The White House, DC

Have we been in a crumbling economy in the last few years? What about a crumbling real estate economy in the last 2 years?

In my opinion, I would say yes to both questions.

In some cases, do we have too much government prevention or regulation at times? Jason Crouch wrote an excellent article the other day :

Is Congress Working to Create Yet Another Potential Hurdle to Real Estate Recovery?

In this post, Jason makes a great point about how the government seems to intervene and over regulate, thinking that it will help our economy and potentially our real estate economy. So what is it that Jason brings up and what the government wants to try now? It's eliminating the YSP, which is called yield spread premium.

I wanted to write this post because there was so much information being tossed around that was misleading when it comes to who the government is trying to shut out with eliminating YSP and the fact that a lender could just add more costs.

This post might seem boring, but if you read Jason's post, this could open your eyes even further. If you haven't read his post, please read it before you read this one.

Let's first define YSP - Yield Spread Premium as defined by wikipedia - A “yield spread premium” (YSP) is the money or rebate paid to a mortgage broker for giving a borrower a higher interest rate on a loan in exchange for lower up front costs... This “may [be used to] wipe out or offset other loan costs,..... The YSP is derived through the realization of a market 'price' for a loan that is above 100%.

Myths and Misconceptions about Yield Spread Premiums -YSP-

Major misconception - Congress in the last year has gone after YSP in general, and not just those brokers. Yes, this was true in previous years that the mortgage brokers were the main target by the larger banks, but their focus has changed 100%.

Mortgage Brokers aren't the only ones that receive yield spread premiums. Mortgage Bankers receive the same. The difference is that the mortgage broker has to disclose the YSP that they make on each loan and the mortgage banker doesn't. There are a few different types of mortgage bankers. Two examples :

Infinity Home Mortgage Company, a company where I work, we underwrite our own loans and close them in our name. But we sell the loan on the secondary market.

Mortgage companies such as Wells Fargo or Bank of America do the same as we do, except that they service their own loans. But no matter who you use, we all still have to abide by the same regular guidelines that are set out for such types of loans as FHA loans, conventional loans, VA loans, and USDA loans.

Overall, the yield spread premium (YSP) is based on how the pricing is mandated through the investors on Wall Street who sell pools of loans. Each of these pools are sold as being securitized on the secondary market. All it comes down to is who wants to sell what rate at what price or profit margin to the originating mortgage company, no matter if they are a broker or banker.

The bottom line, the higher the interest rate, the higher the rebate that the lender will receive for such mortgage interest rate. And let's not confuse this with SRP's, which are called service release premiums that banks and brokers also receive.

Misconceptions on the fact that lenders could just charge more fees

Another misconception that I read in Jason's post and in many of the comments was that if the mortgage broker or the mortgage banker couldn't charge the yield spread premium, that they would just raise the costs of the loan. Which would mean to add more lender fees and or points. This might sound good in theory and could happen, but depending on the State or the loan amount, that lender might not be able to add more costs. Or in some cases, refuse lending to that specific person based on the loan amount.

What I am talking about is what is called a high cost loan. There is a term, section 32 loans, which stated that any loan that resulted in anything over 7.99 percent in fees and costs to the borrower, that this was illegal. In the last 7 years or so, many states have reduced this on a state level and not on a federal level. Let me explain further.

In the state of New Jersey, our high cost is considered anything over 4.25 percent in total lender fees or costs. In other states such as Florida (5.00%), Pennsylvania (5.00%), and Georgia (4.99%), you can see that it varies and is much lower than the Federal Government's definition of High Cost loans.

One thing that many of you must realize is that there are some other fees that are associated with my percentage when it comes to high cost loans. Two fees that jump out are settlement/closing fees and any lawyer fees. So it's just not fees charged by the lender.

Summary : So how can this change on how some mortgages could possibly be refused to certain borrowers? Let's safely assume that every lender has a $4,500 profit margin on every loan, and this is to include all lender fees that are associated with mortgage financing.

Example : A borrower trying to obtain a $100,000 mortgage as opposed to a $300,000 mortgage.

If my high cost is 5%, that means that I can't make more than 5%, to include the closing fee associated with the title company and or a lawyer's fee. Let's say the lawyer's fee was $500. So in this example, if I was getting an additional 1 point, aka YSP, for an interest rate of 5.5%, which would keep the borrower's cost down, I would now have to charge this additional 1 point. But wait, my high cost is 5%, so that means I can't charge anything extra without going over the mandated high cost of 5%. Hey, good for the borrower, because they might get a cheaper mortgage. But what happens if the mortgage profits are driven down far enough to where it doesn't make sense for that lender to even do the deal. Then what happens to the borrower? No financing options? Maybe so....

