Mardi Boettcher's Blog

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.

I was very surprised to learn that industry estimates find that half of all homeowners who lose their homes to foreclosure have no contact with their loan servicers.  If you are at risk of default or already behind on your mortgage payments, I recommend that you  contact your servicer at the first sign of trouble.  Ask to speak with someone in the home retention department.   

You may be able to work out a loan modification, short-sale, or repayment plan.  Servicers will ask you to explain the reasons why you can no longer make the mortgage payments.  You should be honest and realistic.  The servicer also will need to verify your current income, unemployment benefits (if any), household expenses, tax returns, property taxes, hazard and flood insurance premiums, and condo or HOA dues.

 Whether the loan servicer requests it or not, you should include a letter authorizing the servicer to speak with your REALTOR®, another family member, or perhaps your attorney, as this can help speed up the process.

If you have any questions about this process, please don’t hesitate to contact me.  I’m here to help.

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.

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.

I have heard that U.S. Senate leaders might have moved closer to an agreement about replacing the expiring $8,000 tax credit for first-time homebuyers with a smaller one that expands access to more borrowers.  The existing credit is due to end Nov. 30.

 The proposed legislation would reduce the size of the tax credit to 10 percent of the sale’s price and cap it $7,290.  This tax credit would be available on home purchases that would go into contract by April 30th, and borrowers would have an additional 60 days to close the sale.

 The new agreement, if passed, would expand the credit to “step-up” borrowers who have lived in their current home for at least five years.  The income eligibility for first-time homebuyers would remain the same at $75,000 for individuals and $150,000 for couples.  The income criteria for step-up buyers would be $125,000 for individuals and $250,000 for couples.  The credit would be limited to homes costing $800,000 or less.

I think this is a great plan and believe it will relieve the current gridlock in the middle price range market.  Keep your fingers crossed!

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.

At the time, my clients sign their documents, I explain that their loan may very well be sold.  In fact, that is why we are having such challenges with underwriters right now.  In order to sell the loan, they have to be sure that all the “t”s are crossed and the “i”s dotted.  In most cases this is a common practice and not a problem, but occasionally there are issues.  Here is an excellent article from The California Association of Realtors (CAR) which explains all the details:

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.

Despite home buyers being advised to issue down payments of at least 20 percent, many home buyers are finding that smaller down payments result in better interest rates—but also higher payments.

 Rules put in place in late 2008 by Fannie Mae and similar rules adopted by Freddie Mac are less favorable to borrowers who put down 20 percent to 25 percent–partially because the GSEs consider these borrowers to be more of a credit risk since they are not required to purchase private mortgage insurance.

I don’t know that there is any evidence to support that position.  It has always been my understanding that statistics showed that buyers making larger down payments were less likely to default.  It appears to me that the lenders are just in fear now and trying to get insurance for their protection.  

According to Fannie Mae, borrowers benefit from this industry practice because they are able to leave themselves a financial cushion by not issuing larger down payments, and can instead save the extra money for emergencies.

 It is important to note though, that smaller down payments mean higher monthly payments because the loan itself will be larger.  

Again, I think this policy is an over-reaction on the part of the lenders.

In any case,  this is what we need to deal with, so be sure you work with a knowledgeable loan consultant who can help you make the best decision for your individual situation.  As always, I am happy to refer you to local brokers I know and trust.

 To read the full story from the New York Times, please click here