Posts Tagged ‘foreclosures’

Reducing the number of FHA loans

March 13, 2012

We’ve discussed soon-to-be implemented and proposed changes to FHA loans. While these changes haven’t been implemented/approved, a bigger question emerges… “why are all the changes needed?”

I alluded to the answer toward the end of one of my recent posts. The record number of foreclosures have almost tapped out the mortgage insurance fund for FHA loans. This fund is set aside to process and sell homes with FHA loans that go into foreclosure.

The other reason for the change is the number of FHA loans being closed each year. The government created FHA loans to assist potential homeowners with little credit history purchase a home. FHA loans were designed to be a niche loan program available in the market. Over the past few years more than half of new mortgages are FHA loans. Why did this occur?

Several years ago, I posted the question “is FHA the new subprime loan?” If you take the time to read that post, the statistics are eye opening. The number of FHA loans being approved have only climbed since my post in 2008. Regardless of whether or not you think FHA loans became the new subprime loan, consider this:

  • before subprime loans disappeared and the housing market crashed, FHA loans made up less than 10% of the new loans on the market. At that time there were no credit score requirements, alternate forms of credit were easy to use, the monthly mortgage insurance was less than half of what it is today, and down payment assistance programs were widely accepted.
  • today FHA loans look much different. Minimum credit scores have been introduced, and it is more difficult to use alternate forms of credit. Monthly mortgage insurance rates have more than doubled, and almost all of the down payment assistance programs are no longer acceptable gift sources to be used on FHA loans.

The government intended FHA loans to be a smaller part of the overall loan market. It has become the majority! The changes that have been implemented over the past few years, along with the proposed ones, are intended to keep FHA funded AND encourage buyers who don’t need an FHA to get a conventional mortgage.

Without considering the potential changes to FHA loans discussed last week, conventional loans are more attractive than FHA loans. While the minimum down payment is slightly larger (5% versus 3.5%), the mortgage insurance is noticeably less each month, there is no upfront mortgage insurance premium, and the credit score requirements are very similar to one another.

By making FHA loans more expensive on a monthly basis, the government hopes to turn FHA back into the niche market it was intended to be by steering buyers toward the use of conventional loans.

So… if you are sitting out there wanting to buy a home and need an FHA loan, from the trends over the past few years, FHA loans will only continue to be less attractive versus conventional loans. While rates are at historic lows and home values depressed, there isn’t a better time to buy a home. As we’ve discussed the last two weeks, FHA loans will only get more expensive month-to-month. If you are looking to buy a home in the state of Georgia, I can help get you started with the preapproval process!

Fannie Mae HomePath Renovation Mortgage

March 1, 2011

I know what you are thinking… “didn’t he recently write about the HomePath program?” Yes, I did recently put up a post about the Fannie Mae HomePath Mortgage program, but I didn’t mention anything about the Fannie Mae HomePath Renovation Mortgage. Think of the “renovation mortgage” as the sibling to the “mortgage.” Let me explain.

The HomePath Renovation Mortgage shares many of the same features of the HomePath Mortgage program:

  • available for primary residence, second homes and investment properties
  • need a minimum of 660+ credit score
  • only a 3% down payment required for primary residence (15% for investment properties)
  • no private mortgage insurance on the loan

The best part of this program is all of the $$$ a buyer can use to put some tender loving care into a home. There is no minimum repair cost associated with the Renovation Mortgage, and buyers can finance the lesser of 20% of the “after completion value” of the home OR up to $30,000.

To simplify things, for homes with an “after completion value” of $150,000 or more, the maximum renovation amount will always be $30,000. Any amount under $150,000 will be 20% of the value. One thing to keep in mind is the maximum renovation amount must include a 10% contingency reserve.