If the government steps in and regulates YSP, as Jason stated in his post, this could have another major affect on our housing economy and on our economy in general.

Your thoughts?

___________________________________________________________________________________________________

FOLLOW ME ON FACEBOOK

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages -

- Conventional Loans - 203 k loans -

- FHA Home Loans - Mortgages -

Experience & Knowledge at its BEST !!!

___________________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc

FHA LOANS need to go !!!!

FHA loans need to go.... so many defaults... GROWING by the thousands. If we don't kill FHA mortgages now, the economy will crumble. Sound confusing?

Okay Jeff, have you flipped your lid? NOPE - I had written this blog last week, FHA loan rumors have become a reality. Because of this post, I have seen a few comments stating that we need to abolish FHA loans. Here are some comments in regards to these FHA changes in general...

"The FHA is basically bankrupt since they haven't figured out that making loans to people with lots of debt and practically no money isn't such a good idea."

"What continues to frustrate me is that all these government bank bailouts, loan purchasing, Fannie Mae and Freddie Mac guarantees, FHA expansion, tax credits, etc. are doing nothing more than temporarily artificially propping up the real estate market. The government cannot continue with these policies and the result will be another drop when they stop."

"When just putting 3.5% down, the borrower is already underwater from day 1, because it costs more than 3.5% to sell a home. This does not factor well in a declining market. Homes purchased with FHA mortgages will experience lots of foreclosures and short sales. FHA loans need to be abolished."

"Sounds like FHA doesn't want to loan money because of these changes."

First off, I agree that we need to stop artificially stimulating the economy. I wrote about it here : The Welfare Mentality of the Tax Credit We could spend a whole day just on this topic alone. But let's dig deeper in the comment that we should abolish FHA loans and to why we need to understand FHA and review some facts, not opinions of fear.

Quick History Lesson :

FHA was established in 1934. (directly from wikipedia) "The goals of this organization are: to improve housing standards and conditions; to provide an adequate home financing system through insurance of mortgage loans; and to stabilize the mortgage market."

Please read the rest of this, FHA being born, and how banks restructured loans and why FHA was brought into the mix after the banking system failed during the Great Depression.

The Economy has been crumbling.

Sorry people for negative news, but this is a reality. If we ABOLISH FHA LOANS, what do you think will happen?

Let's look at why some say we need to kick loose FHA mortgages.

• Thousands of more FHA defaults in the last year.

• Thousands of more homes with FHA loans have defaulted.
  

Let me ask you all this question... FHA has been doing pretty well up until the last 3 years. hhhhmmm.. just about the same time when the economy started crashing. Think about this before pointing fingers.

Now, let’s look at the reasons to why this might be happening more, why FHA loans are defaulting at a much higher rate than ever before.

• FHA Market Share - FHA has gone from about a 14% market share 5 years ago to about 40% just in the last year. This alone should be a no brainer to why we have see so many more defaults and foreclosures, especially in one of the worst and most challenging economic eras ever.
  

• Subprime loans disappearing - When subprime loans basically left the mortgage market 3 years ago, the next thing in line was FHA loans. How many times did you see a realtor or loan officer write that FHA loans are the next Subprime loans? Rut row...

• Fraud - With many of these loan officers that focused on Subprime loans, some that pushed the envelope by committing fraud, this moved in the FHA sector. I have even heard loan officers before say that they placed a borrower in a subprime loan over FHA because it was easier for them, not the borrower.

• FHA DE Underwriters - Delegated Underwriters that can approve FHA loans have grown by an astounding number in the last 3 years. We have seen this number multiply 4 times over. This means many new underwriters that have no experience or the knowledge, make more mistakes, and who have their owners pushing them to make more loans at times. Yes, this happens. HUD needs to crack down on such lenders. Brian Anderson wrote about this : HUD terminates 3 lenders ability to originate FHA Loans
  

Summary : I am not a big fan of government bailout. But there are times that we need to do this. What Mr. Bernanke did in the 3rd quarter probably saved our economy from a true collapse. (If I could interview Mr. Bernanke)

Overall, yes, I partially blame HUD for allowing some of this to happen when it comes to the FHA capital reserves falling below their 2% cushion. You can't tell me that they saw this coming over a year ago? Why wait to the last minute? Maybe because the government doesn't want to cast fear so early, because we like to curb all negative news and fears, giving the general public a sense of security. But what about one of the biggest issues, to why even FHA loans are taking a major hit.

How about the ECONOMY in general. How about UNEMPLOYMENT. Isn't this affecting all mortgages?

