, you may want to reconsider. The lenders are very nervous about getting burned again…and they are being watched very closely. Here is the latest from Rick Costa, President of American Mortgage Partners:
Republican congressmen are becoming more concerned about the Federal Housing Administration’s financial plight and they want to increase FHA’s downpayment requirement to 5%. Rep. Ed Royce, R-Calif., said FHA is operating at the same dangerous leverage ratios that led to the takeover of Fannie Mae and Freddie Mac. Rep. Scott Garrett, R-N.J., said he has drafted a bill that would increase the FHA downpayment requirement to 5% from the current 3.5% level. “There are increasing reports of the likely necessity of a taxpayer bailout for the FHA and this legislation aims to implement reforms to try to prevent such a bailout from occurring,” Rep. Garrett said at a House Financial Services Committee hearing. The Garrett bill also calls for a General Accountability Office study to determine the appropriate leverage ratio for FHA. In the early 1990s, Congress mandated that FHA maintain a minimum 2% capital ratio. A recent audit shows that the federal mortgage insurance fund has fallen below the 2% minimum. But FHA officials say the insurance fund should be able to maintain a positive capital position and FHA will not need taxpayer assistance.