Let’s say you have $30,000 for renovations, what can you do:

  • unlike the FHA 203k streamline mortgage, structural repairs/additions can be made to a home. This means the buyer can knock out walls, add a room onto the home, etc.
  • luxury items such as swimming pools, hot-tubs, fences, etc. are allowed
  • renovations can include appliances
  • all renovations can be 100% cosmetic (no structural changes to the home), so new paint, carpet, tile, etc. is certainly a fine way to go too!

The Fannie Mae HomePath Renovation mortgage is a great way to purchase a home and make some repairs to it with no out of pocket costs to the buyer outside of the down payment on the loan.

Do remember that Fannie Mae designed this loan program to facilitate the sale of homes they own. In other words, they are foreclosed homes. There are numerous properties available, and they can be viewed here.

Those interested in making an offer on a home to use this rehab loan will need a prequalification letter, and that is something I can provide! If you are looking to get prequalified, learn more about interest rates for this program, total monthly payments, etc., feel free to call or email me. I would enjoy helping you through the mortgage process!

Real Estate Perspective for 2010 and 2011

February 17, 2011

It seems that we were never lacking for additional nuisances in real estate during 2010.  Throughout the year we experienced a number of unprecedented events that had a significant impact on our local real estate market.  And, as we enter 2011 the stage is set for another defining year.

The Conclusion of the Buyer Tax Rebate

As of April 30th of 2010 the Tax Rebate ended for all but military personnel.  This routinely modified attempt by our government to intervene in the free market system was marred by variations to the program, to include rebate amounts, whether it was to be repaid or not, and starts and stops that seemed to have no rhyme or reason, and delays in qualified recipients receiving the rebates.

We did however see prices on homes increase slightly as would be buyers rushed to go under contract before April 30th. However it was not without a price, overwhelmed lenders could not complete the loans in time to meet the June 30th deadline to close, so the deadline was extended until September 30th 2010.  This set the stage for fraud to occur as reports surfaced of contracts occurring after the April 3oth deadline.

Record Number of Foreclosures

2010 was year that our nation saw more than a 1,000,000 foreclosure hit the market. At one time foreclosures made up approximately 40% of all sales.  We also saw the cumulative effect of the foreclosure crisis resulting in home values, declining an average of 25% over the last three years.  2011 is forecast to produce more foreclosures that 2010; with approximately,250,000 properties being foreclosed.  The result may be a double dip in sales prices and declining values. In light of this 2011 should also bring out many would be purchasers who have been trying to time the market; hoping to capitalize on continuing historically low interest rates and a true bottoming of prices.  After 2011 we should see a decrease in the number of foreclosures hitting the market and as a result increasing sales prices and values.

Robo Signers for Foreclosure Proceedings

2010 also revealed how overwhelming the sheer volume of foreclosure is on our nation’s lenders and mortgage servicers.  Faced with mounting case of defaulted loans and the need to work them through the foreclose process; which by the way differs from state to sate, many lenders failed to execute the foreclosure process according to the rights and responsibilities set forth in the notes  and security deeds, and according to individual requirements of each state.  Much of this was also a result of the way mortgages are traded, serviced and hypothesized in the open Market.

2011 should result lenders paying closer attention to all governing documents and statutes, as they experience an increasing number of law suits resulting from their mechanized approach to processing foreclosures.

Record Low Interest Rates

2011 from all indications and from those far more equipped than I to forecast interest rate trends, seems to suggest that we will enjoy historically low interest rates for a while longer, but not forever.  This coupled with a bottoming of prices should be the catalyst for many waiting buyers to make buying decisions this year.

Increasing Number of Short Sales

2011 will also a year that we will see an increasing number of Short Sales hitting the market.  On the surface this seems like a bad thing, but it may have some positive effects.  First Short Sales are often time occupied by the owner, which means that the house has not sat empty for moths while a foreclosure is processed.  It may also mean that the property because the owner continues to live in it may be in much better condition than a foreclosure.  Often times this will result in a higher sales prices that a foreclosure would yield; thereby reducing the number of homes that sell at foreclosure prices.