Shouldn't this be taken into account to why we have so many FHA defaults? Sure, I think HUD needs to make some changes, which has happened. I wrote about it here. New FHA changes & the Mortgagee Letter - Make your VOICE heard. But we can also let our voice be heard in regards to some of these changes, so please read my blog post.

The ending result? We need FHA loans… if we take this away, the REAL ESTATE MARKET will crumble and might not exist.

For those that might be semi lost on my opening statement.. I NEVER think that FHA loans should be abolished. I was trying to get my point across to what others have been saying. My beginning statement was an attention catcher.

thanks

Ken Cook wrote this post - Dispelling Myths about FHA mortgages - Please read the 3rd paragraph about default rates.

Is Fannie Mae & Freddie Mac on Death Row? by Esko Kiuru - We need to pay attention to what is going on around us...

FOLLOW ME ON FACEBOOK

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages -

- Conventional Loans - 203 k loans -

- Mortgages -

Experience & Knowledge at its BEST !!!

_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc

How have I gone all this time without doing a post about this Virginia couple's 15 minutes of fame.

Yes, I'm talking about Michaele and Tareq Salahi, the Virginia couple who allegedly crashed the state dinner to honor the Indian Prime Minister, Manmohan Singh. And they both looked pretty stunning. She wore a gorgeous red and gold lehenga, and he was quite dashing in his formal black tie get up. They totally looked like they belonged there.

They managed to work their way past the Secret Service and rub elbows with bunches of people in high places who'd actually been invited to the event.

They attended the cocktail reception and had photos taken with President Obama, Vice President Biden, our very cool mayor, Adrian Fenty and his wife Michelle, Katie Couric and some other famous Americans. Then, after making their way into the tent where the sit down dinner was about to be served (and where, of course, there were no seats for them), they discretely left.

When you do something like this and get caught, every tacky thing you've ever done in your entire life comes to light.

• Michaele reportedly ticked off Donald Trump by falsely claiming to be a former Miss USA.
• When the Tariq’s got married, the woman who owns the shop where she bought her beautiful designer wedding gown alleges she got stiffed by the couple.
• The Washington Post reported that Michaele started to practice her party crashing skills a couple of months ago when she showed up at a gathering of ex-Redskinettes, the cheerleaders who root the home team on and perform at half time. She was busted when she was unable to do even the most basic cheering routines, and someone checked her credentials. Oops.
• Someone in Maryland is suing them over an alleged $13,000 bounced check for booze they served at a Montgomery County polo match. They are really into polo.
  
• They allegedly tried to stiff their gardener, who took them to court in Virginia. Tareq had to turn over his Patek Phillipe watch to settle the debt. Hope it was real and not a knock off.

Since the incident, there have been big time inquiries about how they could have breezed their way past the Secret Service - the White House's formidable gate keepers. But there was one invitation they declined. The couple did not appear, as requested, at a Congressional investigation. And there are questions about whether or not they actually did anything illegal.

As this goofy tale of chutzpa plays itself out, I do hope the White House and Secret Service work things out so our president is really protected. The Salahis might have done us all a favor by showing how much we need to tighten up access.

Just before 6:00 pm this evening, President Obama will be flipping the switch which will light up the National Christmas Tree (a 42 ft Colorado Spruce) located on the Ellipse south White House grounds. Watch a live webcast at:

http://www.thenationaltree.org/tree-lighting/

(The actual ceremony began at 5:00 pm)

The Entertainment Line up this evening includes:

Jordin Sparks, Sheryl Crow, Common, Ray LaMontagne, Joshua Redman, Brad Mehldau, and the "Celtic Woman"

This evening's event marks the beginning of the 4 week event sponsored by National Park Service and National Park Foundation.

Other events in the surrounding include:

1. National Christmas Tree Railroad - which runs from 11 AM to 11 PM daily until New Years Day.

2. Santa's Workshop Display

3. Christmas Pathway of Peace - in addition to the National Tree there are another 56 trees, featuring one for each state, District of Columbia and 5 territories. All trees will be lit at dusk.

4. National Christmas Tree Nightly Performances - held nightly on the Ellipse stage from 6-8 pm during the week, and 4-8:30 pm on the weekend.

This years National Christmas tree is the most energy efficient in history, consuming about 6,000 watts compared to last year's 18,000 watts.

A quick question for all of you:

If you were to choose a different profession, what would it be?

I have a huge interest in journalism, so I'd like to be a reporter. Specifically, I'd like to be a political reporter............covering the White House. ( www.whitehouse.gov ) Now, THAT would be interesting! The election results are fascinating this evening, don't you think?

How about you? What do you want to be when you grow up????